Strategic Rail Authority

Richard Bowker speech: Railway Forum annual conference
_______________________________________________________________

date 29 June 2004
source Strategic Rail Authority
type Speech (full)

note Speech by Richard Bowker, Chairman Strategic Rail Authority

Good morning.

It may come as a surprise to you but I am not going to talk this morning about
the Rail Review. Gasp, I hear you cry. But the reality is that the Secretary of
State's review is approaching its conclusion and I have no wish to add to the
collective speculation. We've all had quite enough of that.

What I would like to talk about is the cornerstone of any successful delivery of
any product or service in any sector. I'm talking about the nature of the
relationship between the customer and the supplier. In the railway sector, we
have many customer supplier relationships but the one I want to focus on
today is special to any industry that straddles both the public and the private
sectors. My focus is going to be on the importance of the role of the public
sector "client" in ensuring that Britain's railway, its customers and the wider
public secure value for money for the significant contribution that the taxpayer
makes. This is every bit as applicable to our industry as it is to any other.

In any deal, in any commercial relationship, in any transaction, there must be
two strong partners: the client and the supplier. The railway is no different.
The delivery of an integrated transport system, of a value for money railway
where all stakeholders interests are properly considered, of a railway where
national, regional and local issues are balanced against each other and where
wider Government policy initiatives are considered does not - and will not -
happen by accident. Neither will market forces alone deliver the right
outcome. If we learn one thing from our European partners it is this - public
transport needs planning and managing. Anything else will lead to chaos.

The privatisation of the railway in Britain has taught us many things, but none
perhaps more important, by its absence until recently, than the presence of a
competent engaged public sector client. Because it is a central truth that with
billions of pounds of taxpayers money flowing into the industry every years,
then in order to be a successful privatised industry, it needs clarity and
direction from a strong public sector client to work in partnership with vibrant
private sector delivery.

The private sector has delivered much to be proud of. It is increasingly
customer facing and customer focused. But no-one should be seduced into
believing that it can deliver on its own. The private sector cannot decide on
what is in the public interest, what makes sense from a public policy
perspective. Only the public sector can do that and it is a major challenge that
requires maturity and experience.

Procurement and contract management, for that is what it is, requires skill and
training and the right culture in which to flourish. Again, this is another lesson
of privatisation and there was no better example of the need for excellence in
procurement than the new franchise agreement such as is now in place with
National Express on the Greater Anglia Franchise. The clarity of this contract
will allow a strong, core brand with antennae alert to its customers to deliver
against their needs.

You will see a similar approach on the Inter City East Coast & Integrated Kent
Franchises, as well as all the others that are to follow them.

But the new model agreement is just that - an agreement between two
partners: a public sector specifier, the Strategic Rail Authority, and private
sector deliverers. The agreement was the result of close co-operation
between the Strategic Rail Authority and the TOCs, but when the talking
stopped, it required the Strategic Rail Authority to formulate the final
specification against which TOCs could bid and then deliver.

Market forces operate at the bid stage first and then in competition with other
modes - particularly in the case of Virgin and GNER, against low cost airlines.
But it's that tough, competitive bidding process that creates the platform for a
value for money solution value for taxpayers and meaningful delivery for
passengers. That was not the model bequeathed to us by privatisation. That
franchise model was bust before it started. It was an abdication of public
sector responsibility. And the first attempt at reforming it was equally
unsustainable. "Tell us what you'd like to sell us", rather than "here's what I
want to buy, now bid against that specification." Was the mantra. "Let a
thousand flowers bloom" as Christopher Garnett and I both found out to our
cost on East Coast the first time round. That mistake will not be repeated.
The new franchise agreement is more prescriptive. It does set out what is
required and we do expect it to be delivered. And if its not being delivered, we
will get involved. Ask any private sector company in this room and see if they
take any different approach with their suppliers. I promise you that the
successful ones do not.

The signing of a franchise agreement is the easy bit. It is the beginning of the
journey, the start of the partnership. It is at this point that the hard work really
beings.

I spoke recently with a very experienced industrialist who had spent the past
few years in the public sector. He reminded me of his time in the private
sector when as a lead contractor to a major US multinational, the British
company he was responsible for had found itself struggling on one of its work
packages and as a result found itself on the US company's critical path.

Immediately, the US client had swarmed all over my colleague's company
demanding action, wanting to see remedial programmes, being all over the
British supplier, as they say, like a rash.

My colleague tells me at the end of this few weeks of nightmare that the US
multinational knew as much about the British supplier's business as the
supplier did himself. Interestingly, as soon as the problem was rectified, the
client withdrew, though perhaps not as far away as he had originally been but
it didn't matter. The lesson was learnt and the exercise was never repeated.

It's the same in the railway. We have worked hard at the SRA to strike the
necessary balance and I have to say the TOCs have responded
magnificently. True partnerships are developing. We know now what the
issues are and we can be demanding but with this approach comes a lot more
confidence on both sides. The air of panic that pervaded the franchised rail
industry two and half years ago with everyone wondering where the next crisis
was coming from has gone and thank goodness.

Sometimes the relationship breaks down. That is what happened with Connex
last year. Definitive action needed to be taken to protect passengers and
taxpayers and we took it. But we could only do that because by then we had
learnt a great deal about that business.

A strong public sector client is important in other areas. Take planning for
example. The balancing of national, regional and local needs is a complex
process. Add to that the need to factor in other policy objectives such as, for
example, the Sustainable Communities Plan, and the whole thing makes for a
tough challenge. But it is something that only the public sector can do. I for
one do not think it is appropriate to ask private sector companies to horse
trade the competing needs of various public sector agencies on the public
sector's behalf; it is something the public sector should sort out for itself and
then present a unified position. Clarity and certainty helps everyone.

And sometimes, that strong public sector client can take the kind of tough
decisions that it is impossible for anyone else to take. The timetable changes
that we and the rest of the industry made last year but that we at the Strategic
Rail Authority fronted up are a good case in point. All we did was take out
about 180 services from a total of 18000 or 1% for the non-mathematicians.
Yet the reaction was severe and frequently irrational. At times it was
downright hostile. In such a politically charged environment it is extremely
difficult for private sector TOCs to make those decisions.

But I stand absolutely by those decisions and it is really pleasing to see they
have already made a clear impact with some of the worst performing TOCs
already making marked improvements. Virgin Cross Country especially has
made huge strides in its PPM - up from 45.9% to 80.7%. This is the result of
public and private sectors working together for customers.

Perhaps the greatest challenge in this industry over the last 2 years has been
the West Coast Route Modernisation, an object lesson in why getting a grip of
anything worthwhile and popularity are uneasy, and in this case estranged,
bedfellows. The real lesson of the West Coast is never allow the private
sector to self manage when the public interest is so critically at stake. That is
what happened with Railtrack and it is probably the biggest single cause of
that company's downfall. You cannot ask the private sector to decide between
local services on the Trent Valley, additional freight paths or increasing the
frequency and speed of West Coast Services. There has to be some
assessment of the costs and benefits of all three, not just in commercial terms
but also in terms of non-user, or social, benefits.

The experience of the West Coast teaches us another lesson. In order for the
public sector to be a tough and competent client, as I believe it should be,
then it must be clear what that specification is. Unfortunately, this clarity has
not always been available for West Coast, even recently, and as a result there
have been examples of the SRA and the ORR disagreeing on the right course
of action. Whilst we are now on the right track, there was confusion and tense
words last Autumn and that helped no-one.

The reality is that there is no room for more than one public sector client, one
specifier, if the railway is to be successfully publicly specified. Why? Because
the reality of split specification is always a recipe for fudge and drift in sector,
public or private. It might all be highly entertaining for the media but it ain't the
way that delivery gets done as we all know.

So having said I would not mention the Rail Review, what dangers are there if
this process does not result i n a strong, single, public-sector specifier? There
are three.

First, will be confusion over what the public interest really is and how it should
be delivered. Infrastructure companies will always do what is in their interest
and operating companies will do likewise. Nothing malign in that, simply
companies doing what they are incentivised to do. Only the public sector can
truly act in the public interest and it is vital that it sets clear, balanced
objectives for all parties to deliver against. Failure to do so results in the kind
of situations we found on West Coast and Southern Power before we got a
grip. That is not a world anyone should want to revert to.

Second and third are cost and performance. As long as train operators and
infrastructure operators remain vertically separate (which courtesy of
European legislation at the very least is how it will remain) then it is a mistake
to allow one to have dominance over the other without a really tough client to
referee.

If a single guiding mind for delivery is to be the outcome of this review then we
must also look for a strong, competent and engaged client because they are
going to be very busy indeed ensuring the public interest is protected.
I leave you with this thought. Why can't public services be a product to be
proud of? They can be - and should be; but, as I've said, that won't happen as
a result of chance or some mystical process. And it certainly won't happen in
any industry that is producer-led. The customer is king; so too is it with the
railway. In order for that ecosystem to function, then there must be confidence
that each element of it is, in turn, functioning properly and confidently.

In the case of the railway those elements include the customer, public and
private, delivered to by suppliers who have a clear sense of what's wanted,
delivering to a contract that is profitable both for them and their investors. It is
a sustainable balance but needs a partnership between public and private
because both have an enormous stake in successful delivery. Both public and
private equity is being invested and both public and private need a return,
even if they are measured and valued in different ways.

We are certainly at a watershed in this industry. The Rail Review has ensured
that. So it's a legitimate time to reflect on what has been achieved. I believe
we have just reason to feel proud, though not complacent, as an industry.
From a definitely patchy start in the private sector I think a great deal has
been turned round. But we're only really beginning to understand what is
actually required and putting it in place and I do hope that the next few
months can consolidate, not destabilise, those learning experiences. To me,
the biggest learning experience has been the need for partnership between
public and p rivate. It is a symbiotic relationship that can be very successful. It
is the relationship on which the future of the railway depends. Get it right, and
the stability, clarity and certainty that result will mean delivery for all; get it
wrong and the chance to cement the progress we've all made in the last
couple of years will be squandered.

I could only have dreamt 2 years ago that I could be standing here now
knowing that 200 miles of the West Coast would be cleared for 125 mile/h and
tilting trains, that nearly 1000 Mark 1 replacement carriages would be in
service, that performance would be climbing steadily, relentlessly upwards,
that investors would be coming back to rail, that the franchise model would
actually make sense and parties would want to not only bid for them but
delight in winning them.

But all those things have come to pass. And it's been tough for all of us. We
have fallen out from time and I know that many people have disagreed with
decisions that we have taken. I know I have disagreed with some of yours.

But there is a new respect and we are moving forward, in partnership,
together. If that continues, public and private, track and train, equity and debt,
whatever, we have a future. And that future is Britain's railway, properly
delivered.

Thank you.

Railhub Archive ::: 2004-06-29 SRA-001