How opening up the enhancements market can cut costs and help devolution deliver

As the Williams Review moves into its second stage, it is striking how many of the objectives it has set for the railway surround what I think should be one of our most fundamental goals - getting the cost of the network down to a more efficient and sustainable level. Much of the same analysis also leads to the conclusion that this can only happen through a more devolved network with decision-making taken much closer to the ground.

I believe that both of these goals can be more readily met by opening up the enhancements market and allowing greater competition to empower regional authorities and force innovation and efficiency from the supply chain.

At risk of stating the obvious, better cost efficiency is the most fundamental requirement for getting fares to a level passengers can accept, and indeed for controlling the cost burden faced by taxpayers. So ensuring cost efficiency is essential for restoring public trust in their railways.

At Nichols, where I am now an advisor, we heartily agree. The work we have done here on a number of projects leads us to conclude that this will only happen with a more open and competitive market for rail investment projects.

The key, in our view, is to appropriately manage and transfer risk, which will enable innovation rather than it being stifled by clients who desire too much control or 'gold-plated' engineering standards. Whilst of course I understand this temptation from the client-side – I have been there - in reality, an unwillingness to transfer risk is a primary driver of higher costs.

The second fundamental ingredient is collaboration, which must be driven and demanded by the client. In my career, the best projects I have known are where a client is open to new ideas, new engineering standards and technology, and allows their supply chain to innovate within that climate.

Finally, the third ingredient is the alignment of objectives between the client, the delivery organisation and its supply base. The most impressive examples I have seen are the Australian alliance solutions, and these have been used with great success in the UK on the Stafford Bypass project. Network Rail had a designer, a railway systems supplier and a civil contractor all in one contract. The contract prevented cross claims and incentivised a successful outcome. The cost savings of this were extraordinary – with the project coming in at £250m against an original estimate of nearly £1bn.

Not only will these approaches have cost and performance benefits, they will also support the goal of a more devolved network. There is very broad consensus that devolution represents one of the most important opportunities to drive a better railway – one that is closer to the needs to local people and meets the needs of local stakeholders. So now we need to focus on how we make devolution deliver – a more competitive market for investment projects would help with that too.

To make devolution deliver, we need to open up the number of buyers of rail enhancements but also the range of suppliers. The number of buyers is growing anyway – it started with Transport for London and Transport Scotland and now, quite rightly, regional bodies are being empowered to specify and buy the railway they want for their area. However, if those regional bodies can only buy enhancements from the same bodies they always have done, the improvements and cost efficiencies we need to make this new system work will not be driven.

Some years ago, Nichols did some important work for Network Rail to look at the potential for opening up the enhancements market to new suppliers. Indeed, I was the 'client' within Network Rail at the time. This work on the contestability of enhancements needs to be revisited as part of the Williams Review. Opening up competition in the enhancements market will allow the likes of Transport for the North (TfN) to decide for themselves who delivers their new railway, creating competition which will drive efficiency and innovation, and properly empower TfN and others to create the railway that they want for their area.

Let none of this be misinterpreted as an attack on Network Rail. I know better than most the good job they do in frequently enormously difficult circumstances. They can, and do, deliver amazing projects like London Bridge and Kings Cross, but I believed when Nichols did the review mentioned above, and I still believe, that opening up enhancements to competition will improve the customer service performance and cost delivery of UK rail projects, and also make Network Rail a better organisation as a result.

The final part of the jigsaw to make devolution deliver is the question of borrowing powers. If devolution is to deliver, we need to look at the full suite of future revenue options to borrow against, including future business rates for example, as well as farebox too.

Those reforms will align risk and ownership of both challenges and solutions and introduce more competition into a market that needs it badly. Whilst understandably much of the debate on the Review has been about franchising and passenger service models, if he really wants to get to the root of what will deliver a better railway, Mr Williams needs also to look at issues like this that can unlock significant efficiencies and create the environment within which his other reforms stand a better chance of delivering.