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UK brings infrastructure maintenance back in-house

01 Jun 2004

INTRO: When Railtrack contracted out maintenance of its network in 1995 a 30% cost reduction was expected, but by 2003-04 it was 50% higher in real terms. Network Rail Deputy Chief Executive Iain Coucher explained to Richard Hope what went wrong, and why Railtrack's successor decided that employing its own workforce directly would cut the cost by around 30%

ON OCTOBER 24 2003 Network Rail announced that it was rejecting a major principle adopted when Railtrack was separated from British Rail in 1994. To introduce competition and thus reduce costs, all physical work on the infrastructure along with most engineering had been contracted out. Now it is coming back. The process of transferring some 16500 staff from the contractors to NR commenced on a partial basis in June 2003, and the target date for the last contracts to end is July 24.

British Rail's separate organisations responsible for maintaining track and structures, signalling and electrification were bundled for sale into seven BR Infrastructure Services units. Their work was then subdivided into 35 geographical contracts, which were awarded to the six contracting companies that bought the BRIS maintenance units. These RT1A contracts were signed in September 1995 after most staff had already been transferred out of BR.

Track renewal contracts were awarded separately, and NR intends to continue this practice. Indeed, a new round of contracts lasting five years was completed in April (RG 5.04 p258).

The trouble was that BR's systems for managing maintenance, and most engineering records, were passed to the contractors. Railtrack retained minimal engineering expertise because it was assumed that the contractors would take most decisions, monitor their own work, and deliver on broad output specifications such as performance expressed in terms of minutes of delay to trains.

Responsibility for reversing this process and creating a completely new maintenance organisation numbering over 17000 people lies with NR's Deputy Chief Executive Iain Coucher, who assumed his present position and responsibilities when Railtrack's year in administration ended in October 2002.

Asked what was wrong with the RT1A contracts, Coucher replies 'clearly, all the things that we tried to correct in subsequent versions of the contracts, IMC2 [1999], IMC2000 [2000], the New Maintenance Programme [2003], were attempts to claw that back. So what we were trying to do was very much to try and get back in charge of decision-making.'

Where it went wrong

'I am not sure that the railway lends itself to output-based specifications, which give people the freedom to decide how to do it and when they're going to do it. It makes it very difficult to change something if you are not quite sure what people are doing out in the field.'

Another problem, says Coucher, was that 'at privatisation, of the three types of activity that you get on infrastructure - maintenance, renewal and life-extension work or heavy maintenance - the last one was sort of missed off. They left a gap in what was the old life-extension group.' The result was that the maintenance contractor on an RT1A lump-sum contract would say 'it's too old now to maintain, you should renew it', while Railtrack's people were saying 'no, it can be maintained' without knowing what the condition really was.

To meet Railtrack's assumption that private contractors could cut costs by 30%, the lump-sum RT1A contracts had a built-in deflator, so the price that Railtrack paid was always going to come down and it looked as if they were making significant savings.

But as Coucher points out, 'towards the back end of the contracts round about 1997-98, it was quite apparent that the contractors were losing money. They tried to take as much out through labour as they possibly could, and it was beginning to creak at the seams. The collective headcount at the start of privatisation was about 18000, and by 1999 they had cut that back to about 12000.

'What has happened since is, gradually over time, they have had to put them all back. So we lost a large amount of experience out of maintenance, and there was a corporate memory loss going on out there which didn't help.'

Cost up, performance down

'Then you get to the second round of contracts around 1999-2000 and the prices suddenly jumped.' Coucher says two things happened at this point. 'It was the first opportunity for five years for the contractors to re-base their bids on historic cost data', so they priced up 'and that shook Railtrack'. Secondly, 'the Rail Regulator decided to double the penalty regime.'

In many instances, Railtrack said 'we can't afford that! We will swap these contracts for a cost-plus arrangement, and we will manage the penalty risk. So it's at that point you start to see very significant increases in cost as new contracts were let over 18 months, because the discipline of the lump-sum arrangements had gone.' Coucher also notes that in summer 2000 'suddenly you see a decline in performance, because there was no longer any incentive for the contractors to get out there and maintain it.'

Another problem introduced at that stage was that every contract was renegotiated locally by the regions, 'so you ended up with a large amount of variations. Some were cost-plus, some had special performance regimes - it was a real mess. I think most of the regions picked up the old contracts, modified them, and then allowed local variations.'

Hatfield trauma

Then came the Hatfield derailment in October 2000, which revealed that gauge corner cracking was widespread, and timetables collapsed as hundreds of speed restrictions were applied. Coucher believes 'most organisations were stunned and shocked'.

One consequence was that 'inspection frequencies went up, records were improved' and there was 'a massive overhaul of the actual quality of the network at that point, leading inevitably to a massive increase in costs.'

Railtrack was put into administration in October 2001, but costs continued to rise. Coucher was one of the team that created Network Rail, which took over the failed company in October 2002.

'When I got here, there was a difference of opinion as to how the proposed New Maintenance Programme should be implemented - with a soft or hard touch on the contractors, in particular.' NMP had emerged from a fundamental review of maintenance after Hatfield, and was in essence all about taking back control from contractors.

'So we picked some things we thought would work and would give NR the information it required, still leaving inspection regimes with the contractor. Routine maintenance and defect corrections would be done by the contractor. We would take the principal decisions over what should be renewed or not, and prioritise the work.'

At that point, Coucher recalls, 'we felt that a mixture of 15 contract areas using the NMP combined with three Direct Maintenance organisations was the way forward.' DM meant employing and managing the workforce directly, 'which would give us the information that we wanted about costs and how to do things more efficiently, enabling us to get under the skin of the entire operation.

'This was the final attempt to make contracting of maintenance work', and Coucher admits that 'the NMP in East Anglia is working very successfully. Performance has been outstanding, and there has been real recovery in overall asset condition. So NMP did work, but has been superseded by events elsewhere.'

Direct maintenance wins out

At the same time as over 400 Amey employees in the first DM contract area based on Reading had been transferred to NR in June 2003, Coucher and his team 'were working very hard on how we were going to drive real costs out of this business.' Their firm conclusion was that 'if you want to drive costs out of the maintenance business you have got to standardise, automate, and have a much more flexible workforce - we needed direct control of all parts of operations and maintenance.

'We made up teams of people looking at that, and how to do each individual standard process more efficiently. That led into work management systems, network management centres, standard systems and ways of doing things - and then optimise, optimise. We would never have been able to do that without direct control.'

Coucher insists that 'it wasn't a knee-jerk reaction on the back of something else; it was a well thought-out strategic decision and a first class piece of analysis.'

Before the decision could be announced on October 24, Jarvis voluntarily decided to hand back its three maintenance contracts. This was announced on October 10, and 3250 staff duly transferred to NR on April 1 2004. Coucher says Stock Exchange rules on disclosure prevented NR from telling Jarvis that it would have happened anyway, 'so when Jarvis came to us two weeks early we were able to simply say yes, well, that's fine.'

As previously planned, Wessex area transferred to DM in November and East Midlands in January, so at the beginning of May maintenance on 43% of the network was directly managed by NR. 'In the last six months, all of the hard work we've been putting in over 18 months really started to bear fruit.'

Early results promising

Coucher reports that 'performance has been outstanding, the basic programmes that we had have been very successful, and we're pleased about that. The 24 weeks to March 31 showed a 38% reduction in delay-minutes on the previous year. This compares with an improvement by the rest of the organisation which is 19% to 21%, so Reading is about twice as good. Not all of that is due to in-house maintenance, but undoubtedly it's been better.

'It's early days, but we are seeing a similar thing on Wessex. I was with the East Midlands team yesterday [April 22], and they say it's just so much easier. They are co-located, they talk together, they plan together, they share problems together, they fix problems together, and they just get on and do it. The contractual barriers fall away, they are now all on the same side and they just get it fixed. It has been hugely rewarding and satisfying.'

Another four of the 20 contract areas were due to transfer on May 29, with three small ones based on Bristol, Gloucester and Exeter being merged into one. Another two (in Scotland) should come in on June 26 and the rest on July 24, if all goes to plan. The total workforce transferred is expected to number 16500.

In addition, Coucher says NR has got a national maintenance organisation numbering 792, which is there partly to provide an organisational hierarchy. But their principal focus is 'how do we achieve our goals of standardisation, efficiency, optimisation, automation? There's a big push in that area.'

All along, Railtrack and then NR have employed the signallers and traffic controllers who manage day-to-day operations. The new structure put in place between April and June 2003 created 18 Area Delivery Groups each headed by a General Manager responsible typically for betwen 600 and 1200 maintenance people and 200 support staff. In addition, each area will have 500 to 600 signallers reporting to the route operating businesses.

Coucher stresses that 'although the maintenance organisation will report separately through Richard Fenney, who reports directly to me, it has been very important to make sure that we get local managers coming together if the areas are to work. Each General Manager will set priorities and make day-to-day decisions so that we get performance up in that area. The maintenance organisation that sits above them is all about driving standardisation and efficiency.'

Every area will have engineering resources for the various disciplines, and they will each have a professional reporting line into the central maintenance organisation. Coucher stresses that 'we have spent a huge amount of time templating the new maintenance organisation. Every single job has been looked at. We have re-written every single job description. I personally read every one - it drove me crazy, but it was the only way that I felt I was able to assure myself that everything had been looked at.

'We have got a very comprehensive review process involving HM Railway Inspectorate to validate this organisation. It has been well thought through, and I don't think people have really understood the enormity of what we are doing in such a short space of time.

'We are bringing to a conclusion 20 contracts involving 16500 people from seven contractors into a single organisation, and redesigning that organisation in nine months. I can't think of another company that has tried to do so much so quickly - it's a big challenge.'

For now, most on-track or road/rail maintenance vehicles are still owned by the contractors, Coucher explains. 'What we've done in the first instance is let a year's worth of contracts taking us to April 2005 to maintain the yellow plant. That's just a call-off arrangement with all the contractors while we buy some time.

'The long-term plan is that we will continue to hire plant from outside as long as we can get competitive rates. We don't want to get a situation where there is a duplicated set of heavy plant used for maintenance and renewals. Inevitably there will be some bits that we buy. We own the Stoneblower fleet, for example, although it's maintained by Balfour Beatty.'

Cutting costs

In addition to improving performance, cutting costs is a major objective for NR and the government, which has seen expenditure rise in the last four years.

Coucher told his board in summer 2003 'I will get Operations and Maintenance down to £1bn each in three years, about 20%.' The Regulator went further, saying that over five years it should actually come down by 31%. 'Well, I think the right answer is 28%, but it is pretty close so we agreed with the Regulator a degree of efficiency that could do that. We have a plan now which demonstrates how to get 14% out of the cost base in three years, and I have another team looking at initiatives that will drive out the other 6%.

'Taking maintenance in-house will save profits and overheads and insurance. We don't need the number of agency people providing short-term labour. All that type of stuff is there to be taken out. I'm feeling very confident about being able to build upon the 14% we've identified and achieve the 30%.'

Summing up, Coucher feels that the whole exercise 'has really been quite refreshing, and I'm hugely buoyed up with it. We made the right decision. It was a very tough decision to make. It will take some time to get the full benefits, and it's an exciting time.'

'One thing I'd like to say to an international audience: there is nothing wrong with the outsourced maintenance philosophy. I think that you have got to be very precise about how it can be delivered, and there needs to be a greater degree of input specification, and greater decision-making by the central company.

'And you should never outsource a broken problem and expect them to fix it on your behalf. You really should only get to a point of outsourcing something which you have got operating very smoothly, and you can hand it over to someone who can make it work even better, and they can bring technologies or economies of scale that you can't bring.'

Iain Coucher

Deputy Chief Executive, Network Rail

'It's just so much easier. They are co-located, they talk together, they plan together, they share problems together, they fix problems together, and they just get on and do it.'

Iain Coucher

Deputy Chief Executive, Network Rail

Two sides to the coin

One obvious danger when bringing a former contractor's staff in-house is that the contractor will naturally wish to hang on to his most competent engineers, managers and supervisors, perhaps transferring them to other work before the transfer actually takes place. Coucher was pleased to report that this had not happened.

'One of the beauties about this industry in which I'm privileged to work is the passion that people have for railways. They want to work for the railway. They don't want to go and work in Saudi Arabia, thank you very much. They have always wanted to work on railways and they will go where the work is.

'There has been some movement of people between the maintenance and renewal contractors, but when we transferred Reading all but one person came. Of the 3250 people from Jarvis, all but 14 joined us. So we are not losing people, and we are getting some talented and gifted people coming in. That is really quite refreshing.'

But at the more senior levels, there was some dismay at NR's decision. Peter Maddocks, now NR's Infrastructure Manager at Derby having transferred on January 31, told NR's staff newspaper Track Record that 'it was a major disappointment for the management team at Serco Rail Maintenance. Three years of commitment were finally delivering the maintenance results that everyone had worked so hard to provide.'

Norman Roberts, who managed maintenance contracts for Railtrack and Network Rail over many years, spoke with feeling to the Railway Civil Engineers' Association on February 26 about senior staff who had worked for British Rail before 1994.

'These are very capable and competent people who have spent 10 years trying very hard to make it work, and all of a sudden they find the client, perhaps, intends really to take that away. That must be a very bitter pill to swallow, and it must be difficult within the contractor's organisation to get to grips with it, to actually get their minds round the fact that it is happening.'

CAPTION: TOP: Critical to Network Rail's management of infrastructure condition is the 200 km/h New Measurement Train, which surveys all trunk routes every two weeks (RG 7.03 p441)

CAPTION: Whilst regular inspection and patrolling can be automated, there will always be a requirement for hands-on maintenance such as this Carillion team attending to pointwork at Westerfield, near Ipswich

CAPTION: Network Rail's new maintenance organisation must merge the company's existing engineering management team with managers and technicians transferred from six contractors responsible for 20 different areas

CAPTION: The New Measurement Train includes several advanced monitoring and simulation packages to predict vehicle performance against the measured track condition

CAPTION: For the next year, renewals contractors will continue to own and operate the bulk of the on-track plant until it can be split between maintenance and renewal work; Network Rail already owns a fleet of Stoneblowers and is taking delivery of its own grinding trains

CAPTION: ABOVE LEFT:The infrastructure maintenance contractors brought a degree of innovation, including this portable unit to test insulated block joints Photo: Carillion Rail

ABOVE RIGHT: One safety issue is the protection of staff using noisy equipment who may not be aware of approaching trains. This has led to an increased use of Red Zone working where tracks are closed to traffic Photo: Balfour Beatty/QAPhotos

UK brings infrastructure maintenance back in-houseAuthor

When Railtrack contracted out maintenance of its infrastructure in 1995, a 30% cost reduction was expected due the presumed efficiency of private companies. In reality, the £1·32bn bill for infrastructure maintenance in 2003-04 was 50% higher than 1995-96 in real terms. Deputy Chief Executive Iain Coucher explains what went wrong, and why Network Rail decided last year that employing directly its own maintenance workforce of 17000 would help to cut the cost to £0·9bn by 2008-09, a 31·8% reduction.

Le Royaume Uni ramène à la maison la maintenance de l'infrastructure

En 1995, quand Railtrack a confié par contrats la maintenance de l'infrastructure à des entreprises, on s'attendait à une réduction des coûts de l'ordre de 30% en raison de l'efficacité présumée des sociétés privées. En fait, la facture de 1·32milliards de livres pour l'entretien de l'infrastructure en 2003-04 était, réellement, 50% plus élevée qu'en 1995-96. Iain Coucher, le Directeur exécutif adjoint explique ce qui n'a pas fonctionné et pourquoi, l'an dernier, Network Rail a décidé que l'emploi direct de son propre personnel de maintenance, s'élevant à 17000 personnes, aiderait à réduire les coûts pour atteindre 900millions de livres en 2008-09, soit une réduction de 31·8%

Grossbritannien holt Infrastruktur-Unterhalt zurück

Als Railtrack 1995 den Infrastruktur-Unterhalt an Subunternehmer vergab wurde eine 30 prozentige Kostenreduktion erwartet, wegen der angenommenen besseren Effizienz von privaten Unternehmungen. Tatsächlich waren die Ausgaben für den Infrastruktur-Unterhalt mit 1·32Milliarden Pfund für das Jahr 2003-04 teuerungsbereinigt 50% h