Because Network Rail‟s knowledge of its civils assets and some aspects of its electrification and drainage assets is poor, there is higher uncertainty in parts of its plans.
Our final determination reflects our consideration of responses to the draft determination and our review of further evidence supplied by Network Rail. We summarise respondents‟ views and any resulting updates to our determination at the start of the chapter. Our review of the further evidence supplied by Network Rail has resulted in increases to our assessed efficient expenditure, including for track, signalling, and information management (IM) renewals, totalling £127m.
Maintenance
Maintenance work is crucial to safety and performance on the network. Plans should be built on a strong understanding of what work needs to be done (for example, the miles of track to be inspected). This can then be priced using current understanding of the costs of carrying out work and the future reductions in cost because of improved efficiency.
But Network Rail has built its plans by projecting forwards its current resource requirements, with adjustments for the changing network and improved efficiency. It has not clearly demonstrated that its plans are linked to the work required. This means that the line of sight to its policies and the outputs that the company needs to deliver is weak.
Our analysis finds that, over CP5, maintenance efficiencies of 10.1% are achievable, compared with 9.7% assumed by Network Rail. The higher efficiency is driven by better management of resources. However, we have changed the profile of the efficiency to reflect our concerns over delivery in CP4 when Network Rail reduced staffing levels before fully embedding more efficient ways of working. We have assumed lower efficiencies early in CP5; in the first year we have assumed 3.7% efficiency whereas Network Rail assumed 5.3%. Our efficiency profile assumes higher efficiency of 16.4% at the end of the control period, compared with 13.8% assumed by Network Rail. We have not assumed savings beyond this, partly because of our
concern about how rapidly Network Rail can introduce changes without potentially compromising safety or performance.
Overall we assess that Network Rail needs to spend £5.2bn on maintenance during CP5, £116m less than proposed in the SBP.
Key messages in this chapter (continued)
This means that Network Rail will have to move to a more predictive and preventative maintenance regime (rather than reacting to failures). A good example of this
approach was seen when Network Rail carried out a detailed review of its overhead line assets in the Stratford area prior to the Olympics, identified defects and put in place a preventative work programme that resulted in improved performance both during the Olympics and beyond. Network Rail will also have to realise efficiencies from changes to its practices, such as carrying out more automated inspections, making sure the right work is done at the right location at the first visit and making sure that working arrangements allow the most productive use of time.
Our assessed efficient expenditure requirement for maintenance is unchanged from our draft determination, except where we have improved information on reactive maintenance costs. This results in an accounting movement of £522m from renewals to maintenance, which is £14m higher than we assumed in the draft determination.
Renewals
Network Rail‟s renewal plans have, in general, a strong linkage to asset policies. They are built on a combination of workbanks in the shorter-term and modelled volumes in the longer-term.
Some key national programmes of work have been proposed to deliver long-term improvements and efficiencies, and we support these. They include the Network Operation Strategy (NOS) to centralise signalling and electrical control, a programme to update the signalling system (by moving to the European Train Control System (ETCS)), and programmes aimed at improving asset management capability through improved asset information management (ORBIS), improved buildings and civils management (BCAM), and wider adoption of best practice asset management.
Network Rail has conducted benchmarking to support its efficiency plans. This
included a programme of international benchmarking of engineering practice which is far more extensive than it has ever previously carried out.
But there are weaknesses in Network Rail‟s proposals. Its calculation of its current unit costs contains some errors and makes allowances for risk and contingency which are likely to be overestimated or duplicated. For buildings the proposed level of
expenditure before efficiencies is not justified. For civils there are wide-ranging issues that need to be addressed to produce a robust plan.
Key messages in this chapter (continued)
Network Rail‟s management of its civil engineering assets (such as bridges and
tunnels) has been a long-running issue. In 2010 concerns about its approach led to us and Network Rail commissioning Arup to carry out a fundamental review. Arup found widespread issues and made recommendations, for example, to improve asset policies, asset information, assessment of risk and resources. Network Rail has started to make significant improvements and this is reflected in its proposed CP5 policies. However, there remains a lot more to be done. It has not presented a
complete or consistent set of plans, some parts of the plans were submitted late and they contained many errors.
Network Rail proposed expenditure of £2.6bn on civils renewals during CP5, whereas we have assessed expenditure required to be £2.4bn. However, there is high
uncertainty around the civils plans and we agree with Network Rail that civils should be dealt with differently. Recognising that the volume of work needs to increase we will provide increased funding (compared to CP4) for the first two years of CP5 where plans are more robust. For years three, four and five of the period we have assumed an increased level of expenditure but actual funding will be assessed by a „civils adjustment mechanism‟ which requires Network Rail to submit further plans in the first year of CP5. This will allow us to review the work that is planned, to assess the
efficiency of that work and to adjust accordingly.
Across all asset categories our analysis finds that, over CP5, renewals efficiencies of 14.4% are achievable, compared with 12.6% assumed by Network Rail. Our analysis finds that efficiencies of 20.0% are achievable by the final year of CP5, whereas Network Rail has proposed equivalent efficiencies of 15.8%. We have assumed greater opportunities from improved management of possessions, improved management of the supply chain, improved asset management systems, better targeting of work and adoption of innovative renewals practices.
In our draft determination we assessed efficient renewals expenditure to be £1.6bn lower than proposed in the SBP, due to adjustments to pre-efficient expenditure (for example, for buildings and information technology renewals), higher efficiency assumptions for most asset types (for example, track and civils) and different treatment of proposed investment expenditure (for example, funding for R&D).
Key messages in this chapter (continued)
Since the draft determination Network Rail has presented new evidence which we have reviewed and, where it was compelling, we have updated our assessment. This has resulted in an increase in funding (relative to the draft determination) for track, signalling, ORBIS and information technology renewals. We have also reviewed our approach to assessment of wheeled plant renewals, resulting in reduced funding for that category. In total the outlined changes increase our assessed expenditure by £127m. We have also made an accounting change which moves expenditure
associated with fitting signalling equipment in trains from renewals to enhancements (a reduction of £194m compared to our draft determination).
Our final determination assesses that Network Rail needs to spend £12.1bn on renewals during CP5. This is £1.5bn less than proposed in the SBP.
Introduction
8.1 It is very important that Network Rail is capable of managing its assets effectively, including planning and delivering appropriate maintenance and renewal works. Effective asset management helps to deliver a safe, efficient railway which delivers the outcomes that stakeholders want, both now and in the future.
8.2 Our PR13 work has reviewed many aspects of Network Rail‟s asset management in great detail. We have assessed its development of asset management plans, from the definition of high level strategy, through development of asset policies to the planning of maintenance and renewal work in the routes. We have assessed the inputs to its plans: the asset information and understanding of costs that underpins them. We have also taken account of the company‟s delivery of work during CP4.
8.3 This chapter starts by giving a summary of Network Rail‟s CP5 plans for maintaining and renewing its assets safely, including:
(a) an overview of its asset management plans, including its planned asset
management capability improvements, key asset management programmes of work and new asset policies;
(b) an overview of its process for the development of planned volumes and expenditure; and
(c) a summary of its projected volumes and costs to maintain and renew the network, and forecasts of measures to demonstrate what the work delivers. 8.4 The chapter then presents our assessment of Network Rail‟s plans, including:
(a) our approach to the assessment of efficient maintenance and renewal expenditure;
(b) our assessment of each of the building blocks of Network Rail‟s maintenance and renewals plans;
(c) our assessment by main asset category and by route; and
(d) our conclusions on the efficient volumes of maintenance and renewal work and associated efficient expenditure required in CP5.
8.5 Our work in this area is supported by extensive independent reporter work.167 The associated reports are published on our website. We have considered the reporters‟ findings in developing our view of maintenance and renewal efficient expenditure requirements for CP5.