The Modernisation of the West Coast Main Line

Transcription

1 The Moderisatio of the West Coast Mai Lie REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 22 Sessio November 2006

2 The Natioal Audit Office scrutiises public spedig o behalf of Parliamet. The Comptroller ad Auditor Geeral, Sir Joh Bour, is a Officer of the House of Commos. He is the head of the Natioal Audit Office, which employs some 850 staff. He, ad the Natioal Audit Office, are totally idepedet of Govermet. He certifies the accouts of all Govermet departmets ad a wide rage of other public sector bodies; ad he has statutory authority to report to Parliamet o the ecoomy, efficiecy ad effectiveess with which departmets ad other bodies have used their resources. Our work saves the taxpayer millios of pouds every year. At least 8 for every 1 spet ruig the Office.

3 The Moderisatio of the West Coast Mai Lie LONDON: The Statioery Office Ordered by the House of Commos to be prited o 20 November 2006 REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 22 Sessio November 2006

4 CONTENTS SUMMAry 4 This report has bee prepared uder Sectio 6 of the Natioal Audit Act 1983 for presetatio to the House of Commos i accordace with Sectio 9 of the Act. Joh Bour Comptroller ad Auditor Geeral Natioal Audit Office 16 November 2006 The Natioal Audit Office study team cosisted of: Fioa Ashley, Matthew Atkiso, Steve Bowstead, Nick Catley, Ia Derbyshire, Daiel Duffy, Ke Forema ad Steve Wright, uder the directio of Jill Goldsmith PArT 1 The Strategic Rail Authority ad 10 Network Rail tured aroud delivery of the West Coast programme The Strategic Rail Authority clarified goverace 10 arragemets ad, as sposor, provided clear directio to the programme The Strategic Rail Authority egaged stakeholders 11 i support of the programme Tight specificatio ad chage cotrol have 12 preveted scope creep Techology risk was reduced, although 13 ot elimiated Railtrack-i-Admiistratio brought i Bechtel 13 to drive forward programme delivery This report ca be foud o the Natioal Audit Office web site at For further iformatio about the Natioal Audit Office please cotact: Natioal Audit Office Press Office Buckigham Palace Road Victoria Lodo SW1W 9SP Tel: equiries@ao.gsi.gov.uk Natioal Audit Office 2006

5 Part 2 Cotrol over costs has improved, but the 14 programme has bee expesive Programme expediture is over 7 billio 14 The Rail Regulator ad Strategic Rail Authority 14 recogised that delivery to a tight schedule would put pressure o costs Network Rail aticipates achievig 70 per cet 18 of assumed efficiecy savigs, but overspedig 300 millio o the programme from 2004 Project costs have icluded trai operators 18 compesatio for egieerig access but have ot icluded costs to the Departmet from chages to operators frachise terms Network Rail expects the ivestmet will 20 reduce the additioal maiteace ad reewal costs which would ormally result from icreased use ad higher trai speeds o the lie Electroic sigallig equipmet o the West Coast 20 Mai Lie may become obsolete sigificatly earlier tha expected Part 3 The programme is deliverig its 22 projected beefits The Strategic Rail Authority demostrated a 22 positive busiess case for cotiuig the project to ehace the lie The Programme is deliverig beefits to 23 passegers i lie with projectios It is too early to assess whether o-passeger 25 beefits will be delivered Appedices 1 Backgroud to the West Coast 26 moderisatio programme 2 Study methodology 29 3 Illustrative fidigs from our case studies 32 4 Network Rail s cotract strategy 37 5 The risks ad lessos leared from two 39 iovative techologies employed o the West Coast 6 Review of Network Rail s maagemet of 41 the risk of obsolescece of its electroic sigallig equipmet GLossary 44 Photographs courtesy of the Departmet for Trasport, Network Rail ad Virgi Rail Group.

6 SuMMARy 1 I Jauary 2002, the Secretary of State istructed the Strategic Rail Authority to itervee ad fid a way forward for the programme to reew ad upgrade the West Coast Mai Lie (Figure 1). The upgrade was beig udertake uder a 1998 agreemet betwee Railtrack, the private sector ower ad operator of rail ifrastructure, ad Virgi Rail Group, which operates the West Coast passeger rail frachise, ad ivolved the itroductio of ew sigallig techology to allow improved services delivered by ew trais ruig at 140 miles per hour. By 2001, either the rail ifrastructure upgrade or the ew trais were o course for delivery as set out i the 1998 agreemet. I October 2001, Railtrack wet ito Railway Admiistratio ad by May 2002 its projectio of the programme s fial cost had rise from 2.5 billio 1 (i 1998) to 14.5 billio, with the first stage of implemetatio i May Railtrack had spet 2.5 billio o the programme by March 2002, ad had committed some 500 millio of further works, but had delivered oly a sixth of its scope. There had bee substatial abortive costs to the programme, icludig 350 millio of work developig ew sigallig ad trai cotrol systems ad the buildig of, ad techology developmet for, a Network Maagemet Cetre that were de-scoped from the programme i Appedix 1 provides further backgroud to the programme. 1 Uless otherwise idicated, this ad other costs i the report are i prices to facilitate comparisos.

7 summary 1 The West Coast Mai Lie is the busiest mixed-use railway i the UK Holyhead Glasgow Liverpool Bagor Ediburgh Lockerbie Carlisle Perith Oxeholme Lacaster Presto Chester Crewe Birmigham Machester Macclesfield Stoke Stafford Nueato Rugby Northampto Milto Keyes Watford Juctio Lodo Eusto Physical features 640 route miles ad 1,660 miles of track Lodo to Crewe maily four track (two fast ad two slow lies) North of Crewe maily two track 114 statios 13 major juctios 60 tuels 2,800 sigals 10,000 bridge spas The route is used by Trai operators Arriva Trais Wales Cetral Trais First Scot Rail Norther Rail Silverlik TrasPeie Express Virgi Cross Coutry Virgi West Coast Use of lie Freight operators Direct Rail Services Eglish, Welsh & Scottish Railway (EWS) Freightlier Freightlier Heavy Haul GB Railfreight Passeger trai miles per year: 22 millio Freight trai miles per year: six millio Source: Natioal Audit Office aalysis of Network Rail iformatio 2 The Strategic Rail Authority clarified the directio, scope ad expected outputs of the programme i the Jue 2003 West Coast Mai Lie Strategy 2 ad egaged stakeholders i support of the programme. The Strategy brought forward the delivery of trai speed ad frequecy ehacemets, to September 2004 ad December 2005, to match with Virgi s revised programme for the itroductio of its ew tiltig trais. Delivery to a tight timetable put pressures o costs ad the Rail Regulator took this ito accout, whe determiig, i December 2003, the efficiet cost of delivery of the remaiig outputs ad settig Network Rail s overall fudig for the period betwee ad , icludig fudig for the programme. 3 The Regulator s fudig determiatio implied a overall programme budget of 8.3 billio. This assumed Network Rail could achieve efficiecies totallig 940 millio 4 ad was 2.5 billio below the 10.8 billio 5 upper limit approved by govermet whe it accepted the 2003 Strategy. Both Network Rail ad the Strategic Rail Authority cosidered this efficiecy assumptio was very challegig. 2 West Coast Mai Lie Strategy, Jue 2003: 3 Network Rail replaced Railtrack-i-Admiistratio i October The Regulator, who was succeeded by the Office of Rail Regulatio i July 2004, determied the efficiet price for Network Rail s work ad the level of access charges ad etwork grat fudig that trai operators ad the Strategic Rail Authority/DfT eeded to pay to meet Network Rail s costs from Equivalet to 863 millio i prices, as set out i the Rail Regulator s Fial Coclusios to the Access Charges Review Equivalet to the 9.9 billio, i prices, set out i the SRA s April 2004 Progress Report o the programme. The Moderisatio of the West Coast Mai Lie 5

8 Summary 3 The Authority s Jue 2003 West Coast Mai Lie Strategy set out three delivery phases ad five key objectives (Figure 2). 4 So far, Network Rail has met the key ifrastructure delivery ad performace milestoes ad Virgi West Coast has itroduced ito service its ew fleet of Pedolio tiltig trais. By April 2006, 77 per cet of the physical work i the programme was complete, with the key remaiig projects beig the elargemet of Milto Keyes ad Rugby statios ad the wideig of the Tret Valley route. From April 2009, followig completio of the moderisatio programme, ogoig work to reew ad develop the route will be udertake as part of Network Rail s ormal busiess. What we examied 5 This report examies how effectively the Strategic Rail Authority/Departmet for Trasport 6 ad Network Rail tured aroud the West Coast programme betwee 2002 ad 2006 i terms of deliverig outputs ad expected outcomes i lie with the schedule ad targets set by the govermet i the West Coast Mai Lie Strategy i Jue 2003 ad the expediture assumed by the Rail Regulator i December We examied: how the Strategic Rail Authority/Departmet ad Network Rail addressed the weakesses i programme maagemet before 2002 to achieve delivery to schedule (Part 1); whether costs have bee brought uder cotrol (Part 2); ad whether the programme is deliverig its aticipated beefits (Part 3). 2 The 2003 Strategy set out three delivery phases ad had five key objectives Phase 1 27 September 2004 Track upgraded to eable itroductio of a ew, ad more frequet, timetable icorporatig 125 mph tiltig trais operatig betwee Lodo ad Machester, Birmigham ad Crewe (Stage 1A). Phase 2 10 December 2005 Track upgraded to eable jourey time improvemet from 110 mph to 125 mph from Presto to Glasgow uder tiltig trai operatio workig to a ew timetable, after the start of 125 mph operatios betwee Crewe ad Presto from 12 Jue 2005 (Stage 1B). Phase 3 31 December 2008 Major reewals ad ehacemets to complete the upgrade ad the icrease i capacity to achieve overall 80 per cet more log distace passeger trais ad per cet more freight paths tha before September The Programme s five key objectives 1 Address the major backlog of maiteace ad reewals o the route, esurig value for moey. 2 Provide a improved level of performace, safety ad reliability, which will i tur help the railway regai lost market share ad icrease the role it ca play i the atioal ad regioal ecoomies. 3 Provide capacity for aticipated growth i passeger ad freight busiess over the ext years, with substatially faster ad more competitive jourey times. 4 Establish sustaiable ad cost effective maiteace regimes. 5 Achieve these objectives o a workig railway while allowig for the cotiuatio of key freight ad passeger traffics durig the rebuildig ad ehacemet work. Source: Natioal Audit Office review of the Strategic Rail Authority s Jue 2003 West Coast Mai Lie Strategy 6 The Departmet for Trasport took over the Strategic Rail Authority s resposibilities for sposorig major rail ivestmet projects ad lettig ad moitorig operator frachises from July 2005, followig the abolitio of the Strategic Rail Authority uder the Railways Act I this report, we use the phrase Strategic Rail Authority/Departmet to sigify sposorship of the programme by the Authority to July 2005 ad by the Departmet thereafter. 6 The Moderisatio of the West Coast Mai Lie

9 summary 6 We iterviewed key persoel i the West Coast teams of the Strategic Rail Authority, Network Rail, the Departmet ad the Office of Rail Regulatio, ad reviewed ad aalysed supportig documets ad data. As case studies, we examied three completed ad three curret key projects withi the programme (Appedix 3). We also iterviewed trai ad freight operators affected by the programme ad, joitly with Network Rail, commissioed QietiQ to review the risk of obsolescece for the West Coast Mai Lie s sigallig systems. A detailed explaatio of our methods is at Appedix 2. Key fidigs ad coclusios 7 The Strategic Rail Authority ad Network Rail, which replaced Railtrack i October 2002, tured aroud the programme by providig clear directio through a idustrysupported Strategy, reducig techology risk through reliace o covetioal sigallig for most of the upgrade, ad by tighteig cotrols over chages to scope ad over the maagemet of the programme ad cotractors. 8 The 2003 Strategy appropriately removed from the programme the Europea Rail Traffic Maagemet System (ERTMS), ew sigallig techology, ad the Network Maagemet Cetre, o which Railtrack had spet 350 millio, to reduce these major risks to programme delivery. Cotiued ERTMS developmet, to address Europea Uio requiremets, became a separate atioal programme. But some ew techologies were ot removed from the programme ad there have bee implemetatio problems with two of these sice 2002: axle couters ad computer-based iterlockig sigallig. These have icreased costs to Network Rail by over 35 millio. 9 Network Rail s cotrol over costs has improved, particularly from , but our aalysis of its reported ad forecast expediture shows that fial programme sped is likely to be 8.6 billio 7, brigig overspedig to aroud 300 millio, 8 or 10 per cet, o the Regulator s 3 billio 9 allowace for the cotrol period to As Network Rail s forecast expediture o reewal work o the route carried out outside the programme (regioal reewals) is 390 millio uder its fudig allowace of 1,025 millio, Network Rail is withi its overall fudig allowace for expediture o the route. For the programme, it is o course to achieve aroud 70 per cet of the 940 millio cost efficiecies assumed by the Rail Regulator. achieve aroud 70 per cet of the 940 millio cost efficiecies assumed by the Rail Regulator. Iefficiecies existed i the cotractig arragemets to 2005 (iherited from Railtrack). High demad pushed up rates for sigallig work. Booked possessios of the track for reewal work were ot fully used. Eight per cet of programme expediture by Railtrack/Network Rail has bee o programme ad project maagemet, icludig aual paymets to Bechtel Ltd, programme maagers appoited by Railtrack, i retur for which it has supplied its expertise, with aroud 140 staff i mid Betwee Jauary 2002 ad April 2006, Bechtel was paid 165 millio (i prices). 10 West Coast track reewal uit costs were 60 per cet above the etwork average i 2003 but fell from They remai 14 per cet higher tha the etwork average, maily because of the lie s particular features such as the high itesity of traffic, the arrow spacig of the origial track, ad the high specificatio for the reewals work. Network Rail has measured uit costs withi the programme for two activities, track reewals ad switches ad crossigs, which comprise 25 per cet of aual expediture. Its data are difficult to compare across projects ad regios. Network Rail is workig to icrease the coverage of its uit costs ad develop methods to ormalise rates for distortig factors, such as the mix ad difficulty of work. 11 I 2002, the Strategic Rail Authority suspeded the origial terms of the frachise agreemets with Virgi Rail Group to operate the West Coast ad Cross Coutry routes because of the Group s high costs (icludig the lease costs of the ew Pedolio trais) ad lower tha aticipated reveues (resultig from the lastig effects of the disruptio followig the Hatfield derailmet ad from the failure to deliver the service improvemets set out i the 1998 Passeger Upgrade Agreemet, PUG 2). Thereafter, the Strategic Rail Authority has set subsidies o a aual basis, followig detailed review of the operators costs ad reveues. As a result, betwee ad the govermet paid Virgi West Coast 590 millio more subsidy tha plaed uder its origial frachise agreemet. This amout represets a paymet eeded to maitai trai services ad lies outside the 8.6 billio expected fial cost of the programme. 7 This 8.6 billio i prices is equivalet to the 8.1 billio expected fial programme cost reported o page 19 of Network Rail s Busiess Pla The differece arises because Network Rail s total ivolves a mixture of curret prices, for sped before , ad prices for sped from We calculated the to projected programme oversped after first deductig expediture for work o the West Coast route, outside the programme, which was fuded by third parties ad the EU. I its Busiess Pla 2006, Network Rail projected it had a fudig shortfall o the programme of 246 millio, with some of the oversped already fuded from Network Rail s other budgets billio i prices. The Moderisatio of the West Coast Mai Lie 7

10 Summary 12 Although approximately 80 per cet of the work i the programme has bee reewals, uder the terms of the Network Code, Network Rail has paid 95 per cet of fiacial compesatio to trai operators for track access lost to egieerig work as compesatio for ehacemets work. This has bee because i part the reewals have cotributed to ehacemets of the etwork. Compesatio paid to trai operators uder the Network Code ca be twice as much as the amouts paid for similar access for stadard reewals. Two-thirds of access compesatio has bee paid to Virgi West Coast, uder provisios i its track access cotract ad special arragemets agreed i its 1998 upgrade agreemet with Railtrack. The Departmet has protected taxpayers iterests by takig these amouts ito accout whe determiig its aual subsidy paymets, sice The busiess case ad appraisals of the West Coast Programme, carried out i , were ot covetioal, as the programme was already uderway, with substatial suk ad committed costs, which were excluded from the appraisals. The 2004 busiess case showed a positive beefit:cost ratio of 2.5:1, which higed o delivery of o-fiacial beefits, chiefly passeger jourey time savigs ad road decogestio. The project has delivered jourey time improvemets ad other passeger beefits i lie with, ad i some cases beyod, its busiess case. The programme has reduced jourey times i lie with the 2003 Strategy, with trai timetables sice September 2004 providig for a 22 per cet reductio i the fastest jourey time betwee Machester ad Lodo, to 125 miutes. Puctuality ad trai reliability o the West Coast route have improved from 2005 ad are close to the iterim targets set i the 2003 Strategy. Passeger satisfactio with trai services o the route has improved. The Departmet has ot moitored whether the icrease i passeger joureys has resulted i road decogestio beefits. 14 I , passeger joureys o Virgi West Coast grew by over 20 per cet, which was ahead of forecast, ad i 2006 some parts of the route were operatig at or ear capacity. The remaiig work o the programme, to 2009, will icrease passeger trai ad freight capacity, but the cosesus i the rail idustry is that by aroud 2015 to 2020 the lie will have isufficiet capacity to sustai curret levels of growth i passeger ad freight traffic, should these growth levels cotiue. 15 Network Rail expects the ivestmet i the West Coast will reduce the additioal maiteace costs which would ormally result from icreased use ad higher trai speeds o the lie. There is a risk that some of the sigallig equipmet o the upgraded route could become obsolete before its plaed reewal date of Give the level of ivestmet i sigallig, a oe year shortfall i the average expected life of equipmet would cost Network Rail some 12 millio. Network Rail recogised the risk from early obsolescece of its sigallig equipmet ad we joitly commissioed the cosultats QietiQ to review Network Rail s processes for maagig obsolescece. QietiQ cofirmed that Network Rail s lack of formal maagemet of the risk of obsolescece left it at risk ad foud obsolescece issues eedig to be addressed i relatio to four of the seve systems it reviewed. Network Rail does ot have the cost iformatio required to estimate its overall exposure from this risk. It will eed to meet the costs of obsolescece from its future maiteace ad reewals budgets. Overall coclusio 16 The Strategic Rail Authority s itervetio from 2002 tured aroud the West Coast Programme. It worked with Network Rail ad the idustry to develop a deliverable Strategy ad establish appropriate programme maagemet. Network Rail improved the maagemet of the projects ad, so far, has delivered the Strategy outputs to schedule. The Strategy has delivered passeger beefits from a moderised track. But value for moey for the programme i its etirety has ot bee maximised: there were substatial early abortive costs to Railtrack i the programme to 2002 ad the eed for additioal frachise support for Virgi Rail Group from 2002, to keep trai services ruig; Network Rail is likely to oversped its programme budget for to by aroud 10 per cet, although together with West Coast regioal reewals it is withi its fudig allowace; ad there remais ucertaity about the expected lifespa of some of the equipmet o the upgraded lie. 8 The Moderisatio of the West Coast Mai Lie

11 summary Recommedatios 17 For future major ifrastructure projects it sposors, the Departmet s busiess cases should model ad appraise the costs ad beefits for differet optios for the timig of delivery ad fully cosider the impact o frachises of delays i delivery of the project. The project ad risk maagemet plas should iclude a frachise maagemet strategy ad should address the pre-2002 key weakesses i West Coast programme maagemet we have idetified i Part 1 (paragraphs , 2.4, ad ). 18 The Departmet ad the Office of Rail Regulatio should further develop stadard defiitios for costs for differet stages ad elemets of trasport projects, such as scopig/desig, costructio/delivery ad programme/ project maagemet, so that cost iformatio (for example o project maagemet) ca be collected ad compared across trasport projects (paragraphs ad 2.13). 19 The Office of Rail Regulatio should esure that Network Rail draws o the experiece of cotractig o this programme ad wider lessos, for example from BAA Termial 5 10 or the Highways Agecy, i its cotractig strategies for major projects, ad that Network Rail publishes its geeral approach to cotractig ad, for major projects, the key elemets of its cotractig strategy (paragraphs 1.8, , Appedix 3 ad Appedix 4). 21 The Office of Rail Regulatio should esure that Network Rail develops the targets it sets, moitors ad reports for its efficiet use of possessios of the track for egieerig work ad that these iclude a target for the proportio of booked time effectively used (paragraph 2.11). 22 The Office of Rail Regulatio should review the case for cotiuig with two separate possessios compesatio regimes ad how to make rates paid more predictable, trasparet ad more closely aliged to costs ad losses bore by trai operators, ad to geerate appropriate icetives (paragraphs ). 23 The Office of Rail Regulatio should esure that Network Rail progresses its plas ad adopts best practice i obsolescece maagemet. The approach should iclude establishig a compay-wide strategy, addressig whole life costs i its ivestmet appraisal/project busiess cases, improved recordig of maiteace ad reewals costs for its equipmet ad clarifyig the resposibilities of its suppliers i its procuremet ad support cotracts (paragraphs ad Appedix 6). 20 New techology ca brig sigificat beefits, but its developmet ivolves sigificat costs ad risks. Where projects propose ew techology or techology ew to the UK at sigificat cost, the Departmet or Office of Rail Regulatio should esure that Network Rail draws up a supportig busiess case drawig o previous developmet ad testig of the techology, ad addressig costs, beefits, the challeges of techology trasfer ad risks, alog with a supportig implemetatio ad maiteace strategy (for example, coverig traiig requiremets for egieers) ad submits these to allidustry challege (paragraphs 1.10 ad Appedix 5). 10 Miistry of Defece: Usig the cotract to maximise the likelihood of successful project outcomes (Natioal Audit Office, HC 1047, Sessio , Figure 9, page 9). The Moderisatio of the West Coast Mai Lie 9

12 PART ONE The Strategic Rail Authority ad Network Rail tured aroud delivery of the West Coast programme 1.1 I this Part of the report, we examie how the Strategic Rail Authority/Departmet ad Network Rail tured aroud the West Coast Route Moderisatio programme to achieve delivery to schedule through addressig key weakesses i the programme s maagemet to The Strategic Rail Authority clarified goverace arragemets ad, as sposor, provided clear directio to the programme Key Weakess 1: A lack of clear goverace arragemets ad directio for the programme The programme lacked directio ad leadership before Railtrack had bee both commissioer ad cotractor ad did ot have a delivery strategy ad cetral poit for resposibility ad commuicatio across the programme. Lack of directio ad leadership cotributed to delay ad cost overru. Source: Natioal Audit Office aalysis of March 2002 ad Jue 2003 reports by Bechtel Ltd ad Oakleigh Cosultig Ltd o early programme delivery, ad iterviews with key stakeholders. 1.2 From 2002, the Strategic Rail Authority (ad from July 2005, the Departmet) became the programme s sposor ad set a clear directio for the project, i its Jue 2003 West Coast Mai Lie Strategy, specifyig what it wated to achieve. Railtrack-i-Admiistratio/Network Rail became its prime cotractor. Havig accepted the Authority s Strategy as the basis for the reasoable requiremet for the idustry, the Rail Regulator was resposible for determiig the efficiet cost ad timig for Network Rail s work (i the cotext of Network Rail s overall fudig requiremet) ad for the esurig that Network Rail carried out reewals ad ehacemets i a timely, efficiet ad ecoomical maer, i accordace with Coditio 7 of its Network Licece. 1.3 This distributio of resposibilities was supported by clear programme goverace structures (Figure 3). The Project Board took key decisios, while detailed decisios o delivery were take by a Project Developmet Group, chaired by the Strategic Rail Authority s/departmet s West Coast Director, which had day-to-day resposibility for programme delivery. We foud a cosesus that the arragemets had worked well ad cocluded that this resulted from: the board-level membership of the Project Board givig the programme visibility ad egagemet at a seior level; cotiuity of leadership: both the Strategic Rail Authority/Departmet s programme sposor/director ad Network Rail s West Coast Team geeral maager remaied uchaged from early 2002; the Strategic Rail Authority/Departmet havig a small, but high calibre, team dedicated to the programme, peakig at 11 full-time equivalets i mid-2003; ad the Rail Regulator/Office of Rail Regulatio actig as a idepedet observer o the Project Developmet Group ad with expert advice from a idepedet reporter challegig Network Rail mothly o its delivery of the programme. 10 THE MODERNISATION OF THE WEST COAST MAIN LINE

13 part oe 3 Programme goverace arragemets (i December 2002) Project Board Steerig Group takig strategic decisios. Network Rail, SRA ad ORR board members, ad Network Rail ad SRA West Coast directors. Met mothly ad chaired by SRA s chief executive. Project Developmet Group Took detailed decisios o delivery, cost/resource ad operatioal issues. Network Rail + SRA (with ORR observer). Met fortightly ad chaired by the SRA s West Coast Director. WCML Joit Board Icluded affected trai ad freight operators. Met quarterly to cosider operatioal performace ad maiteace issues. Network Rail West Coast Team Headed by Network Rail s West Coast Geeral Maager SRA West Coast Team Headed by SRA s West Coast Director Source: Natioal Audit Office review of iformatio supplied by the Departmet NOTE From 2005, the Project Board met quarterly ad the Project Developmet Group mothly ad the Departmet took over the roles previously held by the SRA. The Strategic Rail Authority egaged stakeholders i support of the programme Key Weakess 2: Failure to egage stakeholders i support of the programme There was a lack of opeess ad commuicatio of the programme to iterested parties before 2002 ad a lack of stakeholder maagemet. With the exceptio of a 19 day blockade i 2000 at Proof House Juctio, Birmigham, for re-modellig work, Railtrack had bee uable to persuade trai ad freight operators to agree to blockades ad its egieerig access had typically bee cofied to seve hour overight ad hour weeked possessios. 1.4 To achieve buy i to decisios o scope, access ad timetables, the Strategic Rail Authority cosulted widely, both formally ad iformally, to achieve a Strategy which better balaced iterests betwee high-speed log distace trais, local ad regioal passeger services ad freight. The Joit Board kept operators ad passegers iformed as the programme progressed ad the Authority ad subsequetly the Departmet kept wider stakeholders iformed o progress. 11 The Authority beefited from the experiece ad cotacts withi the idustry of its programme director. Poor stakeholder maagemet costraied costructio progress ad added to costs. Sources: Natioal Audit Office aalysis of March 2002 ad Jue 2003 reports by Bechtel Ltd ad Oakleigh Cosultig Ltd o early programme delivery, ad iterviews with key stakeholders. 11 The Strategic Rail Authority ad subsequetly the Departmet have reported progress agaist the Strategy i 2004 ad 2006: ad The Moderisatio of the West Coast Mai Lie 11

14 part oe 1.5 Stakeholder egagemet facilitated the more itrusive regime of obtaiig possessio of the track for egieerig work through exteded blockades i 2003 ad 2004 alog those parts of the route south of Crewe where diversioary routes existed for travellers from key statios, such as Stoke. These blockades were crucial to delivery of Phase 1 by September 2004 as access had bee the programme s key costrait ad oe of the key cost drivers. 12 The Authority developed ad promoted alterative trasport arragemets 13 for users of affected statios ad made adjustmets to meet local circumstaces, as illustrated i our case study o the Stoke blockade (Appedix 3). 1.6 Overall, trai ad freight operators were satisfied with the Strategic Rail Authority s cosultatio over the 2003 Strategy ad subsequetly, although some trai operators would have liked the opportuity to commet o issues such as the choice of techologies. Operators told us that Network Rail s liaiso eeded to be better whe it sought possessios at short otice 14 or faced possessio overrus. They remaied cocered about the impact of the rest of the work o the services they provide. The eed to obtai operators co-operatio is a key risk for the fial stage of the project. Tight specificatio ad chage cotrol have preveted scope creep Key Weakess 3: There had bee scope creep, arisig from a lack of tight specificatio ad chage cotrol Scope chages arose because Railtrack did ot have a programme with a agreed specificatio which matched required outputs with iputs; ad had poor kowledge of West Coast asset coditio. Railtrack had worked with its cotractors i Alliaces, which desiged ad scoped projects o a cost-reimbursable basis ad delivered them to agreed target costs. Alliacig ca promote iovative ad efficiet delivery solutios sice cotractors ad cliet share, as profit or loss, ay differece betwee delivered ad target cost. It did ot work well o West Coast because Railtrack lacked the egieerig expertise to be able to participate i Alliaces as a iformed ad equal parter ad to challege cotractordeveloped scope. 1.7 The Strategic Rail Authority developed a clear, measurable set of programme outputs, alog with more detailed ifrastructure requiremets, through 11 expert cross-idustry teams 15 providig bottom-up costructive challege to the detailed baselie produced for Railtrack by Bechtel Ltd i May The teams idetified opportuities to reduce the programme cost by over 4 billio. For example, the challege teams idetified that faster ruig orth of Presto could be achieved without the eed to replace the sigallig; ad helped idetify a better value solutio to the upgrade of the route s power supply (Appedix 3). 1.8 Network Rail abadoed Railtrack s approach of relyig o Alliace cotractors to develop the egieerig scope for its projects ad gradually closed dow the Alliace cotracts by 2005 (Appedix 4). I November 2003, it set up West Coast Egieerig, a strog team of egieers (draw pricipally from other parts of the orgaisatio) to write specificatios, ad to review ad approve project desigs (developed by desig cosultats) ad completed work. From 2005, Network Rail s approach was, where possible, to approve base desigs, fixig scope, ad the ivite cotractors to teder to complete detailed desigs ad deliver the work to a fixed price, as illustrated i our case studies of Rugby statio re-modellig ad Tret Valley four-trackig (Appedix 3). 1.9 Network Rail developed a series of fuctioal specificatios to traslate the programme s scope ito detailed requiremets, which were approved by the Strategic Rail Authority/Departmet. Chages have bee cotrolled through systematic chage cotrol ad moitorig procedures which required authorisatio from withi Network Rail ad from the Authority/Departmet. Scope chages drove up programme costs. Sources: Natioal Audit Office aalysis of March 2002 ad Jue 2003 reports by Bechtel Ltd ad Oakleigh Cosultig Ltd o early programme delivery, ad iterviews with key stakeholders. 12 Productivity is low i 7 hour overight track possessios ad 20 hour weeked possessios as it takes 3 hours typically to safely set up ad close dow a worksite. A loger closure of the route, kow as a blockade, allows roud-the-clock workig, icreasig productivity. 13 The Authority set up a alterative Lodo to Machester high-speed hourly service via Leicester (kow as Project Rio) to esure that betwee May 2003 ad September 2004 there was a service available durig temporary closures of other key parts of the mai lie. Network Rail fuded this project, at a cost of 90 millio. 14 For trai operators, a short-otice possessio is oe sought by Network Rail with less tha 12 weeks otice. Uder Coditio 9 of its etwork licece, Network Rail must make accurate timetable iformatio available to trai operators at least 12 weeks i advace as trai operators frachise cotracts require them to ope reservatios ie weeks ahead of the date of travel. 15 The costructive challege teams comprised experieced former rail idustry egieers ad officials from the Strategic Rail Authority, Railtrack ad the Rail Regulator. 12 The Moderisatio of the West Coast Mai Lie

15 part oe Techology risk was reduced, although ot elimiated Key Weakess 4: The use of utried ad uprove ew techology Techology issues, i particular Railtrack s decisio to replace covetioal sigallig with uprove movig block sigallig, itroduced major risk ito deliverability ad cost before Techology issues caused scope chages ad programme delay. Sources: Natioal Audit Office aalysis of March 2002 ad Jue 2003 reports by Bechtel Ltd ad Oakleigh Cosultig Ltd o early programme delivery, ad iterviews with key stakeholders The 2003 Strategy determied that, to reduce delivery risk, the programme should move towards greater reliace o established ad prove techology ad that the Europea Rail Traffic Maagemet System (ERTMS) should be removed from the programme ad developed as a separate atioal iitiative (Appedix 3). Some ew techology was used. Absolute track geometry, a method which fixes the track positio to eable the trais to tilt ad ru fast aroud curves withi existig structures, was developed durig 2003 by Network Rail s track egieers, after reviewig good practice o Swiss railways. It meat that the September 2004 timetable could be achieved with substatially less track reewal tha first plaed. Network Rail, however, uderestimated the risks ad challeges of two ew techologies, computer-based iterlockig ad axle couters, which geerated sigificat commissioig ad implemetatio problems. These problems cost Network Rail over 35 millio (Appedix 5). Railtrack-i-Admiistratio brought i Bechtel to drive forward programme delivery Key Weakess 5: Failure to effectively maage ad moitor programme delivery through cotractors Oakleigh Cosultig reported major issues cocerig orgaisatio ad maagemet cotrols over the West Coast programme before Railtrack s programme maagemet was weak, with a lack of seior maagemet skills, too may chages i persoel ad ill-defied ad fragmeted roles ad resposibilities. Railtrack had a 630-strog Lodo-based team, but did ot have a itegrated delivery pla ad had limited oversight of its Alliace cotractors I early 2002, Railtrack-i-Admiistratio appoited Bechtel Ltd to provide leadership, directio ad clarity to the maagemet of programme delivery. The Bechtelled West Coast programme maagemet team grew from aroud 700 people i early 2002 to more tha 1,100 i mid-2004, comprisig a core of aroud 140 staff from Bechtel ad aroud 540 from Network Rail, with the remaider comig from other cosultacies ad agecies. Programme orgaisatio was re-structured, so that decisios could be take more quickly ad closer to key worksites i the regios, aligig West Coast ad Network Rail s geeral maiteace ad reewals orgaisatio, ad eablig closer cotrol over commissioig ad delivery of work for track sectios. At the same time, Network Rail employed icreased umbers of support ad techical services staff o the groud I 2002, the Bechtel-led West Coast team developed the programme s first ever itegrated master delivery pla, coverig the programme s 80 active projects, hudreds of work packages ad over 1 billio aual expediture. The Project Developmet Group ad programme maagemet team could the make decisios iformed by kowledge of the trade-offs betwee projects ad work could be prioritised. Our case study of the lie upgrade i 2005 betwee Presto ad Glasgow illustrates how itegrated plaig eabled coordiated delivery of 28 separate projects by two areas to achieve the Phase 2 milestoe (Appedix 3) Network Rail, with the support of Bechtel Ltd, also moved from risk aalysis to risk maagemet ad mitigatio. From August 2004, it developed a improved measure of work doe 16, based o applyig weightigs to differet activities. This was supported, from May 2005, by improved outtur forecastig tools which eabled maagers to develop actio plas to brig projects back o track. The West Coast team reported key programme risks to the Departmet/Strategic Rail Authority ad the Office of Rail Regulatio o a regular basis. Poor maagemet of cotracts added to costs. Sources: Natioal Audit Office aalysis of March 2002 ad Jue 2003 reports by Bechtel Ltd ad Oakleigh Cosultig Ltd o early programme delivery, ad iterviews with key stakeholders. 16 This was kow as eared value. The Moderisatio of the West Coast Mai Lie 13

16 PART TWO Cotrol over costs has improved, but the programme has bee expesive 2.1 This Part of the report examies the cost of the West Coast Route Moderisatio programme. It examies Network Rail s cotrol over costs withi the cotext of the priority of delivery to a fixed ad tight schedule. It also examies the additioal costs arisig from the programme s impact o trai operators. Programme expediture is over 7 billio 2.2 By April 2006, Network Rail ad Railtrack had spet 7.4 billio o the programme. 17 Almost three-quarters of this expediture was o cotractors, eight per cet o cetral programme ad project maagemet (by Railtrack ad Network Rail), five per cet o egieerig haulage trais ad key costructio materials 18 ad four per cet o possessios compesatio to (maily) trai operators (Figure 4). The amouts paid to idividual cotractors have bee substatial: the te leadig cotractors have received more tha 3 billio for their work o the programme (Appedix 4). The Rail Regulator ad Strategic Rail Authority recogised that delivery to a tight schedule would put pressure o costs 2.3 I his December 2003 coclusios to the access charges review, the Rail Regulator accepted that the programme was committed to deliverig Phase 1 i September 2004, but reported that the programme s schedule-drive approach was creatig iefficiecies. West Coast track reewal uit costs were 60 per cet higher ad sigallig uit costs 100 per cet higher tha elsewhere o the etwork. Our review of the cosultats reports, that iformed the access charges review, established a umber of reasos for these high uit costs: 4 target costs uder the Alliacig approach had bee agreed at rates much higher tha etwork averages ad costs had ot bee cotrolled; there had bee limited aalysis of uit costs; possessios plaig had bee isufficietly itegrated with work plaig; ad Network Rail s ad cotractors overheads comprised a large proportio of costs. I prices (rouded to earest 5m) Source: Natioal Audit Office aalysis of programme fiacial data held by Network Rail NOTES Seve-teths of Railtrack ad Network Rail s expediture o the programme to April 2006 was paid to cotractors Compesatio to trai ad freight operators, 305m Free-issue materials ad egieerig trais, 400m Programme ad project maagemet, 615m Other, 795m Cotractors, 5,285m 1 Total programme sped to April 2006 was 7.4 billio i prices (or 6.8 billio i actual prices). 2 Other icluded 120 millio spet o techical services maagemet, 100 millio o the Network Maagemet Cetre (which was de-scoped from the programme i the Jue 2003 Strategy), 95 millio paid to electricity suppliers ad 90 millio o Project Rio. 17 I additio there has bee expediture by the Strategic Rail Authority ad Departmet ad the Rail Regulator/Office of Rail Regulatio o programme sposorship ad moitorig. 18 Network Rail s Natioal Delivery Service (formerly the Natioal Logistics Uit) supplies its maiteace, reewals ad ehacemet projects with egieerig haulage trais, which it obtais from the freight operatig compaies, ad key materials, such as rails, sleepers, ballast ad switches ad crossigs. 14 THE MODERNISATION OF THE WEST COAST MAIN LINE

17 part two 2.4 For Phases 2 ad 3, the Regulator cosidered requirig a pause i the programme after September 2004 to eable delivery arragemets to be re-assessed ad radically restructured. But the Strategic Rail Authority, Network Rail ad trai ad freight operators strogly opposed this sice it would delay delivery of importat capacity outputs ad icome, ad would ivolve substatial costs for demobilisatio ad remobilisatio. Istead, the Regulator determied that it would be more efficiet for Network Rail to delay, by 18 moths, plaed delivery of major remodellig work at Rugby ad Stafford statios, ad Nueato ad Tret Valley four-trackig. This was to provide Network Rail more time to develop improved scheme desigs ad more efficiet delivery arragemets, although it did mea that sigallig work would cluster i , creatig a ew risk to programme delivery. The Regulator accepted that cost of delivery before 2006 would be higher tha might be achieved with less schedule pressure, but, i determiig Network Rail s overall fudig for to , assumed that Network Rail would be able to halve the gap betwee West Coast ad etwork track reewal rates by Thereafter, the Regulator assumed that Network Rail would be able to reduce West Coast uit costs at the same aual rate as for the rest of the etwork. 2.5 We reviewed the pressures o costs through lookig at iformatio held by Network Rail o uit costs, cotractig strategy, possessios ad maagemet costs ad we also looked at cost cotrol i our case studies of specific projects. West Coast uit costs fell from 2004, but are still above the etwork average 2.6 West Coast track reewal uit costs were early 60 per cet above the etwork average i , despite delivery of a quarter of track reewals durig through blockades. 19 Track reewal uit costs fell by a fifth i , which Network Rail attributed to ew atioal framework track reewal cotracts. Uit costs fell a further sixth i , but remaied 16 per cet higher tha Network Rail s ow target ad 14 per cet higher tha the etwork average (Figure 5). The Office of Rail Regulatio cosidered that there were four mai reasos why West Coast track reewal uit costs might be above the etwork average (Figure 6). Network Rail had reduced the gap betwee the West Coast uit costs ad the etwork average by more tha the Regulator s advisers had suggested, but the Office cosidered further track reewal uit cost efficiecies to be possible o the West Coast. 5 per composite metre (i prices rouded to earest 5) Source: Natioal Audit Office aalysis of Network Rail data NOTE Track reewals ca ivolve replacig differet combiatios of rails, sleepers ad ballast. Work is measured i terms of composite metres, so that if all three activities are carried out o a metre of track this couts as three composite metres ad, if just oe, as oe composite metre. 6 The gap betwee West Coast ad etwork-wide track reewal uit costs arrowed cosiderably betwee ad West Coast Route Moderisatio Network average Four key factors have cotributed to higher tha average track reewal uit costs o the West Coast Its busy mixed traffic has reduced the opportuity to deliver productive shifts o midweek ights ad has required work to be cocetrated at weekeds, with log jobs takig several weekeds to complete, which has resulted i high overheads ad set up costs. The substadard 10-foot spacig of the four track south of Crewe has meat that Network Rail could ot utilise two track possessios to reew cetre tracks, but had to use shorter possessios of three (ad sometimes all) of the four tracks whe workig o the cetre tracks, to maitai safe workig coditios. The high desig specificatio eeded to icrease the loger term durability of the ifrastructure ad eeded for absolute track geometry, icludig the layig of heavy rails ad a above average umber of sleepers per rail legth. All work has required isolatio of the overhead lie system. Source: Natioal Audit Office iterview with the Office of Rail Regulatio 19 Blockades eabled lower rates to be achieved because carryig out a large quatity of work i a loger period of time reduced overheads ad also the proportio of the possessio time lost settig up ad closig dow worksites. The Moderisatio of the West Coast Mai Lie 15

18 part two 2.7 For the West Coast programme, Network Rail has recorded uit costs for the reewal of switches ad crossigs, which, together with track reewals, have accouted for a quarter of aual programme expediture. It has also calculated uit costs for sigallig equivalet uits from Differeces i the difficulty ad volumes of work mea, however, that the rates for switches ad crossigs ad sigallig caot be accurately compared with those for the etwork. Over recet years, Network Rail has bee developig a Cost Aalysis Framework to systematically capture ad aalyse uit costs. This is improvig the quality ad usefuless of its uit cost data ad aims to ultimately cover 80 per cet of reewal expediture. Delivery to a tight schedule added to costs i a umber of areas 2.8 Delivery to a fixed ad challegig timetable icreased costs before 2005 because: To cotiue the work, the govermet provided loa fudig for the programme from 2001 to 2002, ad util April 2004 there were effectively o regulatory efficiecy targets for Railtrack-i-Admiistratio/ Network Rail. The timetable reduced opportuities to package ehacemet ad reewal work efficietly ad accelerated some track, switches ad crossigs reewals from their atural reewal dates. Network Rail cotiued to rely o the Alliace arragemets, which it cosidered to be materially iefficiet, because cotract termiatio had fiacial risks ad it did ot have the time to set i place ew arragemets. The high level of demad for costructio work, betwee 2002 ad 2006, occurred at a time whe the costructio price idex was icreasig at a rate twice that of the retail price idex. Network Rail s key cotrol agaist overpriced teders was the idepedet cost estimate produced from first priciples by its West Coast estimatig team. For , we foud that cotractors teders exceeded Network Rail s cost estimates by more tha 10 per cet i 45 per cet of estimates ad, overall, cotractors teders exceeded Network Rail s estimate by 13 per cet. Network Rail provided us with evidece that it egotiated dow may of the high teders or re-scoped work to fit its budget. I two specialist areas, testig ad commissioig persoel ad sigallig cotractors, the West Coast programme s demad put particular pressures o supply with the bids for the large re-sigallig projects for Bletchley/Milto Keyes, Rugby, Tret Valley ad Nueato, for delivery betwee 2006 ad 2009, comig i betwee 14 ad 27 per cet above the Network Rail estimates. I some cases, oly oe cotractor tedered for the work. I 2006, Network Rail egotiated atioal framework cotracts with four suppliers to maage such risks for sigallig work. Network Rail eeded to book some haulage trais ad track possessios at short otice. I ad , Network Rail paid a premium of 7 millio to its logistics, purchasig ad supply uit, the Natioal Delivery Service, for bookig more tha 20 per cet of the egieerig trais it eeded with less tha 22 weeks otice. 21 I additio, wagos ordered at short otice were sometimes foud to be usuitable, cotributig to loger possessios. At times, haulage trais were uavailable ad the programme had to use road haulage vehicles, which added to costs as they eeded costructio of temporary slip roads. Network Rail sometimes overestimated its requiremets for track access ad egieerig trais, leadig to it later cacellig or ot usig some of these resources. I ad , West Coast paid the Natioal Delivery Service 4.5 millio for cacelled haulage trais. Durig this same period, it did ot use aroud five per cet of the possessios it booked, because of adverse weather coditios, poor plaig, ifrastructure problems elsewhere o the etwork ad resource issues. I additio to icoveiece caused to late ight passegers, Network Rail paid trai operators aroud 10 millio for this uused access. I the course of our work, we also idetified examples of waste at project level. Network Rail improved its cotrol over cotractors costs 2.9 Most cotracts have bee cost-reimbursable or target cost, which Network Rail has cotrolled through checks by its cotract maagers of reasoableess ad coformity of claims, supported by verificatio of work progress by its project maagers ad field/cost egieers. But with over 2,000 active cotracts, Network Rail s 50 cotract maagers have bee uable to check i depth most claims. A iteral review i 2004 foud that some West Coast cotractors had bee accustomed to claimig all costs ad that Network Rail idetified as o-etitled oly two per cet of amouts claimed. O other rail projects i Britai, however, aroud five per cet of claimed costs 20 Network Rail was uable to supply data for earlier years ad i egieerig trais were rig-feced for West Coast work ad paid for at a fixed price. 21 The Natioal Delivery Service charged a premium of 40 per cet for egieerig trais booked with less tha 22 weeks otice ad charged 50 per cet of the charge rate for cacellatios of booked egieerig trais. 16 The Moderisatio of the West Coast Mai Lie

19 part two were challeged as o-etitled. Sice 2004, the level of challege ad disallowace of cotractors claims has rise to well above five per cet, as workshops ad guidace have dissemiated good practice to cotract staff ad cotractors I additio to cotrollig the work of cotractors more closely to check that they delivered work to agreed stadards, Network Rail built i productivity icetives (case study Presto-Glasgow upgrade Appedix 3) ad, from 2005, let out work o fixed price cotracts (Appedix 4). Possessios have bee used more itesively 2.11 Bechtel Ltd s March 2002 programme review idetified the duratio ad use of possessios as key costraits o costructio progress ad priorities for improvemet. Network Rail addressed these, with success i part: There have bee loger possessios to reduce the legth of time over which services are disrupted. Possessios have bee used more itesively as measured by the umber of work activities/sites per possessio, with a doublig betwee ad i cotractor site hours per possessio, ad by work startig o time for more possessios. But there is still cosiderable uused possessio time ad problems with late had backs. I , cotractors made use of 92 per cet of the booked possessio time. Sice , there has bee a icrease i the proportio of possessios startig late, maily due to the late ruig of last trais, ad possessios overruig. I , 22 per cet of possessios started late ad 14 per cet overra. The scale of rail replacemet services has bee reduced to match demad 2.12 Network Rail meets the cost to trai operators of providig alterative travel arragemets for passegers durig blockades ad possessios. Betwee ad , it paid out 30 millio for rail replacemet services. 22 Trai operators specified the umber ad type of buses based o ormal trai loads betwee the affected cetres. But this led to overprovisio of betwee per cet i may of the services before 2004, as fewer passegers sought to travel whe services were affected by egieerig works or chose to travel by their ow meas to the earest statio which ra ormal services. The Authority idetified savigs through buildig up capacity i respose to demad, improvig reveue collectio o buses, ad brokerig co-operative solutios whe several trai operators were affected by a possessio/blockade. I 2006, the Departmet drew together lessos ad produced a good practice guide to iform future provisio of rail replacemet services across the etwork. Programme ad project maagemet costs have bee substatial 2.13 Approximately eight per cet of programme sped has bee o Network Rail s programme ad project maagemet, icludig the cost of maagig possessios ad lad purchases. Comparisos with other major projects show this level of expediture to be ot out of lie. 23 But curretly the bechmarkig of programme maagemet costs both withi ad outside Network Rail remais uderdeveloped, with o agreed defiitios of project maagemet costs. I mid-2004, Network Rail had a 1,100-strog programme maagemet team, which oversaw 8,000 field-based ad 1,000 office based cotractors staff. I Jauary 2006, Network Rail s programme maagemet team still umbered 1,000, although the umber of cotractors staff had falle to 5,000. Followig the trasfer of reewals work to Network Rail s core teams i March 2006, the programme maagemet team dropped to below From Jauary 2002 to April 2006, aroud 165 millio (i prices) was paid to Bechtel Ltd for providig skilled ad experieced persoel i programme ad project maagemet to lead the programme from the cetre ad i the field. Bechtel has bee paid a aual lump sum ad eared performace related fees for providig ogoig leadership, directio ad clarity to the programme maagemet team ad to develop ad implemet a delivery pla so that key programme milestoes were achieved The Departmet ad Network Rail have bee satisfied with the Bechtel team s performace i maagig the programme, for example i brigig i additioal staff whe ecessary to esure delivery ad i its willigess ad ability to take o a greater role tha origially evisaged, overseeig cotractors. We oted that: 22 Network Rail also paid out 90 millio to support the Project Rio alterative rail service betwee Lodo to Machester i (see Figure 4). 23 Our reports o the Natioal Probatio Service Iformatio Systems Strategy ad the Wembley Stadium project both calculated that 10 per cet of expediture was o project maagemet, while for Sectio 1 of the Chael Tuel Rail Lik it was 22 per cet. Also a Network Rail review i 2005 foud that typically ie to te per cet of its expediture o ehacemet projects was o project maagemet ad sposorship, but that the proportio was typically lower for larger projects. The implemetatio of the Natioal Probatio Service Iformatio Systems Strategy (Natioal Audit Office, HC 401, Sessio , Figure 7, p.28, with developmet costs icluded); The Eglish atioal stadium project at Wembley (Natioal Audit Office, HC699, Sessio , Figure 9, p. 29); ad Progress o the Chael Tuel Rail Lik (Natioal Audit Office, HC77, Sessio , Figure 6, p. 17). The Moderisatio of the West Coast Mai Lie 17

20 part two Bechtel Ltd provided support to Railtrack o the West Coast programme betwee Jauary ad March 2002 uder a existig framework agreemet, which had bee awarded i 1999 followig competitive teder, ad was the awarded the programme maagemet cotract i September 2002, without ope competitive teder. Network Rail has o iformatio showig how Railtrack-i-Admiistratio established the fees it agreed to pay Bechtel. The Departmet s exteral fiacial advisers foud that the service defiitio i Railtrack s agreemet with Bechtel Ltd was uclear, did ot specify the Key Performace Idicators which were to be used to assess Bechtel s performace ad recommeded that similar large cotracts should ot be awarded without teder for future major projects. The cotract was cofirmed, however, because Railtrack told the Departmet that there were o viable alteratives to Bechtel ad it eeded formalisatio of the cotract. The Departmet was assured that the Bechtel cotract would be tied to the delivery of the programme s scope ad Strategy whe it was resolved later, i the agreemet of the Strategy ad the Regulator s fudig determiatio i December Railtrack/Network Rail ad Bechtel agreed key performace milestoes ad deliverables to be achieved each quarter. These related to delivery to schedule, safety ad cost ad chaged as priorities chaged over the course of the programme. Ulike Bechtel s cotract for the Chael Tuel Rail Lik, Bechtel did ot share with Railtrack/Network Rail fiacial risk for cost overrus. I large part, this was because Bechtel did ot have ultimate cotrol over costs, with scope developmet, desig approval ad procuremet of materials ad cotractors specifically reserved to Network Rail staff. I December 2004, Network Rail exteded the cotract with Bechtel Ltd to cover the remaider of the programme to It cosidered the optios of allowig the cotract to expire i Jue 2005 or egotiatig shorter extesios, but rejected these as it cosidered they would compromise delivery of Phase 2 of the programme. Network Rail aticipates achievig 70 per cet of assumed efficiecy savigs, but overspedig 300 millio o the programme from The gap betwee cumulative expediture o the programme ad work quatities delivered arrowed cosiderably betwee 2003 ad 2005 (Figure 7), reflectig improvig efficiecy, but a slight wideig i idicates that cost pressures cotiue. Our aalysis of Network Rail s reported expediture o the programme ad its forward forecast, as set out i its April 2006 busiess pla, idicates that the programme is likely to cost aroud 8.6 billio 24 ad that Network Rail is likely to oversped by aroud 300 millio, or 10 per cet, of the 3 billio the Rail Regulator assumed for West Coast expediture betwee ad This meas that it is likely to achieve aroud 70 per cet of the 940 millio efficiecy savigs the Rail Regulator assumed it could achieve, whe makig his overall fudig determiatio i December The Rail Regulator s 2003 fudig decisio ca be reopeed if Network Rail s costs for the West Coast programme ad for reewals o the route carried out outside the programme (regioal reewals) over the period to exceed the fudig determiatio by more tha 15 per cet. I April 2006, forecast spedig o West Coast regioal reewals to was 390 millio less tha the fudig allowace of 1,025 millio, so Network Rail remais uder its overall West Coast fudig allowace. Project costs have icluded trai operators compesatio for egieerig access but have ot icluded costs to the Departmet from chages to operators frachise terms 2.17 To April 2006, Network Rail (ad Railtrack) s costs icluded 305 millio i compesatio paid to operators for possessio of the track for egieerig work, mostly to passeger trai operators. I additio, i July 2002 the Strategic Rail Authority suspeded the frachise agreemet with Virgi Rail Group ad the Authority/Departmet subsequetly paid out higher levels of subsidy, uder aual agreemets. This icreased subsidy does ot form part of the West Coast programme costs as it was eeded to sustai trai operatios irrespective of the solutio to the upgrade project. Network Rail has provided high levels of compesatio to operators for their costs ad lost reveues from egieerig work 2.18 Passeger trai operators receive compesatio from Network Rail for reveue loss arisig from track possessios for reewals uder Schedule 4 of their track access agreemets, i accordace with a agreed formula. Where a possessio ivolves a sigificat restrictio of use, lastig more tha a specified umber of hours 25, ad ivolves costs to trai operators of more tha 10,000, Network Rail also pays compesatio for the direct costs 24 See footote Over a weeked, public holiday ad possessios of 60 hours or loger. 18 The Moderisatio of the West Coast Mai Lie

21 part two 7 Cumulative per cet Source: Natioal Audit Office aalysis of Railtrack ad Network Rail data NOTE The gap betwee cumulative expediture o the programme ad work quatities delivered arrowed cosiderably from 2003 to 2005 April 2002 April 2003 Programme expediture April 2004 Physical work April 2005 April 2006 Expediture has bee calculated as a percetage of the 8.3 billio budget implied by the Rail Regulator s December 2003 programme fudig determiatio. Physical work is based o the prevailig Baselie, so the April 2002 ad April 2003 figures relate to a baselie which was de-scoped later i the operator icurs o replacemet buses or taxis, publicity ad trai plaig. If the possessios are related to improvemets to the etwork, for example, by icreasig lie speed, or if the egieerig work is for ehacemets, trai operators ca claim compesatio uder Part G of the Network Code. Kow as Network Chage, this compesatio is based, ot o a formula, but o a trai operator s claim for all its reasoable costs ad losses ad takes accout of likely future reveue gais or losses We foud that while aroud 80 per cet of West Coast costructio work has bee reewals, 95 per cet of West Coast track access compesatio has bee uder Network Chage arragemets, ad this has icreased the cost of possessios. It has ot always bee clear cut uder which regime possessio compesatio falls. Network Rail told us that trai operators have typically made claims uder Network Chage ad provided us with examples where Network Chage compesatio was more tha double that applicable uder Schedule 4, despite allowig for the future icreased reveue flows receivable by the operator. Durig , Network Rail egotiated dow operators Network Chage compesatio claims by seve per cet o average, ad for some trai operators by per cet. Network Rail has disputed trai operators claims where it cosidered the claims to be ureasoable, usig the idustry s dispute process, although oe have required adjudicatio by the Office of Rail Regulatio. The Office told us that it would ot expect material differeces betwee compesatio paid uder Schedule 4, where there is a sigificat restrictio of use ad direct costs are compesated, ad uder Network Chage Two-thirds of the programme s possessios compesatio has bee to Virgi Rail Group. This compesatio has bee high because it has bee provided i accordace with a early track access cotract ad special arragemets agreed with Railtrack i the West Coast upgrade agreemet, which do ot provide for the ettig off of future reveue beefits likely to arise from the ehacemet. However, uder the Letter of Agreemet betwee the Strategic Rail Authority/Departmet of Trasport ad Virgi Rail Group there is a clawback arragemet to esure that possessios compesatio is etted off whe the Departmet calculates the subsidy payable I 2005, the Office of Rail Regulatio iitiated a whole-idustry review of the efficiecy of possessios ad the most appropriate compesatio arragemets. This icludes a review of the sufficiecy of Schedule 4 compesatio for possessios that make permaet improvemets to the etwork ad the case for compesatig freight operators. The Office will cosider the case for compesatig all possessios, icludig those for ehacemets, uder formula arragemets provided for i Schedule 4. Betwee ad the Strategic Rail Authority ad the Departmet paid 590 millio i additioal subsidy to Virgi West Coast partly because the West Coast upgrade was ot delivered as evisaged i Virgi s frachise bid 2.22 Betwee ad , the Strategic Rail Authority ad the Departmet paid Virgi West Coast aroud 360 millio i subsidy, 26 whereas, uder its 1997 frachise agreemet, Virgi West Coast had bee expected to pay the govermet 230 millio i premium. Virgi Rail Group told us that i 2001 it was seekig to egotiate with Railtrack compesatio ad revised outputs to eable it to deliver its frachise obligatios. With Railtrack goig ito Railway Admiistratio i October 2001, Virgi Rail Group recogised it would ot be able to make frachise premium paymets ad therefore decided to seek additioal frachise support from the Strategic Rail Authority. This additioal subsidy has bee paid uder the terms of a Letter of Agreemet itroduced i July 2002, whe the terms of 26 These are subsidy paymets after strippig out the effect of adjustmets related to chages i track access charges ad performace paymets. The Moderisatio of the West Coast Mai Lie 19

22 part two Virgi Rail Group s origial frachises were suspeded. The Letter of Agreemet allowed the Authority to set subsidies o a aual basis, followig detailed review of the operators costs ad reveues, ad has restricted Virgi West Coast to a pre-tax profit margi of two per cet of reveue ad te per cet of Network Chage compesatio. The 590 millio i et additioal subsidy paid to Virgi West Coast betwee ad was eeded because rollig stock costs were high, as they icluded costs of the Pedolios o top of the cost of existig trais, ad because passeger reveues were lower tha expected. 27 The icreased subsidy also reflected other factors, such as the lastig effects of the October 2000 Hatfield derailmet, icludig the loss of some log-distace passegers to the airlies. The Departmet cosidered the Letter of Agreemet ad the suspesio of claims uder the 1998 Passeger Upgrade 2 agreemet facilitated Railtrack beig brought out of Railway Admiistratio, kept trai services ruig ad retaied Virgi s expertise for the maagemet of the itroductio of the Pedolios. Subsidy paymets would have bee higher if the West Coast programme had bee aborted or delivery of Phase 1 had bee delayed from 2004 util 2005 or 2006, as Virgi West Coast reveues would have bee at a lower level for a further year ad subsequet growth would have bee deferred Virgi Rail Group cotiues to provide passeger services uder the Letter of Agreemet ad the Passeger Upgrade 2 track access agreemet. I 2006, the Departmet has bee i egotiatio with Virgi Rail Group to re-establish a West Coast frachise o a more covetioal footig ad Network Rail has bee egotiatig a ew track access agreemet. Util these egotiatios are completed, there remais a small risk that Virgi Rail Group may choose to walk away from this Agreemet ad cease West Coast Trais rail operatios ad seek reparatios from Network Rail, as Railtrack s successor, uder the Passeger Upgrade 2 agreemet. 28 Network Rail expects the ivestmet will reduce the additioal maiteace ad reewal costs which would ormally result from icreased use ad higher trai speeds o the lie 2.24 Both the 2003 ad 2004 busiess case appraisals cosidered the ehaced, more frequet services o the West Coast route would result i additioal future maiteace ad reewal costs. Oe of the Strategy s objectives was to establish sustaiable ad cost effective maiteace regimes I 2004, Network Rail estimated that maiteace costs might icrease by up to 8 millio a year as a result of the icreased umber of trais, ad the eed for higher stadards to support their icreased speed ad tilt operatio. Its 2006 Busiess Pla forecasts, however, that overall its future maiteace costs for the lie will fall due to geeral efficiecy improvemets. Network Rail also expects that the icrease estimated may be offset by reductios i costs from usig heavier rails; usig absolute track positioig, which eeds less frequet maiteace tampig; ad the ew Pedolio rollig stock, which spreads the weight of its heavy tractio equipmet through the trai. I additio, it expects costs to be reduced as a result of makig future maiteace ad reewals easier by buildig diversioary routes, simplifyig layouts, icreasig the distace betwee the tracks ad layig dow additioal tracks, ad providig bi-directioal sigallig. Network Rail expects to establish firm maiteace costs as experiece is gaied with the ew trai service ad ifrastructure. Network Rail is also workig with trai operators to establish a maiteace strategy to apply from 2009 which will allow icreased access for trai operatios, particularly at weekeds, while still meetig its access requiremets for maiteace ad reewal work, ad geerate a et icrease i reveue from the route. Electroic sigallig equipmet o the West Coast Mai Lie may become obsolete sigificatly earlier tha expected 2.26 The West Coast Mai Lie sigallig reewals ad ehacemets, which Network Rail told us accouted for aroud 0.5 billio of programme sped, are ot expected to be due for replacemet util Based o this level of ivestmet, a oe year shortfall i the average expected lifespa of the equipmet would cost Network Rail some 12 millio. Network Rail recogised the risk from early obsolescece of its sigallig equipmet ad we commissioed joitly with Network Rail a review by QietiQ of Network Rail s processes for maagig obsolescece. The review aimed to quatify ay risk to Network Rail through examiatio of seve systems o the West Coast mai lie ad cosideratio of the fiacial cosequeces of ay obsolescece issues idetified. The systems reviewed are used across the rail etwork, so the coclusios apply more geerally to Network Rail. 27 It had bee aticipated, whe the West Coast frachise was let, that et reveues would icrease by 315 millio betwee ad as a result of delivery of Phase 1 of the lie upgrade i I practice, however, over these three years rollig stock costs icreased by 200 millio ad passeger reveues did ot icrease. 28 The Cross Coutry frachise termiates i November 2007 ad the teder is ope for competitio. 20 The Moderisatio of the West Coast Mai Lie

23 part two 2.27 QietiQ cocluded that: Network Rail s approach of oly usig equipmet from a approved list, keepig strategic spares ad relyig o its suppliers to idetify ad mitigate future obsolescece risks leaves it exposed to fiacial risk from obsolescece; Network Rail s procuremet ad approval processes do ot require cosideratio of obsolescece issues from the outset, although its approach of obtaiig equipmet with lifetime supplies of spares ad providig for dual sourcig for some critical equipmet reduces the risks; Network Rail s data systems are ot sufficiet to esure it has good iformatio o the umbers ad locatios of spares held; ad Network Rail s suppliers are ot uder ay cotractual obligatio to idetify ad address obsolescece issues o Network Rail s behalf ad bear oe of the risk themselves. Network Rail cosiders that, with its older equipmet, obsolescece earlier tha plaed has ot resulted i operatioal difficulties but it could ot provide repairs ad cost iformatio to cofirm that its equipmet had lasted as log as expected with appropriate maiteace ad reewals costs QietiQ cocluded that the risk to Network Rail from ot formally cosiderig ad addressig the risk of obsolescece i its procuremet of equipmet ad its approach to maiteace is likely to icrease substatially. Historically, sigallig equipmet was less sophisticated ad more robust. Icreasigly Network Rail is usig more off-the-shelf systems, with short productio lives, ad more systems cotaiig proprietary software-drive devices. There are risks to Network Rail from ot beig able to obtai compoets for the repair of their systems ad from ot havig staff with kowledge of systems to support them. Although Network Rail ca deal with obsolescece through the redesig ad productio of ew systems, this icreases costs substatially (Appedix 6). carry out, they idetified compoets which are already obsolete ad others which are likely to become so withi the ext three to five years, as well as items which are specific to the system ivolved, for which there is oly oe supplier. Network Rail cosiders it ca address the risks to its older system. It cosiders it ca support the solid state iterlockig systems i place ad cotiue its reewals programme despite the limited supply of the curret system through acceptig the risk of usig alterative compoets idetified by oe of its suppliers ad urgetly progressig the approval of a moder versio of the system. It has established a support agreemet with the supplier of the computer-based iterlockig system ad recogises the eed to address with urgecy its exposure to the future risk from obsolescece to elemets of the other ew system covered by QietiQ s review, the high performace switch actuator, ad also o the ew axle couter systems it has istalled o the West Coast, which were ot withi the sample of systems reviewed i detail by QietiQ Network Rail recogises its exposure to fiacial risks from premature obsolescece of its systems ad the risk that suppliers may seek higher charges for takig some of the risk of premature obsolescece if this is addressed i egotiatios outside of the ormal procuremet phase. Network Rail is developig plas to address QietiQ s recommedatios, icludig developig a overarchig policy ad strategy for maagig the risk, developig detailed plas for projects ad equipmet ad itroducig specific requiremets ito supply ad support cotracts The Office of Rail Regulatio also cosiders that Network Rail eeds to be more proactive i maagig the risks of obsolescece i its procuremet processes ad should develop obsolescece strategies for high-tech systems. It cosiders Network Rail should use a modular approach to the desig of systems to eable compoets to be readily replaced ad upgraded ad set clear specificatios for the purpose of the equipmet withi a system, with detailed performace requiremets ad stadardisatio to idustry-wide specificatios QietiQ idetified obsolescece issues eedig to be addressed i four of the seve systems it reviewed, demostratig the risks to which Network Rail is exposed (Figure 16, Appedix 6). QietiQ s review could ot ivestigate all seve systems i full detail, because of the failure of two of Network Rail s suppliers, Westighouse ad Alstom, to provide detailed iformatio o their equipmet s idividual compoets. However, from the work they could The Moderisatio of the West Coast Mai Lie 21

24 PART THREE The programme is deliverig its projected beefits 3.1 This Part of the report examies the busiess case for the West Coast programme ad the extet to which the expected beefits have bee delivered. The Strategic Rail Authority demostrated a positive busiess case for cotiuig the project to ehace the lie 3.2 The Strategic Rail Authority s busiess case for the West Coast Strategy gave a positive beefit:cost ratio for the ehacemets elemet of the programme of 2.5:1 (Figure 8). The busiess case was prepared to support the decisio to cotiue with the ehacemet project beyod 2002, ad therefore examies oly the additioal costs ad beefits beyod this date. It does ot reflect the costs ad beefits of the project as a whole. The ifrastructure costs of 1.4 billio covered oly ehacemet expediture for the remaider of the project, although most West Coast reewals cotributed to icreasig lie speeds. The Authority excluded the cost of reewals from the appraisal o the grouds that they could ot be avoided, as they were eeded to keep the West Coast Mai Lie a goig cocer. The appraisal assessed the costs agaist the beefits from the ehacemets to the track. Leasig charges, amoutig to a preset value of almost 1.5 billio over the 35-year period to 2038, for the Pedolio trais, which had already bee ordered by Agel Trais for the Virgi Rail Group ad which were i the course of delivery, were excluded from the appraisal o the grouds that they were suk ad committed costs ad were ot relevat to the cosideratio of the case for proceedig with further upgrade of the track. 3.3 The busiess case for the cotiuatio of the programme higed aroud the o-fiacial beefits, chiefly savigs i passeger jourey times ad beefits to road-users from freight beig carried by rail rather tha road ad from reduced road cogestio. I fiacial terms, the projected direct costs were almost twice as great as the projected reveues. The jourey time beefits were calculated usig stadard methods ad are very sesitive to small chages i jourey times ad service frequecies. The beefits to road users deped o the assumptio that some additioal passegers ad freight would otherwise have used the roads. Evirometal dis-beefits of 53 millio were icluded, reflectig the cost of extra pollutio created at power statios to meet the electricity requiremets for the additioal trais. 3.4 Sesitivity aalysis of key assumptios is importat i appraisals. As part of its busiess case appraisal, the Strategic Rail Authority carried out sesitivity tests o the key assumptios uderpiig it: for example, o capital costs, passeger demad ad reveues. These showed a beefit:cost ratio of less tha oe oly whe pessimistic outcomes were assumed across all scearios. We tested the cost beefit further ad calculated that if a 25 per cet lower value is assumed for jourey time beefits ad the full costs of leasig the Pedolios had bee icluded i the appraisal the overall beefit:cost ratio would have bee 1.7:1. 22 THE MODERNISATION OF THE WEST COAST MAIN LINE

25 part three 8 Costs NOTES The Strategic Rail Authority s 2004 busiess case appraisal gave a 2.5:1 beefit:cost ratio for the ehacemet elemet of the programme Preset values Per cet ( millio) share Ifrastructure costs 1, TOC passeger operatig costs 2, (icludig profit margi) Freight operatig costs 1, A: Total costs 5, Beefits Fiacial TOC passeger reveue 2, Freight reveue 1,231 9 Disruptio costs (25) 0 B: Total fiacial beefits 3, No-fiacial Jourey time beefits 6, Crowdig beefits Freight o-user beefits 1, Passeger o-user beefits: road decogestio beefits 1,293 9 accidet beefits Evirometal beefits (53) 0 C: Total o-fiacial beefits 10, D: Total beefits (B+C) 13, Summary E: Beefit:cost ratio (D/A) 2.5 F: Net fiacial beefits (B-A) (1,943) G: Net preset value (NPV) of 8,306 beefits less costs (D-A) Source: Natioal Audit Office aalysis of April 2004 West Coast Strategy Busiess Case Appraisal 1 The appraisal was based o a assessmet period of 35 years (to ) at a discout rate of 3.5 per cet. We have coverted all values to prices. 2 The iitial, Jue 2003, appraisal of the Strategic Rail Authority s West Coast Mai Lie Strategy had a beefit to cost ratio of 2.4:1. The 2004 appraisal of the programme, as revised followig the Regulator s December 2003 determiatio of Network Rail s overall fudig, icluded lower costs ad higher passeger demad forecasts, ad lower freight reveue ad o-user beefits because of the deferral by up to two years of some schemes, pricipally the Tret Valley four-trackig. The Programme is deliverig beefits to passegers i lie with projectios 3.5 The Departmet has ot re-visited the 2004 busiess case appraisal, but moitors key idicators of costs, trai operators reveues, passeger jourey times, service frequecies, passeger umbers ad trai puctuality to cofirm that the programme is o course to deliver its expected beefits to passegers. The jourey times ad trai frequecies achieved from September 2004 ad expected from December 2008 are summarised i Figure 9 overleaf. These exceed the targets set out i the 2003 West Coast Strategy. For passeger umbers ad trai puctuality, we compared outtur performace agaist the forecasts uderpiig the appraisals. Growth i passeger umbers is exceedig expectatios 3.6 I , followig Phase 1 of the West Coast programme, aual passeger joureys o Virgi West Coast grew by more tha 20 per cet o the previous year ad were four per cet ahead of the busiess case forecast for that year. Passeger joureys o Virgi West Coast have also grow at a greater rate tha that experieced by its earest comparator trai operatig compay, Great North Easter Railway. I 2006, some parts of the route were operatig at or ear capacity. The Departmet predicts further growth i passeger joureys i ad expects growth of aroud 10 per cet per aum betwee ad , which is higher tha the growth of three per cet assumed i the busiess case. Higher tha expected passeger growth should have the effect of icreasig passeger reveues ad jourey time beefits compared to the busiess case appraisal. Completio of ehacemets at Rugby ad Tret Valley i 2008 ad at Stafford i will ease capacity pressures, but there is a idustry cosesus that the lie will have isufficiet capacity to sustai growth i passeger ad freight traffic beyod 2015 to 2020 if curret levels of growth cotiue. Icreases i capacity could be achieved through ivestmet i loger trais, although some ifrastructure works, icludig platform ad depot legtheig, may be required to achieve this, or more radical optios such as movig block sigallig might be cosidered, if available. The Moderisatio of the West Coast Mai Lie 23

26 part three 9 The programme is deliverig jourey time ad trai frequecy improvemets, through revised timetables Fastest trai times Before September 2004 After September Expected December (based o timetable) Birmigham to Lodo 1 hour 39 miutes 1 hour 21 miutes 1 hour 18 miutes Machester to Lodo (via Stoke) 2 hours 41 miutes 2 hours 5 miutes 1 hour 59 miutes Lodo to Glasgow 5 hours 6 miutes 4 hours 24 miutes 2 4 hours 12 miutes Number of fast lie trai services to/from Lodo per hour Peak time Off peak Trai Seats 3 Peak hour 4,756 5,880 6,327 Off peak hour 3,136 3,376 4,493 Source: Natioal Audit Office aalysis of Departmet s data NOTES 1 The 2003 West Coast Strategy had aticipated, for 2005, idicative fast jourey times to/from Lodo which were oe miute more from Birmigham ad Machester ad to Glasgow ad which would be three miutes more from Machester ad six miutes more to Glasgow i It plaed for peak time ad ie off peak trais per hour i After December Other measures also show icreases i capacity: towards the ed of there were almost 70,000 Virgi West Coast trais operatig o the West Coast route a year (measured as a movig aual total), a icrease of aroud 12,000 trais a year (20 per cet) compared to before September 2004, a lower icrease tha for trais per hour because it icludes weeked services, which are still substatially affected by closures for egieerig works. 3.7 Reduced jourey times sice September 2004 have helped Virgi West Coast to icrease its share of the growig Lodo to Machester rail/air market. The umber of mothly passeger rail joureys betwee Lodo ad Machester icreased by 55 per cet betwee September 2004 ad April 2006, to 194,000. Over the same period, mothly joureys by air betwee Lodo ad Machester fell by eight per cet to 154,000. Rail s share of the Lodo Machester rail/air market stood at 56 per cet i April 2006, up from 40 per cet i September Puctuality has improved sice September A key Strategy target is that, by December 2008, 90 per cet of log distace passeger joureys should arrive withi 10 miutes of the advertised time. This target is measured as a movig aual average usig Virgi West Coast s Public Performace Measure (PPM). 29 I the year to Jauary 2006, Virgi West Coast achieved a movig aual average PPM of 80 per cet ad by September 2006 this had icreased to just over 86 per cet compared to a iterim target of 87 per cet to be achieved by December I September 2006 o average Virgi West Coast trais have bee delayed by ie ad a half miutes, 30 a 43 per cet improvemet o the average delay of 17 miutes i September The Public Performace Measure (PPM) is the percetage of scheduled trais that arrive at their destiatios withi 10 miutes of their plaed arrival times. The PPM takes accout of late ruig, as well as cacelled, trais. The movig aual average measures the average level of performace over the previous year to smooth out seasoal fluctuatios. 30 Delay per plaed trai ad measured o a movig aual average basis. 24 The Moderisatio of the West Coast Mai Lie

27 part three 3.9 Puctuality performace has also improved o Silverlik, the other mai user of the West Coast Mai Lie. Passeger Charter puctuality data, which measures the percetage of peak time trais arrivig withi five miutes of their advertised arrival time, shows that the movig aual average for Silverlik s Couty services betwee Lodo ad Northampto was 89 per cet at September 2004 ad 95 per cet by September Passeger satisfactio has improved 3.10 The latest Natioal Passeger Survey results, for Sprig 2006, idicate that overall passeger satisfactio with Virgi West Coast rail services has icreased from 76 per cet at the time of the September 2004 timetable chages to 90 per cet. Satisfactio with Silverlik Couty trai services has icreased from 70 per cet to 84 per cet. It is too early to assess whether o passeger beefits will be delivered The moderisatio programme is ot scheduled to begi deliverig major freight beefits util A key objective of the govermet s strategy for trasport is to icrease rail freight s share of the freight market, ad the 2003 West Coast Strategy provided for a icrease of 60 to 70 per cet i the umber of freight paths o the lie. The delivery of this capacity ehacemet was, however, put back followig the Rail Regulator s 2003 decisio that deferrig key aspects of the programme would be more efficiet, deferrig the beefits from icreased freight operatig compay reveues ad from road traffic decogestio util Freight operatig compaies are cofidet beefits will be delivered from the icreased freight paths available o the upgraded route from Some of the moderisatio improvemets that have already bee implemeted, such as ehaced clearaces ad improved power supplies, should already be deliverig beefits. The Departmet oly has data o freight use provided by Freightlier, the secod largest freight operatig compay operatig o the rail etwork, which shows that high gauge cotaier traffic, which requires greater clearaces, icreased threefold o the routes to Machester betwee September 2004 ad Jauary The Departmet is ot moitorig whether the programme is deliverig passeger o-user beefits 3.13 The busiess case estimated, drawig o the Departmet s models for modal shift, that the upgrade would geerate almost 1.5 billio worth of passeger o-user beefits, from reductios i road traffic cogestio ad road traffic accidets resultig from the trasfer of travellers from road to rail. The Departmet has ot moitored the delivery of these beefits ad has o plas to assess their realisatio i the future. The Programme is deliverig ecoomic regeeratio beefits 3.14 The busiess case also cosidered beefits attributable to ecoomic regeeratio ad the evirometal beefits resultig from the switch of passegers from air ad road to the railways but did ot quatify them. The Departmet reported, i its May 2006 West Coast Mai Lie Progress Report, 31 that the programme has helped catalyse redevelopmet aroud key statios alog the route, icludig Machester Piccadilly. 31 West Coast Mai Lie: Progress Report May 2006, Departmet for Trasport. The Moderisatio of the West Coast Mai Lie 25

28 Appedix oe Backgroud to the West Coast moderisatio programme 1 The West Coast Moderisatio Programme ivolves the reewal ad upgradig of the UK s busiest mixed-use rail lie: the route liks Lodo Eusto to Birmigham, Machester, Liverpool ad Glasgow ad is used by more tha 2,000 trais a day, carryig both passegers ad freight. The West Coast Route Moderisatio bega as a private sector programme 2 Built i stages over three decades from the 1830s, the West Coast Mai Lie was electrified i the North West i the 1960s ad to Glasgow i the 1970s. The route eeded reewal i the 1990s because, with its ifrastructure ageig, trai service reliability was deterioratig. I 1998, two private sector compaies, Railtrack, which owed ad was resposible for operatig, maitaiig, reewig ad developig the rail ifrastructure, ad Virgi Rail Group, which held the frachise 32 to operate log-distace passeger trais as West Coast Trais, agreed a reewal ad upgrade programme kow as Passeger Upgrade 2 (PUG2). This Passeger Upgrade agreemet was approved by the Rail Regulator. The origial aim was to upgrade the lie, i two phases, i 2002 ad 2005, usig ew movig block sigallig techology 33, to icrease capacity ad trai speeds at low cost. Virgi Rail Group ordered a fleet of ew tiltig trais that would be capable of ruig at 140 mph, with delivery plaed for May The programme quickly ra ito difficulties. Railtrack s estimates of the expected fial cost icreased rapidly (Figure 10). Dissatisfied with progress o the programme, i November 1999 the Rail Regulator took eforcemet actio agaist Railtrack, uder sectio 57 of the Railways Act 1993, requirig Railtrack to come up with coheret plas for the project. I December 1999, Railtrack decided ot to use movig block sigallig, as the techology was ot sufficietly mature. The October 2000 Hatfield derailmet ad subsequet speed restrictios ad icreased level of repairs ad reewals eeded o the etwork, alog with other factors, icludig West Coast cotract liabilities, created a fiacial crisis for Railtrack which resulted i October 2001 i the High Court, o the applicatio of the govermet, puttig it ito Railway Admiistratio. Virgi West Coast s procuremet of its ew tiltig trais rollig stock also fell behid schedule. I early 2002, the govermet ivited the Strategic Rail Authority to itervee to take the programme forward 4 The Strategic Rail Authority first bega to review optios for the way forward for the West Coast programme i July 2001, five moths after it was formally set up by the govermet i February I shadow form it had ot reviewed the programme as util the establishmet of the full Strategic Rail Authority it had o locus over ifrastructure matters. The Authority commissioed cosultats to carry out a ecoomic study of the route ad i December 2001 reviewed passeger ad freight operators eeds. I Jauary 2002, the Secretary of State orally istructed the Authority to itervee, assess the positio o the West Coast programme ad fid a clear way forward. Railtrack had already spet over 2 billio o the programme ad may items of forward build ad fudig were committed, totallig some 500 millio. The pricipal reasos for the govermet s itervetio were: 32 Awarded to it i 1997 by the Office of Passeger Rail Frachisig (OPRAF), alog with a frachise to operate Cross Coutry Trais. Both frachise terms were to I which trais are cotrolled i a movig rather tha a static block, usig GSM (Global System for Mobile Commuicatios) commuicatios techology. 34 The Strategic Rail Authority was preceded by the Shadow Strategic Rail Authority, which the govermet set up i July 1999 to replace the Office of Passeger Rail Frachisig (OPRAF), which awarded ad moitored passeger rail frachises from privatisatio i the mid-1990s. 26 The Moderisatio of the West Coast Mai Lie

29 appedix oe the private sector compaies ivolved i the West Coast upgrade Railtrack ad Virgi Rail Group did ot deliver the rail ifrastructure upgrade ad ew trais as set out i their agreemet; the importace of the West Coast Mai Lie upgrade to the delivery of the govermet s Trasport 10 Year Pla targets for rail passeger ad freight growth ad improvemets i puctuality ad reliability; ad to assist Railtrack to come out of admiistratio as quickly as possible ad to give a measure of certaity to eable the rail idustry to pla its busiess. 5 The Authority coordiated discussios betwee the mai idustry parties ivolved, ad egaged the maagemet cosultats Oakleigh Cosultig Ltd to report o lessos arisig from delivery of the programme to Cocurretly, i Jauary 2002, Railtrack-i- Admiistratio appoited the egieerig, costructio ad project maagemet cosultats, Bechtel Ltd, to review the programme ad, from April 2002, take o its maagemet. The Authority s review foud that: the programme was over ambitious; there were o firm timescales for deliverig improvemets to the route ifrastructure; ad projected costs were soarig, with the latest estimate, made by Bechtel i May 2002, projectig a fial cost of 14.5 billio 35 ad delivery of the first passeger beefits ulikely before the May 2006 timetable chage. 6 The Strategic Rail Authority decided that the programme eeded a formal strategy. The Authority cocluded that abadoig the programme was ot a viable optio because four-fifths of the work ivolved reewals that were eeded to replace the route s ageig ifrastructure. Moreover, stoppig work already cotractually agreed would have icurred Network Rail, which took over from Railtrack-i-Admiistratio i October , substatial fiacial pealties from cotractors ad from Virgi West Coast, for whom Agel Trais had ordered 53 high-speed Pedolio trais, with a preset value of 1.5 billio for leasig charges over the 35-year period to Istead, the programme was re-scoped, to brig dow its projected cost ad focus o key outputs. The Authority s Jue 2003 West Coast Mai Lie Strategy set out three delivery phases, with the first passeger beefits brought forward to September 2004, ad five key objectives (Figure 2). 10 billio (i prices) Source: Natioal Audit Office aalysis of cost estimates across the course of the programme NOTES Estimates of the likely fial cost of the programme icreased sharply to 2002 May 96 Oct 96 Jue 98 Jue 99 Dec 99 Dec 01 May 02 Oct 02 May 03 Dec 03 1 These expected costs relate to differet scopes/expected outputs. April 06 2 May 1996 Core Ivestmet Programme (CIP); October 1996 CIP+PUG 1; Jue 1998 CIP+PUG 2; Jue 1999 Baselie 1; December 1999 Baselie 2; December 2001 Revised Baselie 2; May 2002 Baselie 3; October 2002 Upper limit accepted by govermet for WCML Strategy; May 2003 Baselie 5; December 2003 Implied by Rail Regulator s fudig coclusios; April 2006 Sped to date ad Network Rail Busiess Pla forecast sped. 3 The estimates uadjusted to prices (i.e. for the price bases used at the time) were: May b; October b; Jue b; Jue b; December b; December b; May b; October 2002 (upper limit) 9.9b; May b; December b; ad April b (see footote 7). 35 This estimate, kow as Baselie 3, was 13 billio i prices at the time ad icluded a 3 billio allowace for risk ad cotigecy. 36 It is a private compay limited by guaratee ad without shareholders. Network Rail Makig a Fresh Start (Natioal Audit Office, HC 532, Sessio , May 2004). The Moderisatio of the West Coast Mai Lie 27

30 appedix oe Passegers ad govermet have fuded the programme 7 Iitially, the programme was fiaced by Railtrack from its borrowigs. The agreemet betwee Railtrack ad Virgi Rail Group provided for the cost of the ehacemet programme to be fuded from future icreased reveues, which were to be shared. From October 2001 to March 2002, the govermet provided loa fudig for the programme through the Admiistrators. Sice March 2002, it has bee fuded by Railtrack-i-Admiistratio/ Network Rail loas, serviced by receipts of etwork grat (from the Strategic Rail Authority/Departmet) ad track access charges paid by the trai operatig compaies, from their fare reveues ad govermet subsidies (Figure 11). Track access charges are set by the Office of Rail Regulatio (ad the Rail Regulator to 2004) for five-yearly cotrol periods based o the Office s assessmet of how much it should cost for Network Rail to efficietly operate, maitai ad reew the track. 8 By December 2003, aroud 4.8 billio had already bee spet. I his December 2003 coclusios to the access charges review for the to cotrol period, the Rail Regulator accepted the Strategic Rail Authority s Jue 2003 Strategy as the basis for what outputs should be delivered. But, iformed by the work of cosultats who evaluated a rage of optios, the Regulator determied that re-phasig delivery of some major schemes would reduce programme costs ad be more efficiet, whilst delayig related outputs ad their beefits. The Regulator s December 2003 determiatio of fudig from meat that, with 5.2 billio havig bee spet o the programme by March 2004, the fial assumed expediture for the programme was 8.3 billio. This assumed Network Rail could achieve 940 millio of efficiecies ad was 2.5 billio below the total budget cap set by the govermet for the 2003 Strategy. 11 Fudig flows for the West Coast Programme Departmet for Trasport Freight grats Freight Operatig Compaies Network grat Subsidies ad performace paymets Frachise premiums ad performace paymets Trai Operatig Compaies Track access charges Track access charges Performace paymets ad access compesatio Fare reveue Network Rail Fare reveue Customers Paymets for reewals ad ehacemets work Passegers Cotractors Source: Natioal Audit Office aalysis 28 The Moderisatio of the West Coast Mai Lie

31 Appedix two Study methodology 1 We scoped our fieldwork aroud eight issues-based work packages: i ii iii iv v vi vii viii The backgroud to the programme ad the case for Strategic Rail Authority itervetio. Assessmet of the West Coast Mai Lie Strategy ad arragemets to deliver it. Network Rail s maagemet of the programme. The busiess case ad costs of the programme. The programme s outputs ad beefits. The programme s impact o the rail idustry. Exteral assessmet of obsolescece risk with sigallig techology. Future arragemets for the maagemet of the programme. 2 For each work package, we used a variety of methods to collect sufficiet, reliable ad relevat data to aswer key audit questios. We carried out the bulk of the fieldwork betwee October 2005 ad July 2006, with scopig iterviews betwee December 2004 ad sprig Iterviews with key orgaisatios 3 We used semi-structured iterviews with key people we idetified at the Strategic Rail Authority, Network Rail, the Departmet ad Office of Rail Regulatio ad we obtaied ad reviewed supportig documets, files ad maagemet iformatio to corroborate, challege ad triagulate the iterview evidece. Strategic Rail Authority Who we iterviewed: The Authority s chairma ad chief executive (durig iitial plaig for the study i May 2003) ad, durig fieldwork, the West Coast programme director ad assistat programme director, other members of the Authority s West Coast Team, ad the Authority s egieerig adviser. Topics covered: The Authority s itervetio i 2002; developmet of the West Coast Mai Lie Strategy; cosultatio with stakeholders; rail replacemet services; Project Rio; ad moitorig programme delivery. Network Rail Who we iterviewed: The director of plaig ad regulatio ad, from the Bechtel-led West Coast Programme Maagemet team: the geeral maager (B); the directors of programme ivestmet, implemetatio (B), plaig ad operatios, huma resources, cotract admiistratio (B), commercial, fiace, major projects (B) ad programme cotrols (B); the area directors for the Midlads (B), North (B) ad Scotlad; the West Coast Egieerig team s chief egieer; ad the heads of the estimatig, performace measuremet, timetable plaig ad risk maagemet teams [those from Bechtel Ltd are desigated by (B)]. We also iterviewed Area level project ad implemetatio maagers for our case studies. Topics covered: The 2002 Bechtel Ltd report o programme delivery to 2002; the appoitmet of ad paymets to Bechtel; orgaisatioal ad moitorig arragemets; cotractig strategy ad oversight of cotractors, the possessios strategy; compesatio to trai operators; risk maagemet; estimatig; Six Sigma performace improvemet; cost cotrol; programme expediture; huma resources; performace beefits; timetable plaig; scope cotrol; ad the role of West Coast Egieerig. The Moderisatio of the West Coast Mai Lie 29

32 appedix two The Departmet for Trasport Who we iterviewed: The Director of the Railways Departmet, the Head of Major Rail Projects, the West Coast programme s director ad sposors, the busiess case team, ad the relevat frachise directors. Topics covered: The Departmet s curret ad earlier role i the programme; we also covered the busiess case for the programme, risks to programme delivery, ad frachise paymets to West Coast trai operators. The Office of Rail Regulatio Who we iterviewed: The former Rail Regulator ad key officials who have had ivolvemet i the West Coast programme, icludig the director of rail policy, the head of etwork regulatio, the director of idustry moitorig ad aalysis, ad the Office s track ad sigal egieerig advisers. We also met with the idepedet reporter for the West Coast programme, Mouchel Parkma. Topics covered: The Office s role ad ivolvemet i the programme; the Office ad idepedet reporter s moitorig of the programme s delivery; uit costs; the projected oversped; Network Rail s asset register; ad compesatio ad the cotiuig Possessios Review. Passegers represetatives Who we iterviewed: The Rail Passegers Coucil North West. Topics covered: Passegers perspectives o cosultatio over the upgrade; the impact of disruptio caused by egieerig work; ad passeger beefits from the upgrade. Aalysis of iformatio 4 We obtaied ad aalysed iformatio. The Departmet ad Office of Rail Regulatio provided full access to their files ad lists of files o the programme. Network Rail provided copies of key documets ad maagemet iformatio. Factual iformatio o programme delivery reviewed to test iterview evidece From Network Rail: The March 2002 Bechtel Ltd report; programme baselies ad fuctioal specificatios; fourweekly (period) executive reports ad area review packages (cotaiig high level detail o the programme s progress ad key delivery problems); project maagemet guidace; cotractig strategy papers; ad a variety of project specific ad moitorig documets. From the Departmet: Project Board ad Steerig Group miutes; the Oakleigh Cosultig Ltd lessos leared report; Strategic Rail Authority ad Departmet files coverig their ivolvemet i the programme from 2001, icludig files o the 2003 ad 2004 busiess cases, passeger hadlig strategies, rail replacemet services ad moitorig of efficiecies. From the Office of Rail Regulatio: The Office s (ad Rail Regulator s) programme files, cosultats reports (o programme efficiecy ad uit costs) for the 2003 access charges review ad the idepedet reporter s four-weekly aalyses of programme sped/efficiecy. We also aalysed the aual fiacial statemets for Cross Coutry Trais, Virgi Rail Group Ltd, Virgi Rail Group Holdigs Ltd ad West Coast Trais, obtaied from Compaies House, ad the twice yearly Natioal Passeger Surveys for treds i passeger satisfactio with West Coast trai operators. Maagemet iformatio used to produce ew aalyses Trai ad freight operators Who we iterviewed: Arriva Trais Wales; Cetral Trais; Eglish, Welsh ad Scottish Railway Ltd (EWS); Freightlier; Norther Rail; Scotrail; Silverlik; Virgi Cross Coutry; ad Virgi West Coast. Topics covered: Cosultatio with the Authority ad Network Rail; possessios ad blockades; rail replacemet services; temporary speed restrictios; timetables; compesatio; beefits of West Coast Route Moderisatio; future risks to the programme; ad lessos leart. A stadard iterview template was used for these iterviews to collect iformatio o the same basis. Cosultats Who we iterviewed: Oakleigh Cosultig Ltd, Steer Davies Gleave ad Booz Alle Hamilto. From Network Rail: Performace durig track possessios, sped by project ad cotractor, paymets to Bechtel Ltd, West Coast ifrastructure ad trai reliability, puctuality ad causes of delays. We had wished to also produce aalyses showig the chagig average legth of possessios ad compare rates of compesatio for possessios uder Schedule 4 ad Network Chage over time, but Network Rail was uable to supply us with the ecessary iformatio. From Compaies House: The aual fiacial statemets for Cross Coutry Trais, Virgi Rail Group Ltd, Virgi Rail Group Holdigs Ltd ad West Coast Trais to idetify treds i the profitability of Virgi Cross Coutry ad West Coast ad the chagig levels of govermet subsidy. O passeger satisfactio with West Coast trai operators: The twice yearly Natioal Passeger Surveys. Topics covered: Oakleigh s Jue 2003 Lessos Leared report ad the 2003 ad 2004 busiess cases for the West Coast Mai Lie Strategy. 30 The Moderisatio of the West Coast Mai Lie

33 appedix two Case studies 5 To obtai a more detailed isight, we examied six key projects: two uderway before 2002; two started i 2003 with delivery i ; ad two started i 2005 for delivery. For case studies 1-3, we iterviewed relevat members of the West Coast programme maagemet team ad reviewed papers held by Network Rail ad the Departmet. For case studies 4-6, we met with the Area implemetatio teams i Glasgow ad Machester ad the Major Projects team i Lichfield ad Rugby, iterviewed the Area implemetatio director ad seior project maagers, ad reviewed reports from project key stages ad a rage of cotract ad moitorig reports. Fidigs from these case studies which illustrate key poits i the report are set out i Appedix 3. Natioal Audit Office case studies Case study 1 Europea Rail Traffic Maagemet System (ERTMS) 2 Power supply upgrade 3 Stoke summer 2003 blockade 4 Presto Glasgow track reewal i Rugby statio remodellig 6 Tret Valley four-trackig Focus of the case study Why did the Strategic Rail Authority remove ERTMS from the programme i 2003 ad how much had bee spet o its developmet for the West Coast Mai Lie? The cotributio of costructive challege to the Strategic Rail Authority s adoptio of the autotrasformer optio. Plaig the blockade; securig stakeholder buy i; cotractual arragemets; moitorig delivery durig the blockade; uit costs; ad plaig ad operatio of rail replacemet services. Plaig ad coordiatio; cotractual strategies; moitorig delivery by cotractors. Project desig ad scope cotrol; cotractual ad delivery arragemets. Project desig ad scope cotrol; cotractual ad delivery arragemets. 6 I respose to cocers raised by a member of the public, we also examied, through iterviews with Network Rail ad review of project papers provided by Network Rail, the 2004 project to replace Babury Lae level crossig with a road bridge. Work by QietiQ o obsolescece maagemet 7 Joitly with Network Rail, we egaged QietiQ, which has expertise i obsolescece maagemet, to review obsolescece maagemet for sigallig systems o the West Coast Mai Lie ad idetify future risk of obsolescece. The work was carried out betwee Jauary ad April Further details o this work are set out i Appedix 6. The Moderisatio of the West Coast Mai Lie 31

34 Appedix XXX THREE Illustrative fidigs from our case studies 37 CASE STUDY 1 The Europea Rail Traffic Maagemet System (ERTMS) Descriptio of project Railtrack s pla to adopt, iitially, movig block sigallig (ERTMS level 3) ad, from December 1999, i-cab sigallig (level 2 ERTMS). Backgroud to project EC Directive 96/48/EC requires Member States to operate compatible sigallig systems for upgrades of high-speed lies o the Europea etwork. Europea sigallig suppliers developed, i respose, the Europea Rail Traffic Maagemet System (ERTMS), combiig automatic trai protectio ad trai cotrol to deliver safety, capacity ad performace beefits. ERTMS operates at three levels: Level 1: equivalet to the Trai Protectio Warig System but usig ewer techology. Level 2: ivolves i-cab (as opposed to lieside) sigallig, with istructios set to the cab by GSM radio. Level 3: as for Level 2, but with remotely operatig poits ad self-reportig trais which ca icrease the capacity ad improve the performace of the routes. Railtrack plaed iitially to adopt level 3 ERTMS (movig block sigallig) for the West Coast upgrade ad siged a cotract with GEC Alstom i 1998 o the basis of a estimated likely cost of 0.5 billio. Removal from the West Coast programme (paragraph 1.10) I December 1999, fidig the techology isufficietly developed, Railtrack abadoed level 3 ad adopted level 2 ERTMS, which was eeded to achieve the 140 mph ruig specified i PUG2. Railtrack estimated the cost of level 2 ERTMS for West Coast at 1.9 billio, as it would eed to replace covetioal sigallig. I Jue 2002, the Strategic Rail Authority coveed a idustry-wide workshop which recommeded that ERTMS be removed from the West Coast programme ad its developmet work migrated to a atioal ERTMS developmet programme. I Jauary 2003, the Health ad Safety Commissio accepted the Authority s advice that ERTMS was ot sufficietly reliable for the West Coast ad was a major risk to programme delivery ad the Project Board approved its removal from the programme. By this date, Railtrack ad Network Rail had spet 250 millio from the West Coast programme budget o developig ERTMS. 37 This appedix elaborates issues raised i the mai parts of our report, rather tha presetig a summary of all fidigs from each case study. 32 The Moderisatio of the West Coast Mai Lie

35 appedix THREE CASE STUDY 2 The power supply upgrade Descriptio of project A collectio of projects to reew ad ehace overhead lie equipmet ad power systems to icrease the electric power supply to the West Coast to meet later 2000s capacity eeds. Challegig ad cotrollig scope (paragraph 1.7) I October 1999, Railtrack set up a overhead lie equipmet (OLE) ad power supply upgrade Alliace, with represetatives from Railtrack ad two parters: a desig joit veture, comprisig WS Atkis ad Balfour Beatty, ad a costructio joit veture, comprisig GTRM (ow wholly-owed by Carillio) ad Balfour Beatty. The Alliace s task was to covert Railtrack s outlie plas to upgrade the OLE ad tractio power system ito a deliverable pla ad the implemet it. Its cotract ivolved three elemets of work: upgrade of existig life-expired OLE ifrastructure; modificatios to the ifrastructure i support of 125 mph operatio; ad, icreasig the capacity of tractio power supply i aticipatio of 2020 timetable requiremets. Railtrack s outlie pla was to itroduce a autotrasformer system, as used previously o Frech high-speed lies ad the o the Chael Tuel Rail Lik (which opeed i 2003), to provide a step-chage i power supply. The Alliace pursued this iitially ad developed plas which would require replacemet of a sigificat umber of overhead masts orth of Crewe. I Jue 2001, Railtrack decided to retai a classic booster trasformer feeder system throughout the route for several reasos: the estimated cost of this autotrasformer optio were too high; the risk of disruptio o a live railway (by compariso with a greefield railway such as the Chael Tuel Rail Lik); ad the risk to a tight programme for 125 mph operatios. I 2002, the Strategic Rail Authority ad Railtrack (the i Admiistratio) re-assessed this decisio. The Authority s electrificatio Costructive Challege Team idetified that a booster trasformer system would have isufficiet capacity to meet the power demads of future icreases i traffic ad that a autotrasformer system was eeded, but that this system could be delivered at a cost cosiderably below that previously estimated by the Alliace because most overhead masts would ot eed to be replaced. New cables could istead be attached to existig overhead lie masts, supported by re-cofigured sub-statios. I September 2002, Railtrack decided to proceed with a autotrasformer system with desig ad maagemet of the project withi the West Coast Route Moderisatio project team. I early 2006, the project was re-phased to itroduce autotrasformer capacity i relatio to the expected growth i power demad. By April 2006, 680 millio had bee spet o the three elemets of the power supply upgrade described above, icludig the upgrade of OLE ifrastructure to support the itroductio of 125 mph operatio alog the route, ad the estimated fial cost up to December 2008, at 930 millio, was 300 millio below the May 2002 Baselie 3 estimate. The Moderisatio of the West Coast Mai Lie 33

36 appedix THREE CASE STUDY 3 The May October 2003 Stoke blockade Moitorig delivery by cotractors (paragraph 2.9) With oly eight moths to pla ad prepare for the blockade, Network Rail was uable to follow the detailed desig followed by fixed price teder delivery approach used later i Rugby ad the Tret Valley. Istead, it used maily Alliace cotractors for delivery, but moitored their work with a 75-strog team of field ad cost egieers ad project maagers. Descriptio of project Delivery of 195 millio of Phase 1 reewals ad lie-speed ehacemet of the lie betwee Colwich ad Cheadle Hulme (via Stoke) through a five-moth blockade. Obtaiig stakeholder buy-i (paragraph 1.5) The Authority brokered a cosesus amog trai ad freight operators ad passeger user groups that the blockade was eeded ad would deliver beefits, as it would i future become the mai lie betwee Lodo ad Machester ad be able to accommodate wide gauge freight trais. Iter-city passegers were accommodated o the parallel diversioary route from Lodo to Machester via Stafford. To meet local circumstaces, costructio work at Stoke coicided with local factories peak holiday fortight ad freight trais were allowed limited access to the lie. The Authority also worked with trai operators ad passeger represetatives to develop ad promote alterative travel arragemets by bus for local passegers, at a cost (to Network Rail) of 2.5 millio. Early costructio progress was slow ad at the ed of the first six weeks oly 22 per cet of work had bee completed as agaist a plaed 33 per cet. I respose, Network Rail shifted work away from oe of its key permaet way cotractors, who was uderperformig, to the other. But by week 12, the gap betwee actual ad plaed work completed had exteded to 14 per cet, so it icreased the umber of workers o site to, by week 18, more tha 1,000 compared with a plaed 400. Despite this, some work was ot completed o time ad the blockade had to be exteded two weeks, while some remedial work was also later eeded. Network Rail spet 6 millio o maagig this 195 millio project, but its post-project review idetified a lesso arisig as the eed for eve closer future supervisio of cotractors. Cotractig strategy (paragraph 2.10) Network Rail used existig Alliaces to deliver much of the work, with quatities of work split betwee cotractors o the basis of Network Rail s assessmet of their capability to perform it ad moitorig of work doe by a locally-based project maagemet team. 34 The Moderisatio of the West Coast Mai Lie

37 appedix THREE CASE STUDY 4 The Presto Glasgow track reewal i 2005 Geeratig competitio amog cotractors (paragraph 2.10) High-speed tiltig trais require a stable ad fixed track aligmet, which ivolves tampig work to compact the ballast uder the cocrete sleepers. I , this work was carried out betwee Crewe ad Presto uder a atioal framework track reewals cotract. Network Rail paid o the basis of shifts worked rather tha output achieved. I total, 150,000 yards were tamped, with a average of 400 yards each shift. Descriptio of project May to December 2005 delivery of 130 millio of Phase 2 reewals ad lie-speed ehacemet, through co-ordiatig a rage of projects oversee by the Scotlad ad North West areas. How itegrated plaig worked (paragraph 1.12) This work ivolved 28 separate projects, delivered by the West Coast North West area ad Scotlad team ad workig towards a shared Phase 2 Strategy objective of achievig 125 mph trai ruig to Glasgow for the December 2005 timetable chage. Itegrated plaig, supported by ope commuicatio betwee teams, was crucial to make sure that work was delivered i the correct sequece ad to schedule. Cotrol was through a master schedule, which set out possessios ad work plaed for each week, ad which was liked to plas for seve commissioig sectios, headed by a delivery maager, ad for discipliebased projects, such as overhead lie equipmet ad lie-speed ehacemets, with work delivered by cotractors oversee by Network Rail project maagers. The Phase 2 track upgrade betwee Presto ad Glasgow required the tampig south of the Scottish border of 560,000 yards withi 26 weeks durig 2005 ad a triplig i cotractors productivity to 1,200 yards a shift. To achieve this, Network Rail brought i a secod cotractor ad split the work betwee them, itroduced icetive/pealty paymets for achievig/missig target yardages, ad provided for the trasfer of work to the other cotractor if oe uder-performed. These arragemets worked well. The cotractors exceeded their productivity targets so that work did ot eed to be trasferred. Network Rail plas to adopt this approach elsewhere o the etwork where similar tampig is eeded. Cotractig strategy (paragraph 2.10) A variety of types of cotracts ad strategies were used, icludig Alliaces (for switches ad crossigs reewals ad overhead lie equipmet work i Eglad), atioal framework cotract (for switches ad crossigs ad track reewals i Scotlad), fixed price cotracts (for level crossigs ad liespeed sigage), cost-reimbursable with target cost (for juctio remodellig ad track reewals) ad cost reimbursable with delivery icetives (for tampig work see above). The Moderisatio of the West Coast Mai Lie 35

38 appedix three CASE STUDY 5 Rugby statio remodellig operators, developed a further improved scheme which did ot require demolitio of the statio ad brought dow the project s plaed cost from the origial 350 millio to 190 millio. Delivery is scheduled by December 2008 ad Network Rail has adopted a traditioal cotractig strategy which separates out procuremet for the outlie desig ad the detailed desig ad costructio phases. Network Rail developed a base desig, to fix the broad scope of the project. It the ivited teders to carry out, to a fixed price, detailed desig (subject to Network Rail review ad verificatio), costructio ad testig for approval i priciple by Network Rail prior to the lettig of cotracts for the fial stage of the project, i Sigallig bids (paragraph 2.8) Descriptio of project Four mai West Coast routes coverge i the Rugby area, which, with a curret lie speed of 75 mph, has become a bottleeck sectio of the lie. This project will reew the track ad sigallig ad remodel the Rugby statio area to icrease capacity, sustaiability ad lie speed, ad has a estimated fial cost of 190 millio. Cotrollig scope through detailed desig (paragraph 1.8) I 2002, joit work by the SRA, Network Rail ad trai operators idetified through costructive challege a improved scheme with better outputs tha Railtrack s previously proposed scheme. I 2004, Network Rail ad the SRA, i cojuctio with trai Network Rail had plaed to reew the sigallig by meas of a five-day blockade of three of the four tracks at Rugby i Easter But i 2005, oly oe sigallig cotractor tedered to complete the detailed desig ad to implemet the work, with delivery oe year later tha Network Rail had specified. The bid was later revised to a price 15 per cet above Network Rail s estimate. Network Rail subsequetly re-scheduled commissioig of the sigallig from Easter 2007 to Christmas 2007 ad is curretly reviewig this further. Cotractig strategy (paragraph 2.10) To develop base desigs, fixig the scope, ad competitively teder for delivery of detailed desig ad implemetatio i work packages to fixed prices. CASE STUDY 6 Tret Valley four-trackig Descriptio of project A programme with a estimated fial cost of 360 millio to icrease capacity o the route i the Tret Valley through wideig it to four tracks. It is scheduled for delivery i Cotrollig scope through detailed desig (paragraph 1.8) Network Rail adopted a similar desig ad cotractig approach to that for Rugby statio remodellig ad, i this case, used for the first time computerised 3D modellig of the desig, which ca be updated to accommodate scope chages. Cotractig strategy (paragraph 2.18) To develop detailed scope ad desigs ad competitively teder for delivery of work packages to fixed prices. 36 The Moderisatio of the West Coast Mai Lie

39 Appedix XXX FOUR Network Rail s cotract strategy 1 Network Rail iherited Alliace cotracts, ad related work-i-progress, from Railtrack-i-Admiistratio. These ivolved cotractors workig i partership with Network Rail, to scope ad desig the egieerig work, agree a target cost for the works, ad deliver them. There were five mai Alliace cotracts (Figure 12). 12 The West Coast Programme s five mai Alliace cotracts Name of Alliace Activity Mai cotractors millio value of works billed Last date of Alliace works Overhead lie equipmet Overhead lie equipmet reewals ad certai power upgrade reewals Carillio, Balfour Beatty ad WS Atkis Track Track reewals Jarvis Watford Bletchley Geographical reewals ad lie speed ehacemets Balfour Beatty ad Westighouse Trai Cotrol Systems New Techology for trai cotrol systems Alstom (trai cotrol systems) ad Marcoi (commuicatio system) Rugby Geographical reewals ad lie speed ehacemets Carillio ad WS Atkis Source: Network Rail NOTE Values are rouded to earest 5 millio. There were may much smaller Alliaces. The Moderisatio of the West Coast Mai Lie 37

40 appedix four 2 Network Rail iitially cotiued to use the Alliace cotracts because it would have faced fiacial pealties if it had uilaterally eded the agreemets. Network Rail did ot establish a formal cotractig strategy for the project, but gradually moved to a positio where it used its ow egieers to write specificatios ad review ad approve project desigs ad ivited cotractors to teder to deliver the work for a fixed price; ad itroduced framework cotracts for sigallig work. Te key cotractors worked for Railtrack ad the Network Rail uder Alliace cotracts ad subsequet cotracts (Figure 13). 13 Amouts received, to April 2006, by the 10 leadig West Coast cotractors, workig uder Alliaces ad other cotracts millio received Betwee 501-1,000 Betwee Betwee Cotractor Jarvis Balfour Beatty Carillio Grat Rail WS Atkis Alstom Birse Rail Westighouse Edmud Nuttall Marcoi Commuicatios Key activities Track reewals Overhead lie equipmet reewals Overhead lie equipmet reewals Tampig Overhead lie equipmet reewals Sigallig, trai cotrol systems Structures work Sigallig, lie speed ehacemets Structures work Commuicatio systems Source: Natioal Audit Office aalysis of Railtrack/Network Rail cost data 38 The Moderisatio of the West Coast Mai Lie

41 Appedix XXX FIVE The risks ad lessos leared from two iovative techologies employed o the West Coast 14 Computer-based iterlockig (CBI) Why eeded? A moder computer-based sigalig system, with greater capacity ad potetially quicker ad cheaper to cofigure tha existig solid state iterlockig systems durig ifrastructure chages. It also had the advatage of expadig the sigallig supply base. Where used? O the Crewe Sadbach Wilmslow Cheadle Hulme sectio where the sigallig system was life-expired. Idetified risks Computer based iterlockig was a prove techology i Italy, Germay ad Swede, but there had bee software problems i earlier trials i Eglad o the Dorset Coast (where it was commissioed) ad at Horsham (where it was abadoed). The key challege was to covert the software programmig developed by Asaldo for Italia railways to meet British operatig ad safety requiremets. It was a Railtrack local zoe, rather tha the West Coast Programme team, which took the origial decisio to itroduce CBI o this sectio of the West Coast Mailie. Network Rail last reviewed this decisio i Sprig 2004 ad decided to cotiue with the project as it had a Christmas 2005 blockade slot booked, it would take up to two years to replace the life-expired sigallig with covetioal sigallig, ad Network Rail believed that the supplier had solutios i place to deal with idetified problems. Outcome To reduce risks, Network Rail itroduced CBI i two phases ad o what was o loger the mai lie betwee Lodo ad the orthwest. It successfully istalled phase 1 CBI betwee Cheadle- Hulme ad Macclesfield i But phase 2, which ivolved more complex fuctioality, icludig bi-directioal sigallig ad 110 mph operatio, had a successio of problems i testig of the computer systems ad from chages to fuctioal requiremets. Phase 2 was iitially plaed for completio i sprig 2006, followig a 11 December 2005 to 27 March 2006 Sadbach Wilmslow lie blockade. But these problems meat that the blockade had to be exteded to 25 Jue 2006, after which the lie was re-opeed as a basic two-track railway, with restricted passeger ad freight services. Network Rail expected to commissio the full-system i Easter 2007, eedig a further blockade i Christmas Network Rail has estimated that these specificatio ad commissioig problems are likely to icrease the cost of the Sadbach Wilmslow remodellig project by aroud 32 millio to 265 millio, icludig icreased compesatio paymets to trai operators of over 5 millio. Lessos leared Network Rail told us it has recogised the eed to be more critical about the trasferability of the safety codig from other Europea railways, to estimate better the amout of testig eeded for moder software-critical systems ad to esure that its requiremets are clear, robust ad meet the operatioal eed. Asaldo told us that it would hope to have early ivolvemet i future schemes so that it could do more to make sure requiremets ad specificatios are clear ad fit for purpose. Source: Natioal Audit Office iterviews with Network Rail ad aalysis of maagemet iformatio The Moderisatio of the West Coast Mai Lie 39

42 appedix five 15 Axle couters Outcome Why eeded? A moder trai detectio system which cofirms whether a trai has cleared a sectio of track through coutig its axles. Network Rail cosiders it potetially betwee two ad four times more reliable tha track circuits ad with half the whole life costs. It does ot require isulated rail joits, eeds less trackside equipmet, is ot affected by leaf-fall ad is quick to istall. Where used? O all ew sigallig systems (that is o much of the lie south of Crewe). I , expected beefits were oly partly achieved ad the level of West Coast icidets ad delays caused by trai detectio problems did ot declie. Betwee Jue 2004 ad October 2005, there was a mothly average of 35 West Coast axle couter failures, resultig i more tha 5,000 delay miutes a moth at a average mothly cost to Network Rail of aroud 300,000. Part of these problems derived from a set of faulty cards, which the maufacturer replaced betwee November 2005 ad March From late 2005, the level of delays reduced as the maiteace team became more experieced i idetifyig ad fixig faults ad after Network Rail obtaied safety approval to move from maual re-settig of the system through ruig a sweep vehicle after egieerig work to re-settig by the sigaller. The use of axle couters, thereby elimiatig the isulated rail joits required for track circuits, has cotributed to a reductio i broke rails o the route, improvig safety. Lessos leared Network Rail has issued a good practice maual o istallig axle couters ad recogises the eed to provide maitaiers ad track egieers more time ad traiig o itroducig ad usig axle couters. Idetified risks The eed to amed trai ruig rules ad make sure that egieerig ad maiteace staff uderstad the system ad how to reset axle couters after a egieerig disruptio. Source: Natioal Audit Office iterviews with Network Rail ad aalysis of maagemet iformatio 40 The Moderisatio of the West Coast Mai Lie