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Keeping UK high-speed rail on track Michelle Craven-Faulkner is a partner and rail lead at Shoosmiths looks at how the industry could change between now and the opening of HS2
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ver 110 miles of new highspeed rail is set to be built following the publication of the government’s Integrated Rail Plan (IRP). However, while the IRP confirms the vision for the UK highspeed rail network (HS2), after eleven years in the offing, the current landscape for the rail sector couldn’t be more uncertain. Rail operators, rolling stock companies and the supply chain are facing significant shocks, both financially, but also in terms of disruption to their everyday operations. In my 23-years operating in the rail industry, I have never seen an outlook like this. The war in Ukraine, ongoing impact of Covid-19 and resulting inflation are leading to major availability issues and price increases. This situation isn’t exclusive to the UK, or even the rail industry. However, it is important to remember that parts of the sector are yet to recover from the reduced, at times non-existent, rail use seen throughout the pandemic. The advent of Great British Railways (GBR) and its control over how trains are run means that this part of the industry will be in effect government-backed. While operators will benefit from being paid a fixed fee for running services, the UK rail supply chain – and beating heart of the industry – is battling most of the current headwinds alone. As a result, large and smaller businesses supplying into the rail industry are finding themselves in situations where contracts that at the time of tendering were viable, are now becoming commercially unsustainable due to increasing costs and material shortages. This leaves businesses in the supply chain with limited options: risking their stability and continuing to deliver contracts, backing out of agreements with the risk of legal action or in certain circumstances, exiting the market entirely. We cannot afford for the UK rail supply chain to collapse. This would have disastrous economic implications, while also bringing the delivery of UK high-speed rail into
question. So, with the financial landscape only likely to worsen and inflation projected to hit double-digits, how can the rail supply chain remain intact and ready to not only keep the industry operating, but also able to support the delivery of a huge infrastructure project like HS2? Contracts The first consideration for businesses within the rail supply chain must be their contracts. This includes existing agreements and also any upcoming tendering opportunities. For existing contracts, it is critical that suppliers and customers are having commercial discussions that are focused on the changing operating and economic environment and how this is impacting the delivery of products or services. Suppliers shouldn’t be scared of being transparent when it comes to these discussions, as either party can only help to find a solution when they know there is an issue. There will be situations where suppliers into the rail industry are on fixed-price contracts. This can make negotiating factors such as costs difficult. However, customers should remember that finding a new supplier is not always easy, or cheaper, therefore forcing an existing partner to either exit a contract or fail trying to deliver it may be unwise.
Communication is as equally important in the tender stage. Genuine and lawful pre-bid discussions can help the customer understand what challenges suppliers are currently facing, ahead of then shaping the tender requirements accordingly. Alongside wider due-diligence, suppliers can use this to build up a picture of whether anything can be done to revisit terms, either before or after, a formal contract is entered. The aim of these discussions, either pre-contract or during the delivery of works, is also to foster collaboration between suppliers and customers. It is by working together that both parties can look to find a solution to current challenges – for example, agreeing on a seven per cent rise in costs, compared to a twelve per cent increase should a customer have to look for a new supplier. While no silver bullet for some of the challenges the rail sector is facing, making sure existing contracts remain viable, and avoiding taking on work that is, or could become commercially unsustainable is a good first step to stabilising the rail supply chain. Pipeline Some 950 days have now passed since the government last published its rail network enhancements pipeline (RNEP). Without the RNEP, the industry remains in the dark Rail Professional
