The state-backed company said that it would reduce the number of contractors used from six to four as part of a plan to shave £150 million in costs over three years.

AmeySECO, Balfour Beatty Rail, Carillion Rail, First Engineering, Grant Rail Group and Jarvis face a six-month period of scrutiny in which the rail group will monitor the contractors' work and decide which two companies to drop.

The four contractors which remain will each be awarded contracts worth between £100 million and £120 million each.

The contractors will be evaluated across a broad range of criteria, including safety records, business behaviour, unit costs, ability to finish work on time and the volume of work completed.

The best four contractors will be retained and the relationships with the two other will be terminated.

Peter Henderson, the director of projects and engineering at Network Rail, said that the move would improve the planning of renewal work.

"These changes will enable earlier definition and planning of the work further into the future," he said. "We are keen to create an environment that enables both Network Rail and our contractors to plan work with confidence."

He said that retaining four companies would ensure an element of competition that would help to drive efficiencies.

The move is part of a broader push by Network Rail to cut waste. Last year Mr Henderson pushed through a programme to reduce the number of contract staff employed by the company.

He found that the company was employing 1,000 contract workers who, typically, were earning £200 a day — some were earning as much as £500 a day — for routine track renewal work.

Three years ago the company, the successor to Railtrack, launched a programme to eliminate 2,000 middle and senior management jobs, equivalent to 15 per cent of its management workforce, as part of a cost-saving drive.

That announcement was followed in October 2003 by Network Rail's announcement that it would take all track maintenance work in-house.

See also:

Network Rail will reduce contractors and save £150m

Guardian Unlimited: December 20, 2006
Dan Milmo, transport correspondent

Network Rail, the government-backed operator of the British railway system, reduced its dependence on the state purse yesterday by saving £150m in a squeeze on contractors.

The company, which receives about £2bn a year in direct government subsidy, will cut the number of private companies it uses for track repairs from six to four.

Network Rail has been ordered to reduce costs by a third and has cut operating costs by £1.1bn over the past two and a half years, which included moving its maintenance work in-house.

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The company is spending £22.5bn on maintaining the rail network from 2004 to 2009 and has been told by the Office of Rail Regulation to reduce costs to prepare for the next five-year funding period, when Network Rail is asking for £21bn.

Although today's move helps keep down the bill for running the railways, Network Rail wants an extra £8bn from the government for one-off schemes such as an overhaul of the Thameslink route.

The scale of government funding and criticism of the franchise system has led to renewed scrutiny of the rail industry. Some critics argue that running the rail system is now more expensive and inefficient than it was under government ownership and costs are not curbed enough.

Gerry Doherty, general secretary of the TSSA union, said Network Rail should have taken all track renewal in-house. He said: "This is a missed opportunity for Network Rail. This means private contractors will profit when costs should have been driven down for the benefit of the travelling public. Network Rail has simply forgotten the lesson it learnt from its success with maintenance work. They are just tinkering at the edges by cutting the number of main contractors."

A Network Rail spokesman said the company considered making all track renewal in-house but decided that using contractors was less expensive than going it alone. He said: "Doing nothing was not an option because the pace of the savings was not quick enough and that is why we have reduced the number of contractors.

"We strongly believe that the quickest and most inexpensive way of delivering these savings is to restructure the contracting arrangements rather than bringing the work in-house."

Network Rail recently reported a pre-tax profit of £747m for the six months to September 30, against a pre-tax loss of £108m for the same period last year. The company, whose £18bn debt is secured by the government, recorded a profit due to a rise in government funding, which increased revenues from £1.9bn to £2.9bn.

Network Rail receives about £2bn a year in track-access charges, which are paid by train franchises such as First Great Western and Virgin Cross Country but are also subsidised by the government.

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Network Rail to drop two contractors from its renewals framework

Contract Journal: 20 December 2006

Network Rail (NR) is to streamline its renewals contractors from six firms to four within the next six months, it has been announced today (Wednesday).

The announcement was made as part of the rail operator’s drive to deliver £150m of cost savings over the next three years.

The decision will send shockwaves across the industry and follows the decision in October 2003 to bring all its maintenance operations in-house to improve efficiencies on the rail network.

The contractors currently on NR’s five-year agreements for track and signal renewals are: First Engineering; Jarvis; Grant Rail; Carillion; AmeySECO; and Balfour Beatty.

A decision on who will be chopped from the list has yet to be made with an announcement expected to be made in mid 2007.

NR said a six-month review would begin in the New Year which will measure performance across a number of key areas. These include: safety records, volumes achieved, finishing jobs on time, unit costs and business behaviours.

“Using these measures, the top four performers from the present six suppliers will be selected to continue under the framework of existing contracts,” said NR.

However, Carillion may be feeling the pressure following the decision. In August it was barred by NR from bidding for any new rail work due to questions over safety procedures. It has yet to be given the green light to resume its bidding.

Peter Henderson, director of projects & engineering, said: “Progress has been made in delivering efficiencies in track renewals and these new arrangements will accelerate progress towards delivering our targets.

“These changes will enable earlier definition and planning of the work further into the future. We are keen to create an environment that enables both Network Rail and our contractors to plan work with confidence, and that promotes innovation and investment in equipment and people.”

See also:

Network Rail to Cut Contractors

Railway People: December 20th 2006

The number of track renewals contractors is to be reduced from six to four, Network Rail has announced. It’s part of a plan to streamline processes and deliver cost savings of around £150 million over three years. By focussing on four suppliers, Network Rail believes it can accelerate the rate of efficiency improvement. Over the past two years, 12% efficiency savings have been achieved.

Says Peter Henderson, Director of Projects & Engineering, ‘Progress has been made in delivering efficiencies in track renewals and these new arrangements will accelerate progress towards delivering our targets. These changes will enable earlier definition and planning of the work further into the future. We are keen to create an environment that enables both Network Rail and our contractors to plan work with confidence, and that promotes innovation and investment in equipment and people. Starting in the New Year, we will begin a six-month review of our contractors, measuring their performance across a number of key areas. These include: safety records, volumes achieved, finishing jobs on time, unit costs and business behaviours. Using these measures, the top four performers from the present six suppliers will be selected to continue under the framework of existing contracts.’

A decision to select the four successful contractors will be made in mid 2007.

High-output methods, already a key part of delivery of plain-line renewals accounting for some 15% of track renewals, will increase significantly over the next three years. In addition Network Rail is investing in an innovative programme to deliver switch and crossings using a modular approach that is expected to dramatically increase productivity, efficiency and reduce the time needed to install key track components. A contract is expected to be let in the New Year.

This approach is one part of the improvements Network Rail is making in its end-to-end track renewals processes. The company will also be working to raise the quality of the planning process for renewals work, reducing the numbers of late cancellations and making sure each job is completed in the most efficient and cost effective way.

Peter Henderson concluded, ‘We are confident that retaining a reduced number of track renewals contractors is the best way forward for renewals activity. As well as the core renewals work awarded under the existing contracts the opportunities to win elements of competitively awarded work remains, which will drive further efficiencies by offering growth in turnover for the highest performers.’

Network Rail’s decision follows a six-month review of the way it undertakes track renewals. It has concluded that although track renewal volumes remain constant, with the increased use of high output methods, the current supply market will become too large for future needs.

Network Rail’s current renewals contractors (in alphabetical order) are:
• Amey SECO (JV)
• Balfour Beatty Rail
• Carillion Rail
• Jarvis PLC
• First Engineering Ltd
• Grant Rail Group Ltd