Rail regulator demands "fresh start" after Network Rail agrees to CP5 funding

Office of Rail Regulation planning and performance director Alan Price explains why Network Rail must raise its game over the next five years.

Forth Rail Bridge

After more than a year of negotiation Network Rail this week accepted the Office of Rail Regulation’s £38.293bn spending settlement for the five year Control Period 5 (CP5) starting April 2014 despite initial concerns by then chief executive David Higgins that the figures were “unrealistic”.

This settlement commits the network operator to improving train punctuality across the network to 92.5% on time, reducing disruption to passenger service by 8% compared to 2014 along with a continued boost in the efficiency of its maintenance, renewal and enhancement spending. 

However, Network Rail will also start CP5 in April battling to catch up around £1bn underspent across the previous five year period. And with the regulator anxious to ensure that every pound to the public’s money is spent efficiently, there is no doubt that Network Rail, new chief executive Mark Carne and its industry supply chain will be under pressure from day one to perform.

Office of Rail Regulation director of rail performance Alan Price will continue to lead the scrutiny of Network Rail’s performance across CP5. He discusses the challenges ahead with Antony Oliver.

Q: You talk about CP5 being an opportunity for a fresh start for Network Rail – is that needed? 

A: They do need to do things differently. We have had joint improvement plans for years that say that if they do x,y and z it will recover performance but very rarely have they delivered what they predicted they would deliver. I think that unfortunately we are going to exit CP4 at a much lower level that even Network Rail predicted last September so that does underline the need for change. We are still waiting for some of the devolution benefits to embed. Day to day continuous improvement is where they need to go and as we know there are no silver bullets. You have got to do the asset work but you have also got to solve the operation and timetabling issues.

"In the past they have built infrastructure schemes because they like to build infrastructure schemes. I want them to move to the world of solving operational problems." Alan Price, ORR director of planning and performance

Q: The agreed the funding for Control Period 5 (CP5) is £2bn less than Network Rail wanted. How do you ensure that they deliver what the railway needs?

A: Their original business plan was their first estimate. We went through and identified what we thought were the priorities. For example we thought it was absolutely fundamental that they did all the maintenance so we didn’t actually change any of the numbers – they asked for £4.6bn and we gave them £4.6bn. But on some of the renewals work we thought there were some efficiencies that they could do and certainly on enhancements there is a huge opportunity for them to work with the operators. I think in the past they have built infrastructure schemes because they like to build infrastructure schemes. I want them to move to the world of solving operational problems. 


Q: What is the new Enhancement Cost Adjustment Mechanism?

A: Because roughly £6.5bn of the £12.5bn enhancement programme [in CP5] doesn’t yet have a fully worked out scope it would have distorted the efficiency calculation. So where there is a defined scope and we understand it and can get to an efficient cost then great. But where there isn’t we will take it outside the determination and give the Department for Transport, Network Rail and the operators the opportunity to scope what they want to buy then come back with an efficient cost, level of output and proof of operator engagement.

Q: Communication between train operators and Network Rail has historically been difficult. How will this improve in CP5?

A: The train operating companies own the currency that is access. When it comes to the renewals we expect Network Rail to work much more closely with the operators. The high output equipment, for example is really good but the productivity could be so much better if they solved everything that sits around it. Those are the sort of conversations [between Network Rail and the TOCs] that we are trying to encourage – it is about getting more time on the tools.

Q: How big was Network Rail’s underspend in CP4 and what are the implication for CP5?

A: At the end of year four the underspend was around £1.2bn but they have recovered some of that renewal spend so with a couple of months to go it will be slight less. But it doesn’t go away. If you don’t spend what you plan to spend on asset maintenance and renewals it feeds into the asset condition and impacts reliability and ultimately performance.  To me doing the maintenance and renewals is part of solving the precursors to poor performance. Clearly 40% of the delays are caused by asset failures so they need to get it right. From a maintenance point of view we would expect the shortfall to be caught up in the first year but for renewals the shortfalls might take several years to recover.

Q: Where are your biggest performance concerns for CP5? 

A: The biggest for me is renewals in terms of efficiency. They need to deliver the volumes. The high output machines are brilliant – it is the process that fits around it that gives the maximum time at work. That is where the industry now has to look. The other main area is their civils and structures job bank – in the last control period they came in and said "we need lots more money "but didn’t provide the justification This time they have said here is a detailed job bank for the first two years. We have asked them to come back in 2015 with specific requirements for their job bank for years three to five so that we can agree the cost. 

Q: The on-going flooding highlights the need to focus on improving resilience – is there money in CP5 to ensure this happens? 

A: Network Rail has committed to come back with a plan [to boost resilience] by September this year. Clearly we are not going to fund a bullet proof railway but there are things that Network Rail can do to improve the resilience. For example rather than raising a whole line and spending hundreds of millions [to prevent flooding] you can use slab track to allow the water to run over the track. Once the water has subsided you can reopen the railway in the next day or two. That is what I call making the railways more resilient and for only £6-8M you can get improvement. 

Q: The line collapse at Dawlish is in the headlines again. Does that mean we will now see investment to divert the line?

A: Everyone sees pictures every year of spray breaking over the railway but no one really expected the wall to collapse in the way it did this year. It becomes a balance – do you keep fixing it or make a strategic decision to spend a great deal of money to divert it. It wasn’t on the radar [of work to do] – clearly there is more on the shopping list now and it ultimately comes down to how much money is available. It is all taxpayers’ money and our job is to ensure that they get value for the money that the government decides to spend.

Q: Is the ORR/Network Rail relationship improving?

A: I think that it is in a better place than it has been before. There are now more people in the ORR that speak the Network Rail's language and the kind of discussion that we have had recently over the CP5 determination underline this.  We will be monitoring closely for the first few years [of CP5]. If they can show us they can do it then we will back off. We do not want to be interfering in the running of the railway but at times we will have to as it is a public interest issue.

If you would like to contact Antony Oliver about this, or any other story, please email