High-Speed Rail

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

Over 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

about the timings of the rolling programme of investment, including for the new projects laid out in the IRP. This is resulting in some businesses holding back on investment or planning ahead for the future.

By publishing an updated RNEP, the government can provide clarity for the rail sector and those supplying into it. New jobs can be created, and investment made in talent, technology and machinery – boosting the innovation already seen across the industry.

Part of HS2’s vision was to tap into a rail supply chain for ‘their innovation, experience and ideas’ in order to ‘make this a world-class project’. If this is to be possible, the RNEP has to be published and businesses provided with the time and certainty to prepare.

Potential of Great British Railways The government has reportedly provided the rail industry with £16bn in support since the start of the pandemic. It is therefore understandable why it may be hesitant to provide further funding to the sector and its supply chain despite the current circumstances.

However, even if direct funding is off the table, the government must realise the predicament that businesses are finding themselves in and consider other ways it can support the rail industry. Publishing the RNEP is one method, but more has to be done. Great British Railways can be a key tool in this regard.

As covered in the Williams-Shapps. Plan for Rail, one aim of the GBR is ‘unleashing the private sector’s potential’. The plan references potential changes to overhauling contracts, while also creating new forms of competition, via ‘innovative systems with shared data’.

Any changes that support the rail industry and supply chain must come to fruition through GBR. The GBR could be utilised for example – subject to Competition and Markets Authority approval – for industry-wide purchasing and accelerating the procurement process.

The GBR also has the potential to shoulder a level of risk that most small and medium-sized businesses in the rail industry are unable to. While this risk will need to be managed correctly, if wielded strategically alongside its greater purchasing power, the GBR could substantially build on the £2.5 billion worth of contracts smaller private sector businesses are already delivering for UK railways.

It is this type of large-scale work that is critical to securing the rail supply chain. In its role of overseer, there is a question around how GBR will use the funds collected from fare revenue. By reinvesting some of this back into the industry, including into the supply chain, the GBR has an opportunity to create a landmark rail network for customers, but also an operating environment that promotes business innovation and success.

Acting now Though it may be over ten years until we see the first HS2 trains running on Phase One of the network, the journey to UK high speed rail has already begun. That is why it is critical that action is taken now to safeguard and support the supply chain and wider industry as it deals with current challenges, and those likely to emerge.

The launch of GBR in 2023 is a clear moment to bring about the reforms needed to support this aim. Until then, the government and those in the sector must continue to collaborate and proactively seek out ways to stabilise the supply chain – ensuring the rail industry can continue to operate, while keeping the UK’s plans for high-speed rail on track.

Michelle Craven-Faulkner is a partner and rail lead at Shoosmiths

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