29 Jun 2016

Future Shape and Financing of Network Rail; What Next for Network Rail?

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Top table breakfasts with Nicola Shaw and Sir Peter Hendy

On 28 April 2016, Stephenson Harwood and Atkins hosted a top table breakfast with Nicola Shaw. Nicola outlined the main themes from her recently published Shaw Report and identified where she saw the key challenges for Network Rail and the industry.

On 21 June 2016, we then hosted a further breakfast with Sir Peter Hendy – asking what is next for Network Rail following the Shaw, Hendy and Bowe reports into the organisation. Sir Peter spoke about practical steps for implementing the recommendations of the Shaw Report, and where opportunities lie.

This article summarises the main themes from those two breakfast events. We were pleased that there seemed to be a consensus across the industry as to where improvements need to be made and a real willingness to move from debate to action and implementation.

Thank you to everyone who attended and contributed to the discussions.
   
Nicola Shaw Breakfast

  1. Move from debate to implementation -  the Shaw Report should not be left on the shelf:
     
    (a) collectively – the industry needs to work together to take the recommendations of the report and make them a reality; and
      
    (b) individually – we all need to look at our own organisations and work out what we can do to make the necessary changes.
     
  2. Customer -  the industry needs the train operators, freight operators and suppliers to work together with Network Rail, to let Network Rail know what the problems are and how to fix them:
     
    (a) there may need to be trade-offs to reach a long term solution. We may not be able to agree a position where all incentives are aligned;
     
    (b) regional boards should be established involving TOC and FOC voices alongside the Network Rail routes;
     
    (c) secondments should be encouraged from train operations into the routes and vice versa – so that each party learns from the other;
     
    (d) we need to celebrate successes more and not just focus on where things are not working as they should; and
     
    (e) "glacial" planning processes need to be speeded up. If something is a good idea and gives real customer benefits, let's bring them in as soon as possible. This is especially important where franchise periods are short.
      
  3. Devolution -  the funding will now go into the Network Rail routes, with routes deciding what is paid into the centre (which will be much smaller):
     
    (a) this will take time to achieve – structuring should not be done suddenly, but with time taken to achieve an optimal position. We should be impatient for change, but patient enough to change in the right way;
     
    (b) regulatory reviews should be undertaken at route level so that there are comparisons across the industry. We need to build capability within the ORR to support this structure and understanding of the engineering as well as the economics of being an infrastructure manager;
     
    (c) there needs to be a reduction in the ability of the centre to influence, second guess or overrule what the routes are doing as this just undermines the devolved structure; and
     
    (d) route MDs need to be fully empowered and accountable. We need to know who to approach for a particular project or with a particular idea.
       
  4. Growth and investment -  the industry needs to expand to meet future demands as the population grows and the demand for the railway increases:
     
    (a) whilst the Shaw Report shied away from a concession of Network Rail, finding ways for third parties to invest in the network can be achieved – starting small;
        
    (b) Network Rail is moving away from pure government funding and we all need to find alternatives which deliver true customer benefits;
      
    (c) there could be a concession of part of Network Rail in the future – but the design will need to be carefully thought through and it will need to be flexible; and
       
    (d) there are many investment opportunities. Involving the private sector could improve time, cost and quality – but changes may need to be made to achieve this. Simplifying structures and regulation is a start.
         
  5. Diversity, Skills and Supply Chain -  there is competition across the whole economy for diversity and skills:

    (a) the railway industry needs to work out how it can attract and retain the right people;

    (b) we need to nurture and encourage leaders – these people do not need to come from the railway industry. Is there a need for a high profile figure head/celebrity to be the voice of the industry and the 'Skills Champion'? If so, who would it be?; and

    (c) there are groups already established such as 'Women in Rail' and the 'Young Rail Professionals' looking into these areas. Let's work with them to encourage their processes, but also use that to inspire our companies.  
       

Sir Peter Hendy Breakfast  

  1. Building confidence in the railway industry -  there is a real need to meaningfully change the image of the industry:
        
    (a) as an industry, we need to shout about our successes rather than letting the whole story be about when things go wrong;
     
    (b) the nature of large railway industry projects is that they are at risk of being delivered over budget and late – but they also usually deliver far more than was ever anticipated, and this part of the message consistently gets lost; and
      
    (c) our railway infrastructure is notably better than that of many of our geographic neighbours. Sir Peter questioned whether we would have much to learn from Europe in terms of their cost or organisational structures, given that it is the UK whose railways are internationally renowned.
       
  2. Working in partnership -  the need to collaborate and work together to achieve a common goal:
      
    (a) for truly positive working relationships, it is also important to meet in informal, social settings;
       
    (b) there are significant benefits to adopting third party funding. Sir Peter referred to a belief that private investment drives innovation, and that it should be encouraged – whether on a national or regional basis. Attendees warned of the importance of clear objectives and deliverables being agreed from the outset; and
        
    (c) for devolution to be truly effective, it is essential that the industry, financiers and local councils work collaboratively. A council which demands the electrification of its railways, without being prepared to invest, has an unreasonable expectation – particularly if the improvement will bring benefits to its region.
          
  3. Tackling diversity in the industry - a combination of widening the pool of people interested in entering the industry, and of supporting a more diverse management structure is needed:
       
    (a) devolution is a key aspect of this, with the hope being shared by many that this would encourage interest in the industry from people living across the country;
      
    (b) attendees suggested that key suppliers to Network Rail could be asked to publish their diversity statistics, including any pay disparity, with a view to committing to clear targets set over a defined period;
       
    (c) attendees freely recognised that there can be a lack of commercial acumen in the industry. It was suggested that attracting people from a more diverse range of professional backgrounds could be part of the solution; and
        
    (d) feedback from attendees also supported the suggestion (raised at the Nicola Shaw breakfast) that a 'Skills Champion' be appointed, whose role it would be to inspire and attract talent to the industry. There were not, however, any suggestions as to who that person should be.
         
  4. Making railways attractive -  there is a need to make the attraction of the industry clear to all stakeholders:
       
    (a) employees and potential employees;
       
    (b) investors; and
       
    (c) government ministers.
          
  5. Driving innovation -  in a fast evolving industry, Sir Peter was clear that innovation plays a key role:
      
    (a) new technology creates many opportunities for innovation, and the industry must consider how best to implement and take advantage of these;
      
    (b) opportunities within the industry for innovative approaches are rife, and it is important that stakeholders take full advantage of these;
      
    (c) consideration was given to how the supply chain might support innovation and efficiency. It was suggested that devolution would likely prove helpful in reducing the length, and consequent inefficiencies of, the supply chain. Simplified structures, clear objectives and better, more open, dialogue were key; and
       
    (d) devolution has a host of potential benefits and was compared to an iPhone: we didn't know we wanted one until we had one, and now we can't imagine life without one. The same will be true of devolution – once the true benefits are revealed, we won't know how we managed without it.

 
A final thought on Brexit:
These discussions were held before the EU referendum on 23 June. What is clear is that we face uncertain and challenging times ahead and the railway industry will be no different. The industry needs to evolve and change to ensure that it continues to enjoy the focus and investment of recent years, particularly where finances are likely to be stretched. The suggestion given by the Shaw Report and by Sir Peter Hendy will assist in modernising and refreshing the industry which may be helpful in the post-Brexit world.

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