NETWORK RAIL ANNOUNCES £1.5 BILLION FRAMEWORK AGREEMENTS. That was the title of a press release received in the Ashby offices of the rail engineer in the middle of January.
This seemed like extremely good news for the industry, at least for the three companies involved. There was obviously a story behind this release, so your favourite railway engineering magazine got on its bike (or the 08:32 from East Midlands Parkway) and set out to discover more.
The first objective was to uncover the facts behind the announcement, and Mark Southwell, Network Rail’s Programme Director (Signalling), seemed a good person to help with that.
To start with, the three contracts that have been let are zero-value framework agreements. This is commonly the way it is done. The framework is just what it says, a framework on which other orders and contracts are built. Those contracts have the value, not the framework, and it is the total of those expected orders over the next seven years that are expected to total £1.5 billion.
Secondly, the framework is actually only for two years, with an option to renew for a further five. This is because the budgets for CP5 haven’t yet been set, and Network Rail cannot technically commit itself to spending money it hasn’t got. However, this is a technicality and the intention is that the framework will run until the next period end in 2019.
If you, dear reader, are not a signal engineer, and get slightly confused while reading signalling articles as they are packed full of acronyms and jargon, you will be pleased to hear that signalling contracts are no different. In an attempt to “simplify” pricing, they use the Signalling Equivalent Unit (SEU) concept. This is a method of breaking down a job into the hardware it contains, such as interlockings, point controls, signals and level crossings, and then calculating those into a number of Signalling Equivalent Units. The cost per SEU is then fairly constant, and can be used to calculate the value of the whole job. Back in 2006, Network Rail was using a value of £270,000 per SEU and the goal is to reduce this.
The contractors based their quotations on the cost per SEU, and to “simplify” this even further, they used four versions of an SEU:
• Type 1 – a complete multi-disciplinary contract
• Type 2 – Signalling only
• Type 3 – Modular signalling
• Type 4 – Relocking.
Add to this a discount or premium depending on the job’s location – a job near a main road is cheaper to do than one in the middle of a Scottish moor – and you have a “simple” basis on which to calculate the cost of any signalling job.
Based on quoted prices per SEU, as well as other factors, three contractors were chosen to supply Network Rail with the bulk of its signalling requirements over the period of the framework. This is not new work, it is the signalling replacement and renewal work that would have happened anyway, but the framework will allow the contractors to make long-term efficiency savings and these will be passed on to Network Rail in the form of reduced prices per SEU.
Every job still has to be priced. However, with the price per SEU already fixed by the framework agreement, this will come down to a calculation of the number of SEUs in any job and the value of the non-SEU work. There will be no need for the slow, and potentially expensive, conventional tendering process.
There will be other benefits too, as Mark explained: “We intend to work in partnership with our suppliers. This will smooth out the peaks and troughs that normally occur in the business, allowing us to plan a more constant workload for our suppliers.”
The framework is split down into eight geographical areas, with each area having a primary and secondary supplier. Normally, the primary will do all the work in that region, but if they are unable to do a job for any reason, such as lack of capacity, then the secondary contractor will be asked to step in.
Network Rail still reserves the right to put a job out to competitive tender. This will be done from time to time to assess price competitiveness in the market, and for other reasons. However, even major work will fall within the scope of the framework. Mark Southwell commented that the recent contracts covering Cardiff, Nottingham, Glasgow and Wolverhampton would have gone to the framework contractors if the agreement had been in place at the time.
Asked whether this new arrangement was a reaction to the recent McNulty report on delivering a better value railway, Mark commented: “Network Rail knew it had to drive through efficiencies long before McNulty’s report came out, as the regulator had set us a target of delivering a 24% efficiency improvement in CP4. The McNulty report highlighted the challenges we face, and focussed thinking on the need to reduce costs, but this programme was already underway, as are other similar projects.”
The three recipients of the new framework are very different companies. Signalling Solutions Limited (SSL), Atkins and Invensys will share the work on a geographical basis as shown in the table. How will the new arrangement affect them?
The joint venture company of Signalling Solutions was formed in 2007. Alstom had been a supplier of signalling technology to the railway industry for years, but in a first attempt at rationalisation Network Rail had suggested that Alstom signalling in the UK should have turnkey capabilities, including installation and testing. This was a capability that Alstom had lost when it sold its 51% stake in infrastructure company GTRM to partner Carillion in 2001. Looking around the market, a best match was found in Balfour Beatty Rail, which at the time was looking for a technology partner in order to maximise the potential of their project management and delivery skills. A joint venture – Signalling Solutions Ltd – was formed and based at Alstom’s Borehamwood plant and Balfour Beatty’s Derby offices.
Steve McLaren, Managing Director of SSL, met the rail engineer in his office at Borehamwood surrounded by packing cases – the whole company is about to move to new premises at Radlett. He remembered those early years of the joint venture.
“Network Rail was very supportive”, he recalled. “Having pushed Alstom to make the change, we then very quickly received a couple of contracts so we could put the combined team into action. The extensive knowledge, experience and capability of both organisations, in terms of technology, design, engineering, project management, installation and testing, form the basis of SSL today.
“Alstom are world leaders in signalling technologies such as ERTMS, CBTC and interlocking, whereas Balfour Beatty has an international reputation as civil engineering contractors and project managers. We have two very supportive parents.”
The company is certainly growing rapidly. From those early times in 2007 it employed 330 in 2010. Last year it recruited an additional 100, and plans to do the same again in 2012.
“Things were quiet a year or so ago,” Steve remembers, “and we had to let a few people go. However, now the situation is much improved and we have our own people to work in specialist areas. We will use partners to cover any peak demands.”
With a current annual turnover of £80-90 million, what will the new framework mean to SSL? “Security” was Steve’s one-word answer. “The ability to plan a long-term workload and to retain good people. We have reinstated our graduate training programme, and are also taking on apprentices. We are trying to make SSL an attractive business to join – and the safest. Did you know we haven’t had a RIDDOR accident for three years?
“We also plan to invest in new technologies and tools to do things smarter and even safer. Generic technology R&D will continue to be done by Alstom; where necessary SSL shall adapt that to the UK market. It is essential to keep introducing new technology into the UK and maintain a healthy portfolio, for our business and most importantly for the benefit of our customers.”
Another of the successful bidders is a very different company. John Martin is Regional Programme Director for Atkins, and the bid director for the new signalling framework.
“We don’t have any product of our own,” he freely admits. “That means we are not tied to a product line so we can choose the best. We can drive innovation forward and come up with the best engineering solution to suit the client – it gives us more flexibility.”
Atkins has been delivering major signalling contracts since the 1990s, and it is a significant part of the business. In terms of additional work, John doesn’t see much difference. “The three companies involved are the three most successful in the market anyway. Invensys is probably the biggest, and SSL have been successful recently due to their Smartlock product. So in terms of market share there probably is no big change.
“However, this contract will make us all more efficient. We will be able to cut down on tendering costs, and there will be economies of scale in various areas. Above all there will be stability which will give us the incentive to develop new technologies.”
On the face of it, one area of weakness in Atkins’ portfolio is modular signalling. Invensys are already nearing completion of a modular project at Shrewsbury-Crewe while SSL have one between Ely and Norwich. However, John refutes this: “We have done the initial designs, done the thought process, and new product has come on the market. Our project at Cardiff is all plug coupled and uses Frauscher axle counters, so we have used quite a lot of modular technology even though it is not strictly a modular project.”
Atkins has done a lot of signalling consultancy abroad. They are client-side consultants in Denmark, have been involved in projects in the USA, and have offices in the Middle East. John Martin sees the way forward to be the formation of strong strategic partnerships to deliver turnkey projects.
The largest of the three suppliers in terms of the UK market, Invensys, probably had the most to lose from the division of work in the new arrangement. However, William Wilson, Commercial Director, doesn’t see it that way. “Looking at the split of regions, and the work we know is coming up, we think we have approximately half of the market – that’s our best guess.”
He is happy with the geographical split too. “ For many years we’ve had a significant presence in Scotland and we’re pleased to be able to continue the excellent work with Network Rail in this area. Wales & West provides the opportunity for expansion and indeed our base in Chippenham is well placed geographically to support this area. But by far the largest area in terms of workload is the Central West area, which will see the delivery of some of the most significant signalling projects in the UK during the lifetime of the frameworks. Coupled with the Thameslink Key Output 2 Framework which we secured last year, we are delighted with our newly defined footprint”.
Invensys is a technology company, although it has its own project managers and deputies. Installation is conducted using agency staff under Invensys direct management, and testing is carried out by a mix of in-house and agency teams.
The new framework agreement will give the company the confidence to invest more in R&D. Will added, “The real benefit to us is stability. It will allow us to enter into longer-term partnership agreements, and pass that stability down the line. And as most of our products are made in the UK, it will give more security to our British manufacturing workforce.”
So, all three contractors seem relatively content. As in any contract there are winners and losers; six other organisations expressed an interest so they will be disappointed, but hopefully the new arrangement will allow Network Rail to achieve its efficiency improvements and cost savings, while delivering a better railway.
What comes next? Well, there are two more contracts to be announced shortly. The first is the ETCS framework. Three contractors (from a shortlist of six) will be selected to take ERTMS in the UK one stage further by building pilot schemes on the Hertford loop. Following that, two will be chosen to install live ERTMS systems on the Great Western and the East Coast Main Line by about 2018. An announcement on the first three is expected at the end of March.
Then in April, the new framework for Traffic Management will be revealed. Tenders went in at the end of January. This is the scheme to reduce all the signal boxes in the country to 14 signalling control centres by about 2025. The signalling portion of the work will form part of the signalling framework already announced, but this will be overlaid by Traffic Management systems running at the control centres.
All three of the signalling framework winners have tendered for both contracts, along with several others. So once again there will be winners and losers.
And that will more or less set the scene for signalling for the next 15 years.