Last month, Network Rail chief executive Sir David Higgins described how he approached his first few weeks in the rail industry. In this second part he looks at the longer term issues facing the industry but, first of all, he reflects on a topic that, regardless of organisational structure, nobody can ignore.

An area which I am really very unhappy with, in terms of our performance, is track-worker safety. It is just totally unsatisfactory that people should be put at risk. Our systems of getting track access, our systems at work need reforming. We need more training at frontline supervisor and track-worker level.

You’ve changed your safety philosophy recently from the Safety 365 system to this new Life Saving Rules system. Is that partly in reaction to that specific problem?

Well, I think the whole idea of league tables encourages a certain type of behaviour. I want to stamp that out and say this isn’t about league tables it’s about having a safer system of working. The classic safety pyramid says that to avoid one fatality we’ve got to have a thousand close calls reported, so we should be encouraging people to report. We should have a culture where there should be no blame if something happens, even though it doesn’t result in an accident. People should be encouraged to report because, only by reporting close calls, near misses, whatever you wish to call them, are we going to work out what’s unsafe on the railway that we need to correct.

Certainly, the standards, access to the track and the assessments we use need to be reformed because they’re not fit for purpose in terms of providing simple, clear instructions or direction. So, we’ve brought in the life saving rules, but we are in the process now of streamlining all of our other rules to come up with, ideally, a hundred rules maximum
– maybe a few more – that say very clearly what you can and can’t do. Then everything else – the how you do it – should be advisory or should be best practice or available as advice. But it shouldn’t be a rule.

You have landed up in a very fragmented business and perhaps past management have tried to centralise it, but you have deliberately split it into manageable chunks.

We had people in separate organisations for very good reasons – to get the supply chain sorted, to drive down costs and build up performance.

But although this was very successful, it’s now more sensible for decisions to be made locally because that’s where our people and the train operating companies face the customers every single day. I am a huge believer in empowering organisations to make decisions rather than having all the experts sitting at head office. So you need the best, most experienced people right at the customer interface.

It has to be the right thing to combine maintenance and operations but organisations don’t change over night. So much is down to people’s behaviour, gradually building trust within an industry and within an organisation. It’s going to take a long, long time to filter through for us to reap all the benefits. It’s not as if you turn a light on and suddenly everything changes!

Was that process actually under way before you got here?

Yes, of course it was. Nothing I have done is new. I am not the genius that works these things out from scratch. I remember the very first meeting I had with what became the Rail Delivery Group. I asked what could we do to make life easier for customers, and straight back came the request to stop this silly divide between ops and maintenance. Devolution was already spoken of. Alliances were already under way. Even ‘Project Dime’ in the work of the projects business was making much earlier engagement with suppliers, with stricter discipline on client definition. All that stuff was under way.

My reaction? “Great, let’s do it. Let’s launch devolution straight away. Today! It’s a great idea.” So, all I did was to push forward existing ideas within the organisation.

You then split the business again because you created this infrastructure projects organisation. So, what was the logic behind that?

Well, the logic was that infrastructure projects is, as I see it, a service-based business which should be competitive and bought and used on its expertise, not because it is a monopolistic supplier. Despite the complexity and scale of the work that’s being done it’s necessary to prove that it is the calibre of the organisation that could win work here and ultimately overseas, not because it has a monopoly.

So that caused them to look at themselves and say: “Well, if we were a separate, independent, private company how would we look?” And the first thing they discovered was that their margins, overheads and operating costs were high compared with international benchmarks.

As I remind everyone, we didn’t build High Speed 1. A French company designed it and an American company delivered it. We weren’t called in to deliver Crossrail, that was designed by a French company with an American company delivering it.

And we haven’t been called in to deliver High Speed 2 today. Interesting isn’t it? So my message to our organisation is that we need to be in a position where we are the natural party that the government or investors choose to bring in to deliver major projects.

Are there other areas where you have people making demands on you, or setting targets for you, or stopping you doing things, that are really frustrating for you?

Most of our issues are self imposed. I’ll start by saying that we’ve got an unbelievably fragmented railway system which is very, very complex and complicated to work with but, hell, that’s an excuse, we should get over that.

One of the big features of the railway is also it’s a mixed railway. It sounds an obvious statement. We have a very dense, congested, mixed network which is a fact of life and therefore there are a huge number of interdependencies.

I would like more flexibility to be able to align ourselves with our customers. But why should a customer really co-operate with us on our cost of renewals, because there is no benefit to them in the short term? In fact, all there is, is disruption! So I would like more flexibility on that area. Hopefully we’ll have some progress with the next round of consultation with the ORR.

You’re using public money. Do you find that it’s all a bit onerous and it’s a bit long winded and you can’t get ideas through as quickly as you’d like?

Regulations are a necessary part of any monopoly for starters, and certainly any monopoly that benefits from the billions of pounds that we get. You can’t fight it and the public expects it. It’s their right. It would be different if we didn’t take any public subsidies. That’s the price we pay of being a monopolistic, publicly funded infrastructure company.

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Whatever comes out of the next control period negotiations will be incredibly difficult to achieve, no matter what. Therefore we’ll have to change, again, to get more and more efficient, otherwise we’re never going to hit the targets. You just can’t take more track- workers off maintaining the track and think things will go well. It just doesn’t work. You have to look at the underlying procedures and processes we have. You have to get real productivity improvements rather than just cutting workforce.

If you miss your targets, you get fined. But it looks like fining Network Rail, which is publicly funded, is a self defeating principle. Where does fine money come from?

Well, the money comes from the money we’re given. I mean, there has to be some sanction if we miss targets, I can understand that. But ultimately we’re a not for-dividend company. We’re a full profit company, but we’re not for dividend, and anything we make is invested back in the railways.

But, you know, in the end we agreed back in 2008 a certain settlement, and in return for that we agreed to deliver a certain set of outputs. So, if you don’t want to live by that process, then don’t expect to be treated as
an independent company, just become a government department, become a cost centre and apply every year for budget controls. That’s the alternative, so if you want to bid for a control period then you have to expect to deliver outputs. If you don’t there is a financial penalty.

And you feel that the not for dividend status that you have, and the stand alone company that you have, is the right way to run the railways rather than being a government department?

Of course, absolutely right. There is no doubt.

OK, you have compiled your business plan, presumably the next thing is to get it through the ORR?

We have spent a year putting a massive amount of work into our plan along with the ORR.

There’s ninety pages on the website but 22,000 pages is what they will get. I believe it was something like 6 foot 6 inches tall if you stand it up.

So somebody has had to write 22,000 pages and somebody else has got to read 22,000 pages?

Correct, yes. And it has taken us a year, basically, because what we did this time was to compile our initial industry plan, which is basically top down head office driven, with what we think the railways should cost. Then we went out to our routes and we said that now you are devolved, now that you have customers out there, you prepare your route plans bottom up and tell us what you think is the right plan to run the railways. Then we’ll merge it with our version.

So, it’s a much more rigorous process now. I would always like to have a greater supplier involvement and greater customer involvement, but we are a long way ahead of where we were in the last control period. It’s a much more thoughtful, resilient document.

I don’t expect an easy settlement, but what I do want is a settlement we know how we can deliver, because in the last control period we got 3 billion less than we thought and then we spent the best part of two years trying to work out how the hell we were going to make it work. As a result the industry suffered because a lot of the work slowed down dramatically.

We are trying to forecast forward what will happen in the next 5 years – what improvements, productivity, technology, external events will occur. And it’s understandable that the Regulator expects results based on things which haven’t been thought of which will improve productivity and of course that’s reasonable. I am sure we will come up with ideas. But trying to estimate what those are and how they will work and then enter a binding settlement that doesn’t constipate the industry is a challenge!

But then, also in the next 5 years, you’ll have work come up or be thrown at you that you weren’t budgeting for now.

That’s what happened this time, the growth we’ve had within the industry is substantially higher than anything anyone ever expected. We’ve had substantially higher growth than was ever predicted at the start of CP4 on our rail network.

We are coping with a 50% increase in 10 years, 25% in 5 years, 8% last year. It’s a huge struggle, particularly when you are set a budget. You have to say, as things change, that you need to be able to change the settlement. That’s not something anyone as a Regulator would like but that’s how you have to operate.

So the first challenge is that we need to convince the ORR to give us the money we’ve asked for. But then we still need to be flexible because we know a year, two years down the line, we’ll be back to try and change the settlement – but for specific reasons.