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How opening up the enhancements market can cut costs and support devolution
30 August 2019
A fundamental goal for the UK’s railways must be to get the cost of the network down to a more efficient and sustainable level. Better cost efficiency is the most fundamental requirement for getting fares to a level that passengers can accept, and indeed for controlling the cost burden faced by taxpayers. Ensuring cost efficiency is therefore essential for restoring public trust in their railways.
At Nichols, where I am an advisor, our work over the years has allowed us to conclude that these goals can only be met by opening up the enhancements market and allowing greater competition to empower regional authorities and force innovation and efficiency from the supply chain. The following three ingredients are critical.
First, is the need to be very clear about project risks and where they lie, this will enable innovation rather than it being stifled by clients who desire too much control or ‘gold-plated’ engineering standards. A lack of clarity about who owns the primary risk will often result in higher costs.
Second, collaboration must be driven and demanded by the client. At Nichols, we believe the best projects are those where a client is open to new ideas, engineering standards and technology, and allows their supply chain to innovate within that climate.
Finally, the alignment of objectives between the client, the delivery organisation and its supply base. The most impressive examples I have seen are the Australian alliance solutions, which have been used with great success in the UK on the Stafford Bypass project. For this project, Network Rail had a designer, a railway systems supplier and a civil contractor all in one contract. The contract prevented cross claims and incentivised a successful outcome. The cost savings of this were extraordinary – with the project coming in at £250m against an original estimate of nearly £1bn.
Taken together, the above approaches will have significant cost and performance benefits, they will also help support the goal of a more devolved network, which represents one of the most important opportunities to drive a better railway: one that is closer to the needs to local people and meets the needs of local stakeholders.
Understandably much of the recent debate on the future of Britain’s railways has been about franchising and passenger service models. But as the above shows, if we really want to get to the root of what will deliver a better railway, we need also to look at fundamental issues like contestability in the enhancements market that can unlock significant efficiencies and create the environment within which beneficial reforms such as devolution stand a better chance of thriving.
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