Rail Delivery Group 2 nd Industry Forum

1. Rail Delivery Group2nd Industry Forum 2nd Industry Forum 8 November 2012

2. Opening remarks 2nd Industry Forum 8 November 2012 Tim O’Toole Chairman, Rail Delivery Group Chief Executive, First Group

3. Opening remarks • The rail industry continues to experience significant growth but unwittingly finds itself on the front pages • Despite commercial and financial uncertainties the Rail Delivery Group continues to bring together the train operators, freight operators and Network Rail • The Group is evolving into the leadership body for the industry but recognises that this role comes from actions and deeds not words and structures • The RDG continues to pursue a range of initiatives – some arising from the Rail Value for Money Study but an increasing number emerging from recent events • The RDG’s 2nd Industry Forum will provide an update on the work being undertaken on franchising, focus on the industry’s plans for the future, reflect on the initiatives being pursued by the RDG and conclude with a briefing on the formalisation of the Group

4. Secretary of State for Transport 2nd Industry Forum 8 November 2012 Rt. Hon Patrick McLoughlin MP

5. Timetable for the morning • Franchising – the independent review – Richard Brown • Franchising – the RDG’s emerging views – Martin Griffiths • Franchising – Taking the views of the Industry Forum • Industry Strategic Business Plan – Paul Plummer • Break • The work of the Rail Delivery Group • Case Study: Asset, Programme and Supply Chain Management working group • Formalising the Rail Delivery Group – Graham Smith • Concluding remarks – David Higgins

6. Franchising – the independent review 2nd Industry Forum 8 November 2012 Richard Brown Chairman, Independent review of franchising Chairman, Eurostar

7. Franchising – RDG’s emerging views 2nd Industry Forum 8 November 2012 Martin Griffiths Member, Rail Delivery Group Finance Director, Stagecoach Group

8. RDG’s response to the review of franchising • Passenger franchising has been at the heart of the growth of the railway • Recent developments on passenger franchising have created uncertainty • The Members of RDG involved in passenger franchising have come together to inform a unified input to Richard Brown’s review in the name of the Rail Delivery Group • The group has met twice a week since the review was announced

9. Passenger franchising – RDG’s emerging views • The Rail Delivery Group is looking at franchising issues under four headings • Franchising authority and process • Risk allocation, risk sharing and financial footprint • Flexibility of specification • Franchise length and investment • The Rail Delivery Group is confident of producing a balanced submission that should be seen as a package of measures

10. Franchising Taking the views of the Industry Forum 2nd Industry Forum 8 November 2012

11. Industry Strategic Business Plan 2nd Industry Forum 8 November 2012 Paul Plummer Member, Rail Delivery Group Group Strategy Director, Network Rail

12. Why does the Strategic Business Plan matter? • It is the industry response to: • Government output specifications • Challenges to improve value for money • It builds on extensive cross-industry work including: • Route Utilisation Strategies • Planning Oversight Group • Technical Strategy Leadership Group • National Task Force • Rolling stock plans • RDG priority workstreams • It leads to the establishment of: • Network Rail’s funding and outputs for 2014-19 • As part of a longer term strategy for the railway and for Network Rail • Providing a baseline for further innovation for example through franchising • This is therefore a key workstream for RDG

13. Periodic Review Milestones 2011 2012 2013 2014 ORR Mar 2012 – advice to Ministers Jun 2013 - Draft Determination Oct 2013 – Final Determination Governments Jul 2012 – HLOSs/SOFAs Network Rail 7 Jan 2013 – Strategic Business Plan Jan 2014 – Decision on acceptance of FDs Mar 2014 – CP5 Delivery Plan Industry 7 Jan 2013 – Industry Strategic Business Plan Sep 2011 – Initial Industry Plan 13

14. The Strategic Business Plan • The Industry Strategic Business Plan will set out: • Long term vision for rail • How industry proposes to deliver the HLOS outputs • Market sector strategies • Industry affordability analysis • The Network Rail Strategic Business Plan will set out: • Vision, role & purpose for Network Rail • Network Rail’s contribution to the achievement of the HLOS • Detailed forecasts of activity, expenditure and efficiency • Network Rail’s funding requirement • Underpinning Route Plans

15. A long term vision for rail • Passenger satisfaction levels of at least 90 per cent • Capacity for approx twice as many passengers, with reduced journey times, as well as better connectivity • Improved product offer for freight resulting in higher satisfaction and rail modal share • Levels of reliability and safety are among the best in Europe • A financially sustainable railway through improved efficiency and revenue generation • Reduced carbon dioxide emissions in support of national targets

16. Outputs • Safety • Performance • Capacity • Availability • Sustainable development • Ring-fenced funds

17. Funding • The Initial Industry Plan (IIP) assumed savings for Network Rail and operators • Network Rail savings were consistent with previous ORR assumptions and McNulty low savings • ORR advice to Ministers took this as the low end of the range of savings • Governments appear to have taken the mid-point in the range • TOC savings in the IIP were stated to be dependent upon franchise reform

18. SBP Expenditure Predictions • Network Rail’s current expenditure plans and efficiency assumptions will generally be consistent with the Initial Industry Plan • Network Rail will make the case for additional expenditure in relation to: • Earthworks and structures • Investment to drive further efficiencies • Delivery of higher outputs including once in a lifetime opportunities and outputs funded by others • There are risks in meeting the efficiency challenge and Network Rail is dependent on RDG and government to help it succeed • Network Rail will continue to challenge itself to find further opportunities to reduce costs

19. Passenger Traffic & Demand

20. Freight Traffic & Demand

21. Punctuality Trains Passing PPM (1000s) PPM CP3 CP4 CP5

22. Network Rail efficiency 27% 23% 16% % CP3 CP4 CP5

23. Network Rail opex and maintenance spend O&M expenditure (£m in 2011/12 prices) O&M per train million km (£ mi 2011/12 prices) CP3 CP4 CP5

24. Network Rail renewals and enhancements spend £m in 2011/12 prices CP3 CP4 CP5 tbc

25. Industry subsidy

26. Periodic Review Milestones 2011 2012 2013 2014 ORR Mar 2012 – advice to Ministers Jun 2013 - Draft Determination Oct 2013 – Final Determination Governments Jul 2012 – HLOSs/SOFAs Network Rail 7 Jan 2013 – Strategic Business Plan Jan 2014 – Decision on acceptance of FDs Mar 2014 – CP5 Delivery Plan Industry 7 Jan 2013 – Industry Strategic Business Plan Sep 2011 – Initial Industry Plan 26

27. Longer term planning milestones Market Studies commence - May 2012 Publication of Draft Market Studies for Consultation - by April 2013 Publication of final Market Studies – by October 2013 ORR Establishment – December 2013 Cross boundary analysis – ongoing from Q1, 2013 Route Studies (Tranche 1) commence - 18 month duration Route Studies (Tranche 2) commence - 18 month duration ORR has agreed that LTPP outputs should be completed in time to inform September 2016 Initial Industry Plan (IIP) for Control Period 6 27

28. 2nd Industry ForumQuestions and Answers 2nd Industry Forum 8 November 2012

29. Break 2nd Industry Forum 8 November 2012

30. The work of the Rail Delivery Group 2nd Industry Forum 8 November 2012

31. RDG’s initiatives • The RDG is pursuing a range of initiatives through its subject-specific working groups • Asset, programme and supply chain management • Contractual and regulatory reform • Train utilisation • Technology, innovation and working practices • Franchising • Formalisation • The RDG is giving guidance to existing cross-industry groups • Planning oversight group • Technical strategy leadership group • National task force • RDG is also involved in other industry initiatives • Rolling stock planning, procurement and deployment • Strategic Review of the RSSB

32. Case Study: Asset, Programme and Supply Chain management 2nd Industry Forum 8 November 2012 The Asset, Programme and Supply Chain Management working group

33. Asset, programme and supply chain management • The management of assets, the management of investment programmes and the role of the supply-chain are all critical to the success of the GB rail industry • Identifying efficiencies in these areas is a core role for Network Rail but the RDG identified that bringing together train and freight operators, the supply chain and Network Rail should allow cross-industry efficiencies to be realised • The Rail Delivery Group set up the asset, programme and supply chain management (APSCM for short) to bring the industry together to identify new ways of working together that would create a more efficient industry • The APSCM working group includes TOCs (Arriva and First), a FOC (DB Schenker), Network Rail, a supplier (Amey), the Railway Industry Association and the DfT

34. APSCM workstream presentations • Access planning – Steve Murphy • Workbank planning – Simon Bunn • Cost of contingency survey – Jeremy Candfield • Network optimisation – Nigel Jones • Major projects and conclusions – Tim O’Toole

35. Access Planning 2nd Industry Forum 8 November 2012 Steve Murphy Team Leader, Industry Access Planning Improvement Programme Managing Director, LOROL

36. Objectives Optimising access planning. Put simply, when is the most efficient time to maintain the network? Reducing costs across the industry Increasing revenues Improving performance and customer satisfaction Developing case studies to provide evidence for industry wide benefits

37. Method Cross Industry • Steering Group Paul Hebditch – Programme Manager, NR Richard Stuart – Director of Rail Policy, Go-AheadSteve Murphy – MD London Overground, Arriva • Supporting Project Team established in Network Rail led by Fiona Dolman, Interim Director, Operational Services • All case studies are managed by a project board including the steering group, the Route MD & Directors representing each Passenger or Freight Company operating on the route • Project updates at each RDG working group meeting

38. The Product Total industry cost of maintenance North of Bedford – Midland Mainline Total industry cost of maintenance South of Bedford – MML / 4 nights/week Industry Cost

39. Midland Mainline Case Study Key Findings • Existing approach of variable length mid-week night possessions along with significant weekend possessions was not the industry optimum • Moving to a recurring pattern of consistent 6.5 hour possessions at the north end of the route and 7 hour possessions at the south end of the route delivered the followingbenefits: • Approximately 5% reduction in Network Rail costs for maintenance/renewals on the route • Reduction in overall maintenance possession hours of 52% • A 38% reduction in disruptive possessions at weekends • A more reliable railway, that will attract more passengers

40. Next Steps

41. Route based workbank planning 2nd Industry Forum 8 November 2012 Simon Bunn Leader, Route Based Work Bank Planning Business Director Track Renewals-Amey

42. Route based workbank planning – scope and objectives The Rail Delivery Group set up this workstream to examine how industry costs could be used by encouraging Network Rail, TOCs, FOCs and the supply chain to work more closely together in order to achieve Clear visibility of planning process, providing smoothing of resource, through intelligent grouping of works – not just as a one off exercise An understanding of planned work and the appropriate time for the work Recognise the costs / risks of very peaked demand (smoother and predictable workbank) Identify the blockers and subsequently the levers for improvement Recognise the impact of the control periods and prevent this being a blocker to more efficient working

43. Route based workbank planning– scope and objectives Further benefits from the workbank planning workstream are expected to be Ensuring that work delivered is fit for purpose, with pragmatic specifications Reducing overall access time (and costs) by delivering some of the maintenance and inspection work when appropriate – e.g. maintenance tamping and CEFA inspections Recognise the railway as a “system” Reducing industry costs and keeping the railway open Producing a model that can be used nationally to optimise the workbank in terms of cost and resource demand

44. Route based workbank planning– model project North and West Route Improvements (Shrewsbury to Chester) Track renewals for track condition (remove jointed track / old fastenings) + S&C + S&T Cefn Viaduct waterproofing Currently developing “piggyback” and scope optimisation options: Additional civils Examinations (e.g. CEFA could use the time to carry out inspection limiting access demand) Maintenance (could use the time to deliver some of their work e.g. maintenance tamping) Earthworks Changing complete rail lengths / optimising performance

45. Route Based workbank planning – next steps Sample is from a narrow baseline, but still has useful data Findings have been extended to reflect Territory Work Group Route category (Primary, secondary etc) Ramp up of savings impact Next steps are to extend the sample base by reviewing Combined study with access planning workstream Sample study of two- track section of northern WCML Project – GN / GE possible Track resource review – potentially Switches and Crossings

46. Cost of Contingency 2nd Industry Forum 8 November 2012 Jeremy Candfield APSCM workstream Director General, RIA

47. The Issue Much anecdotal evidence, plus Network Rail’s benchmarking work, suggests that contingency allowances are greater in rail than in other industries And that this is substantially to minimise the risk of “possession over-run” – when engineering works take longer than scheduled Most such works are undertaken by contractors, members of the Railway Industry Association (RIA) The RDG’s APSCM working group set up a workstream to identify how the industry could work together to reduce the cost of contingency The APSCM working group asked RIA to conduct a survey on the Cost of Contingency

48. The survey The survey was undertaken in August 2012 to seek to quantify the excess cost that could be involved 25 responses were received, spread across all main asset groups and turnover bands RIA analysed and anonymised the data

49. Key Findings Rail-specific contingency measures absorb additional people, plant, possessions and materials Contractual reasons predominate, but reputational risk is also a major issue Rail-specific contingency measures are applied to 63% of railway projects, and used in 49% Accounting for 11% of GRIP6 costs on those projects Allowing one-hour overruns would avoid 15% of the cost, two hours 23%

50. Comments Raised “Possession work is over-resourced because the possibility of overrun is too great a risk to take.” “The current possession regime requires significant lost time.” “Need to factor-in client change or poor project definition planning.” “The explosive and bitter recrimination many of us have had when a possession does overrun for whatever reason!” “Where scope definition or programme information is limited we would add up to 20%.” “Contingency is usually factored in to cover for poor planning in either the specification or the tender.”