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Engaging with the supply chain

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The railway industry’s suppliers were kept busy recently as two major organisations held their annual supplier conferences in the same week. Tuesday 14 October saw the major suppliers to Network Rail Infrastructure Projects gather at Westwood in Coventry. Eighty companies were represented as the management of Infrastructure Projects outlined their progress and aspirations for CP5 – six months in.

Safety and the digital railway

New managing director Francis Paonessa right started the day off. He began by reviewing where the company was coming from.

“We’ve come a long way from the dark days of the 80s and we’re now Europe’s safest railway,” he stated. “The Lifesaving Rules have now been refreshed and safe behaviour is a requirement for working for Network Rail.”

In fact, safety together with culture and leadership were the theme of Francis’ talk. He recounted an experience from his own earlier career when one of his colleagues had died while working in Greece, and how the whole experience had a permanent effect on him. That had been followed by an accident in which he was involved, leaving him hospitalised. So he has a personal interest in strong safety management.

Mark Southwell, head of the signalling programme, followed to introduce the audience to the digital railway. “For those of you who think it’s a technology project or programme – it isn’t,” was how he started. “It’s not even a Network Rail project – it’s everywhere on the railway. The technology is understood, it’s the business change that will be difficult. But the exciting part is that, when we deliver this, we will be leading the world.”

The digital railway will give more capacity, more reliability and be more cost-efficient than the current one. One of the benefits will be that large parts of the railway will be able to be operated bi-directionally at almost no extra cost. So, on a four-track railway leading into London, three can be used for inbound services in the morning rush hour and then the whole thing turned around so that three can be used for outbound traffic in the evening. Intriguing!

Commercial aspects

After that is was back to the more obvious topics for a supplier conference. Commercial director Martin Arter led the audience through the statistics for CP5. Most framework contracts have been placed although perhaps more specific orders should have been allocated. Much has been done but there is still a lot to do and he admitted that, in  some areas, the commercial team wasn’t where it should be.

As finance director Anit Chandarama reminded everyone, 12 per cent of CP5 has already gone! Every period (one of Network Rail’s 13 ‘months’ in each year), another 1.5 per cent is over.

He also stressed the commitment to those present. Out of the Office of Rail Regulation’s determination of £38.3 billion for Network Rail in CP5, 29 per cent for enhancements and 27 per cent for renewals, a total of around £21 billion, would be spent with those present on the day.

Going back to Martin Arter’s theme, currently £87 million of orders should have been allocated which haven’t been, equivalent to £3.5 million a week. However, everyone is working hard to catch this up and, judging by the questions from the floor, that is something which the industry needs to be resolved as soon as possible.

The challenge ahead

Martin Frobisher returned to the theme of safety and explained the Safe Work Leaders programme. Safe work leaders will be full-time employees, on the payroll, and leading the work on any particular site. Training started on 20 October and, in total, 20,000 people need to go through the programme. That’s a mammoth investment in everyone’s safety.

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In the session of questions from the floor, one of the most pertinent came from John Murphy of the Murphy Group. “What could contractors do more of?” he asked. “Challenge us,” was Francis Paonessa’s reply. He realised there was a degree of “don’t upset the largest customer” but contractors should take more risk and challenge Network Rail to also do a better job.

So the Network Rail day was much as expected. It was informative and interesting, and interactive with questions from the floor, but it had the ‘homely’ feeling of Network Rail talking with a small group of important suppliers which it knows well.

A different approach

Three days later was a very different conference.

HS2 hosted 700 potential suppliers at London’s Queen Elizabeth II Conference Centre in Whitehall, and there was to be another one the following week in Manchester. This was a much more formal affair. With a larger audience, almost none of whom were current suppliers, there was a lot of ground to cover.

Sir David Higgins was first up. “HS2 is making the transition from concept to reality,” he told his audience. “The main question is when, and how.” He then went on to detail the cross-party support that the hybrid bill for phase one, from London to Birmingham, had enjoyed in parliament. He also made reference to his report on phase two that he would be launching in Leeds a week later.

Managing director Simon Kirby was on next. “HS2 is the opportunity to build world class infrastructure and to tackle some of the toughest challenges in our country,” he began. “These challenges are long-term and complex: a two-speed economy, the lack of productivity and connectivity in the North, the overcrowded transport and overheated property market in the South. The solutions we develop must be of equal scale.”

Simon then went on to outline the opportunities which were available for potential suppliers.

What contractors want

Commercial director Beth West thanked the suppliers that are already on board, working on preliminary designs and plans, as the progress that has been made so far has only been possible due to their involvement.

She moved on to reveal what they would be buying and when and how they would be buying it. HS2 has conducted a supply chain survey, taking in companies that together employ over 250,000 people in total and have a collective turnover of some £1 trillion.

The survey was motivated by the realisation that, to get the best result from the project, HS2 needs to make sure that each supplier fields its ‘A’ team. To do that, they will need to have contracts that the ‘A’ teams will find attractive and interesting.

On civil engineering projects, the survey results were that big, geographically-based packages will work best. Early contractor involvement was confirmed to be the right approach.

For bored tunnels, the consensus was that letting packages of around £1 billion, incorporating elements of the surface route in close proximity to those tunnels, was the way to go. For the surface route, the view was that packages of 25-50 kilometres, valued again at around £1 billion, would work best – incorporating cut-and-cover tunnels where appropriate.

Geographical basis

The phase one strategy now includes large, geographically-based civil engineering packages split across two tranches. Tranche one will include five large packages to include bored tunnels valued at around £0.5 – £1 billion.

Tranche two comprises 4-5 packages for surface route sections and the Birmingham stations, all valued again at around £0.5 – £1 billion. The Birmingham stations may be combined into one large package if tenders show that provides best value for money.

Plans still need to be finalised for procuring Euston station and logistics, and HS2 has to decide how
it wants to procure its railway systems and trains. These assets are recognised to be different from civil engineering ones so they may be procured differently. Railway systems may well be procured as large, route- wide packages.

Prequalifications for both tranches one and two will commence in 2015 followed by the individual invitations to tender for each package of works in 2016. Work is due to commence in 2018.

Procurement strategy

Alistair Kirk, programme and strategy director, then talked about the delivery strategy and outlined the three delivery business units – development, phase one infrastructure, and operations.

Civil engineering works will be split across four geographical packages – Euston area, area south which will predominately consist of tunnels, area central which will be mainly earthworks and viaducts, and area north which will include the Birmingham stations and the connection with the West Coast main line.

Railway systems will be procured route wide and will be based on systems – signalling, power and telecoms. Overall, it looks as though HS2 intends to have no more than 16 major, direct contractors. While 60% of the total spend will end up with small and medium-sized enterprises (SMEs), that will happen through the major contractors. However, HS2 will stay involved and will step in if it is felt that the contractors aren’t treating their supply chain properly over payment terms and other issues.

Figures were released on how much of HS2’s money will be spent. £0.4 billion will go on design and services and £3 billion on tunnels. The surface route to Birmingham will cost £3.8 billion with another £2.9 billion on stations and £1.7 billion on railway systems. Rolling stock is estimated to cost a total of £7.5 billion, but that includes the trains for both phases one and two of the overall HS2 project.

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Summary from the top

After the formal stage of the conference, The Rail Engineer had a private word with the main speakers. First, Sir David Higgins was asked about the level of political support for the project and how that was changing.

“I think the really interesting thing over the last twelve months is the huge support now, particularly in the Midlands and the North. You’ve got cities fighting over railway station locations and where they are going to be so I think that’s been a massive change. And you’ve also got a much more unified North. That big support from the big cities in the North is a big change.

“It is understood in the North how critical it is now, more so, I would say, than in the South. I don’t think the South has yet got to understand what 12 new train paths an hour means in terms of commuter access. It’s a massive change, but the North really gets it.

Simon Kirby was asked about how the way in which HS2 would build its railway compared to elsewhere.

“We can do it as well as any other country. We need to plan and get the design right. I’ve seen what other countries are doing in terms of modularisation, I’ve seen civils timescales in under three years. There’s nothing there we can’t do, it’s about fundamentally changing the way we do things.

“If you look at the other programmes around the world, they get the plan right, they get the design right, they engage the builders in the plan – and I think we probably do that as well as any country. So we need to build that into the plan and that includes reduced construction times as a result. So that will be more efficient, it will have less impact on local communities, and it should deliver a better end product as well.”

The current plan is to have some infrastructure finished to be able to start testing systems and trains in 2024, with services starting at the end of 2026.

Turning to the small number of direct suppliers and contractors in the procurement plan, Beth West commented: “We’ve thought a lot about how do we manage the interfaces and, as a new company, we don’t have armies and armies of project managers so part of the reason why we have looked at having a smaller number of contracts is to help us manage the interfaces.

“But the big issue is that we won’t just look at that Tier 1 set of contractors. We want to look at what’s going on further down the supply chain and we want to be facilitating a lot of work for contractors to talk with smaller companies who can be bringing in a lot of innovation to them and to us and making sure that the incentives are there and that the benefits are cascaded down as well.”

After the talks, delegates went to look at an exhibition put on by around 40 potential suppliers and industry partners.

A bright future

Taken together, the week was one of contrasts. But both organisations, HS2 and Network Rail, came across as having a real passion to treat their supply channels well, to engage them early, and to work together to achieve the desired result. The numbers are quite similar, both are committing to around £20 billion of work at this stage, but the approaches are different as the challenges are different – one is building a new railway while the other is upgrading a Victorian one.

One thing it does mean, and that’s committed, steady work for the industry as a whole for years to come.