Network Rail recently announced a series of reforms to encourage greater third party involvement in rail infrastructure projects, under the banner "Network Rail open for business".
The reforms are in response to recommendations of the independent Hansford Review, which was commissioned to investigate the barriers currently preventing greater third party involvement.
The central tenet of the Hansford Review and proposed reforms is that increased third party involvement will deliver benefits, not only by attracting additional funding but also by introducing competitive pressure to drive efficiency, creativity and innovation.
Network Rail identifies four key areas of opportunity:
1) Third party delivery
Currently, most rail infrastructure projects are delivered by Network Rail. In future, Network Rail intends that Route Managing Directors should be able to choose alternative delivery models where it would provide improved value for money. A pipeline of opportunities is to be published by the end of 2017, with the initial opportunities expected to be smaller projects such as new stations, depots and car parks.
2) Third party funded projects
Third parties who will benefit from improved rail facilities should be encouraged to fund projects – not all funding needs to be channelled through Network Rail. Network Rail will retain a role in these projects to provide guidance on standards and processes and - in its role as 'system operator' - to advise how the project will fit with the wider strategy for development of the railway.
3) Third party financed schemes
The Hansford Review identified that there can be difficulties in making a case for private sector financing, due to complex accounting rules relating to government balance sheet treatment, and higher financing charges. Network Rail is establishing a dedicated team to identify where there may be suitable opportunities. Examples may include projects where the benefits of innovation and risk transfer outweigh the likely higher cost of capital.
4) Services underpinned by third party investment
Network Rail is also keen to encourage third parties to offer innovative ideas or technology and share the benefits of improved services or reduced costs. The Digital Railway has been identified as a potential area of opportunity for this type of third party involvement.
In order to benefit from these opportunities, Network Rail is reforming its processes and behaviours in response to the recommendations in the Hansford Review. Specific steps to be taken include:
- Asset protection: The Hansford Review identified that existing asset protection arrangements can act as a barrier to third parties. Starting with Anglia route in autumn 2017, Network Rail will reform its ASPRO arrangements, providing a single point of contact for third parties, developing a service level agreement setting out what third parties can expect and standardising its approach across all routes
- Standards: Third parties will be encouraged to challenge Network Rail's application of standards, to avoid "gold plating" at the third party's expense
- Commercial capability: Network Rail will be appointing business development directors and making other appointments to enhance its commercial capability, with posts expected to be filled by autumn 2017
- Review of risk-sharing approach: The Hansford Review also identified that Network Rail's current approach to risk apportionment can act as a barrier to third party involvement. Network.
Rail intends to review its approach, and assess which risks it is appropriate for third parties to exclude and should be borne by Network Rail.
These reforms are the latest step in the evolution of Network Rail, following its recent devolution into a largely route-based organisation, and have been welcomed in the industry. Network Rail has set out a timetable for implementation starting in autumn 2017, so the impact of some of the changes should start to be seen before the end of CP5.