RIA North Delivering Value Report

Delivering Value Integrated Rail Plan 1.0 Introduction This report has been prepared by RIA North to support client bodies as they consider the optimum approach to developing and procuring the Integrated Rail Plan. RIA North would welcome the opportunity to develop this thinking collaboratively with client bodies.

1.1 Report Approach The Value for Money workstream is part of the RIA North programme (formerly Northern Rail Industry Leaders (NRIL)) providing input to the strategy and planning of the Integrated Rail Plan. In order to provide market input and recommendations to client organisations on procurement strategy, market engagement models and risk management approaches that represent best practice, the Workstream held a workshop during February 2021 to develop recommendations for Northern Powerhouse Rail (NPR). This report is the output of that workshop and has been updated in March 2022 to reflect the publication of the Integrated Rail plan and the change in client bodies.

The workshop participants (Appendix B) were a cross section of Tier 1 suppliers representing civils, railways systems and consultancies so that collectively the report can capture what we believe is current best practice in the rail sector. This workshop included professionals with experience working on HS2, Crossrail and with Network Rail. In preparation for the workshop, a questionnaire was completed by the participants, as well as by those who were not able to attend the workshop.

The verbatim feedback from the questionnaire and the notes of the workshop discussion are detailed in Appendix A. The high level summary and recommendations of the workshop are set out in Section 2.0 below.

During the period of the development of this report the Construction Playbook was published capturing “commercial best practice and specific sector reforms outlining the government’s expectations of how contracting authorities and suppliers, including the supply chain, should engage with each other.”

In Section 3.0 we consider the 14 Policies set out in the playbook and show that there is a high level of consistency between the Playbook recommendations and the recommendations in Section 2.0. In Section 4.0 we likewise consider the recommendations of Project 13 and examine the correlation with recommendations in Section 2.0.

In Section 5.0 we recommend next steps.

1.2 Context On 18 November 2021, the Government published the long-awaited Integrated Rail Plan (IRP) for the North and Midlands, outlining the Government’s investment in the railway network in the two regions.

In terms of funding, the IRP commits the Government to a programme of investment of £96bn for rail construction and upgrades over the next 30 years. This includes £54bn of investments on rail and local transport, in addition to the £42bn already included for HS2 Phases 1 and 2a between London, the West Midlands and Crewe.

The full list of the IRP core portfolio and announced projects is shown below: 1) HS2 Phase 2b Western Leg a) HS2 Western Leg (Phase 2b) i) The high speed line to Manchester will be completed. ii) The Crewe to Manchester section of the Western Leg of HS2 Phase 2b should proceed as planned. b) Manchester Piccadilly surface station expansion to support future NPR services and HS2 c) Crewe Northern Connection construction, part of a Crewe Hub

2) HS2 Phase 2b Eastern Leg a) New high speed line from the West Midlands to East Midlands Parkway (HS2 East), based on the existing safeguarded route, but designed to allow trains to reach the existing stations in Nottingham and Derby. b) Electrification of the Midland Main Line to Leicester, Nottingham and Sheffield via Derby. c) Package of further investment on the East Coast Main Line (ECML) from London to Leeds and the North East. d) Significant package of upgrades to the East Coast Main Line

3) Improvements to local services and integration with HS2 and NPR: a) West Yorkshire Mass Transit System i) Committing more than £200m from central government to further develop and start work on delivering these plans, alongside the assessment of how best to get HS2 services to Leeds. b) Midlands Rail Hub i) A high speed line between the West and East Midlands, which would give better connectivity benefits than previous plans.

4) Northern Powerhouse Rail a) Between Liverpool and York, NPR will be built in line with the 2019 Option 1 developed by TfN, instead of Option 3, which was TfN’s preference. This would include: i) 40 miles of newbuild high speed line between Warrington, Manchester and Yorkshire and upgraded and electrified conventional line for the rest of the route. ii) Improvements to the previous Transpennine Route Upgrade (TRU) plans between Manchester and Leeds, including full electrification, digital signalling, longer sections of three and four-tracking, and gauge upgrades. iii) Electrification of Leeds–York.

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2.0 Summary of Questionnaire and Workshop Conclusions The key findings from the questionnaire and workshop participants included: •

Recognition that different commercial, delivery and procurement approaches are likely to be required for the new build high speed elements of IRP compared to those elements which are upgrading the existing network.

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The expectation is upgrade of existing routes will be procured by Network Rail.

Procurement of new routes is likely to be via HS2.

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A consistent controlling mind is needed to oversee all aspects of the project given the multiplicity of delivery bodies and stakeholders. The expectation is that controlling mind is DfT.

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The importance of early lockdown of strategic (DFT) and tactical (Network Rail) scope with strong change management control thereafter.

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Client bodies need to clearly specify desired outcomes and work with supply chain to deliver detailed and locked down output-based specifications at an early stage. This will enable determination of real risk, where risks sits and the appropriate commercial model to address this.

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There should be output-based specifications with a budgetary target. Specification should identify “must haves” and “nice to haves”, with the supply sector ‘cutting its cloth’ accordingly.

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An Early Contractor Involvement (ECI) approach is required to manage risk and costs. RIA North should work closely with client bodies on this.

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The supply chain should be rewarded for outcome performance with clear supplier financial incentivisation related to collaboration required to achieve shared outcomes.

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Consider a Design Build Finance Transfer model for greenfield sites. This can also encompass entry into service and maintenance phases.

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Many of the points raised by the VFM group align with the principles and policies from the Construction Playbook (HM Treasury) and Project 13 Framework and Sections 3.0 and 4.0 map the recommendations of these models to the RIA North workshop conclusions.

2.1 Delivery Approach •

Development of co-located collaborative contracts and teams between customers and key suppliers.

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Contracts aligned both organisationally and commercially with desired outcomes.

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Use phased delivery approach and KPIs to manage scale and monitor staged progression.

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Utilise existing frameworks where appropriate.

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Support innovation within defined works, while maintaining simple interfaces between works. Consider the innovation opportunities arising from the Decarbonisation, Digitalisation and Innovation workstreams.

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Understand the constraints from the railway systems that apply to the infrastructure (i.e. avoid the need for expensive infrastructure modifications).

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Start system integration early.

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Test programme from start to finish and don’t underestimate effort for Entry into Service (EIS) and Assurance.

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Desirable to lockdown specifications early, and where possible include OEM’s and system providers / integrators in the design stage to agree specifications, as opposed to multiple design options.

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Embed a philosophy of design for safety and design for production / efficiency underpinned by a BIM platform.

2.2 Surveys •

Recognition that different types of survey will be required at different time in the project lifecycle. Need clients to be clear on the purpose of each survey – is it to provide a cost estimate or perhaps input to a detailed lockdown design?

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Ensure clarity of survey specification and desired outcome.

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Client bodies require a survey strategy aligned to their procurement strategy. Do the right surveys at the right time.

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Survey data should be consolidated in GIS / BIM and accessible to all stakeholders. This will deliver increasingly rich data as the surveys are built upon each other, and provide one source of the truth. This will have increasing value through subsequent phases of design, construction and operation.

2.3 Risks •

Scope stability mitigates risk hence need for lockdown specifications early in programme.

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Risk of funding decreasing or delayed through political changes.

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Procurement through Network Rail with their current 5 year funding cycles. Whatever the procurement route, funds need to be committed and not released piecemeal.

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We need to ensure there is not an inappropriate contract structure.

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Competing demand for scarce resource. Creating a fully funded and committed consistency of workbank will allow the industry to effectively invest in capability and capacity.

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A need to understand system interfaces and access on the network.

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Poor project monitoring and control, and lack of transparency. “If you don’t know where the project should be at, then how can you flag delay?”

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Monitoring systems and KPIs should be established from the outset.

2.4 Risk Mitigation 5

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Agreed risk matrix showing risk ownership between client, prime contractors and supply chain.

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Risk owned by those best able to manage that risk and ability to influence/mitigate. .

Recognise some risk is best residing with the client.

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Early well defined scope and output specification.

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Contractual arrangements designed to engender collaboration and incentivise all parties based on customer outcomes. Appropriate flow down of contract to supply chain.

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Clear project development strategy and process.

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Appropriate surveys (see earlier) and Early Contract Involvement (see below).

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Bringing technical supplier in early can better allocate and understand the risk and bring both programme, risk and cost down.

2.5 Early Contractor Involvement •

Need to determine overall ECI strategy and specific ECI objectives for business case, outline design and detailed design.

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“ECI is more than just putting everyone in the same room – needs the right skills at the right stage”.

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Early stage ECI involvement should not preclude opportunity to bid.

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To avoid wasted time and effort, ECI should be undertaken when there is an agreed output specification and ideally funding is sorted.

2.6 Output Based Specifications •

Off network asset more suitable for Output Based Specifications. Need to consider how best use on existing on network asset.

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Output based specifications should be balanced with indicative budget and programme timeline.

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Output based specifications must be balanced with desired outcomes and benefits.

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Output specs need to factor in interface between adjacent works and should take into account the outputs from across the RIA North workstreams.

2.7 Supply Chain 6

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Industry charter (e.g. payment terms, key contract principles) for supply chain. Utilise existing initiatives (e.g. NR SME Action Plan) to ensure common approach to market.

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Look to use Balanced Scorecard approach being developed by Rail Sector Deal (Sustainability Pillar).

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3.0 Mapping of Conclusions of Section 2.0 to the Construction Playbook

Construction Playbook Key Policies Commercial Pipelines

RIA North view of potential Relevance to IRP At present there is no visible IRP pipeline and consequently notwithstanding the appetite demonstrated by RIA North , supply chain businesses cannot make business plans or invest in capability to support IRP. RIA North is well positioned to support this and considers that the timescales are such that with confidence of pipeline any potential capability gaps can become levelling up opportunities The potential IRP pipeline is such that it can support such a long term and collaborative approach especially if a wider rail portfolio including NR and HS2 IRP projects are included to avoid counterproductive misalignment between client portfolios. The scale of IRP means a Project 13 Enterprise Model may be appropriate (See Section 4.0) As “Portfolios and longer term contracting” but also note the opportunity envisaged in the Playbook for harmonised demand supporting standard products, modern methods of construction etc IRP Clients should adopt the BIM Framework and cascade throughout supply chain. See also 2.2 above. This will be addressed as part of the RIA North digitalisation workstream.

The playbook recommendation to use ECI from business case development to reduce downstream issues is strongly endorsed by the responses to the questionnaire – see 2.5 The playbook recommendation to focus on outcomes, rather than scope, in client specifications is consistent with the questionnaire – see 2.6 This will support good and timely decision making The playbook recommends an evidence based approach and hopefully this report can help this – see 2.1 The playbook aim for data sharing, collaboration, improved value and risk management are all consistent The proposal for risk allocation to be informed by genuine and meaningful market engagement is very welcome and aligns with 2.3 and 2.4

Market health and capability assessments

Portfolios and longer term contracting

Harmonise, digitise and rationalise demand

Further embed digital technologies

Early supply chain involvement

Outcome Based Approach

Benchmarking and Should Cost Models Delivery Model Assessments

Effective Contracting

Risk Allocation

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Payment Mechanism and Pricing Approach

The recognition that these issues are intrinsically linked to risk allocation is very welcome Long term this will help strengthen the supply chain when combined with other initiatives – see 2.7 Long term this will help strengthen the supply chain

Assessing the economic and financial standing of suppliers Resolution Planning

4.0 Mapping of Conclusions of Section 2.0 to the Construction Playbook Project 13 Pillar

Project 13 Principles

Capable Owner

• Owner develops Enterprises built on long term business to business (b2b) relationships • The Enterprise is set up to deliver: o Clearly articulated customer outcomes o Long term asset performance • Value is defined at outcome level (through baselines, benchmarks or affordability) • The Enterprise is rewarded for outcome performance • Risk allocation is aligned with capability and where possible jointly owned • The commercial arrangements provide the potential for sustainable returns • There are clear incentives and opportunities for investment • The Integrator brings together capabilities that deliver effective solutions through production systems • The Integrator enables a platform approach to delivery • Supply systems are organisationally and commercially aligned with the outcomes to be delivered

Governance

Organisation

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RIA North view of potential Relevance to IRP An enterprise model focussed on outcomes, long term relationships and asset performance is welcomed and for the largest elements of the IRP programme is consistent with 2.0 and 2.1.

Consistent with 2.1 Delivery Approach, 2.6 Outcomes, 2.3 Risks, 2.4 Risk Mitigation Incentivises all parties to adopt a win-win collaborative approach

For the complex integration projects that are part of IRP this supports effective delivery and is consistent with 2.1 Delivery Approach, 2.2 Surveys, 2.3 Risks, 2.5 ECI.

Integration

Digital Transformation

• The Enterprise has a common and committed approach to health, safety and wellbeing • The integrated Enterprise is aligned with the outcomes to be delivered • Supplier capability is engaged early in developing solutions • The Enterprise integrates the required capability in high performing, collaborative teams • The Enterprise digital transformation strategy enables an integrated digital approach to asset management and delivery.

• The Enterprise effectively integrates engineering and digital technology to deliver intelligent solutions • Data and information are recognised and treated as digital assets that enable customer outcomes

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For the complex integration projects that are part of IRP this supports effective delivery and is consistent with 2.1 Delivery Approach, 2.2 Surveys, 2.3 Risks, 2.5 ECI.

Consistent with 2.1 Delivery Approach, 2.2 Surveys, 2.3 Risks, 2.5 ECI.

5.0 Recommendations and proposed next steps With the recent publication of Integrated Rail Plan and the development of the supporting Strategic Business Case the RIA North Value for Money Group feels the time is right to work closer with IRP Clients to develop our recommendations in the context of the Integrated Rail Plan.

As next steps we propose the following: • •

IRP Clients review this report – supported by a discussion/ workshop with RIA North.

RIA North to work with IRP Clients to deliver an ECI strategy for the IRP programme.

Subsequent actions will flow from this activity.

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Appendix A - Questionnaire Responses and Workshop Notes 1) Initial NPR requirement will be for survey and design work. How do NPR ensure that no survey work is nugatory? What advice would you give NPR on how to approach this work?

Questionnaire Responses Undertake “soft” market intel-type discussions with industry to share initial NPR requirements in order to test NPR thinking and obtain feedback from experts to help shape the scope.

Ensure clarity of survey requirements and definition of outcome requiring support.

Factor in and make available legacy documentation as a basis for understanding of requirements and avoiding a blank canvas.

Tap into live project works.

Consider multi-discipline surveys when appropriate – civils, telecoms, cabling, signalling.

Often see survey activities repeated costing time and money.

Having an output based specification, which has input from all parties who will use the survey data is key, client, NR, designer, contractors etc.

You need a high level architecture and strategy that the solution sits within, then commit the survey work required to support the design solution.

A standardised survey template utilised across the industry would enable quicker responses by streamlining the procurement cycle. However, this could leave the customer with the responsibility for any missing or incorrect information. Should NPR not wish to take contractual responsibility for missing or incorrect information in standardised surveys, an alternative would be for suppliers to be given adequate time during tendering phase to conduct their own survey. It is advisable that the companies are involved throughout all phases in order to share experience and knowledge to de-risk the project in both costs and time. An agreed survey would be required to contain sufficient information for suppliers to understand the scope of works.

Workshop Notes General Observations • There is a need to distinguish between upgrade and new build lines across all questions – they have different requirements • It is understood NR will be the delivery partner, certainly on upgrades. When could a specification be shared? Is it NR we need to be talking to?

It is recommended that NPR should • Adopt an ECI approach – engaging with consultants/ surveyors • Agree common specification / quality requirements for survey and design work noting that clarity and fixity of the specification drives the required strategy.

• Understand that the purpose of a survey may vary from high level costs to route assessment to detailed design and this should be reflected in the specification • Look at Heathrow Airport Model on risk apportionment which is considered to drive efficiency and mitigate Professional Indemnity concern which drive up risk pricing.

• The Survey strategy should be o Staged survey aligned to the procurement strategy

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Built up in a GIS system – mitigates risk (effectively warrants data). Each subsequent scope of work does any necessary additional survey and adds to the data

2) What advice would you give NPR for procuring the major civils and railways systems contracts?

Questionnaire Responses Ensure tenders are segmented by size, category, and geography to ensure maximum bid responses whilst recognising commercial realities for industry in providing bids to create best value. Take a pragmatic approach in the contractual demands placed on bidders to comply with head terms & conditions, recognising that bidders will be creating 2nd tier (and beyond) supply chains to support delivery of the work, and will require a degree of flexibility in driving such terms across the whole supply chain, especially when looking to support greater use of SMEs within NPR’s geographical boundaries Give due consideration to Alliance make up and capability of alliance members to either deliver requirements directly of to extend supply chain engagement for experts in field.

Consider approach for critical work package expertise as to not alienate or treat as lower tier provider when deliverables are project critical.

Additional layers not only add in additional cost and mark ups but can also add in delays and confusion due to conflicting company specific requirements.

Use subject matter experts early in the process to ensure appropriate specifications produced.

Avoid excessive or short term tier 1 engagement, issues created on major projects where tier1 suppliers fail to interface or complete deliverables prior to overall completion with no full term support.

Sensible and appropriate timescales for tendering.

Bitesize chunks by line of route seem to be more manageable.

Railway systems offer an opportunity to reduce the physical works on site, for example a moving block signalling system can achieve greater capacity without significant track or civil modifications. Look at the use of CBTC on London Underground, 20%+ increase in capacity and 20%+ reduction in journey time without making any significant changes to the civil works, just upgrading the track to take trains running at faster speeds.

NPR is about rebalancing the country, therefore a procurement route should ensure that local people are employed and trained in all aspects of the Programme delivery, so often this is talked about with little or no real delivery against it - we should learn from some of the stipulations that the London Boroughs put on development projects around disadvantaged and local employment and how they follow this through. With regards to the specifics of the Procurement, NPR should look for a model which builds on the principles of alliancing / partnering but defines the scope and scale of the packages in a way which allows local companies to play an active role at a senior level and not simply make the packages so large that only the usual large scale contractors can play, and hence some of the behaviours that can come from this. While this may sound a challenge to achieve it fits very well with the principles of Project 1, where an integrated structure is developed with like minded partners who are bought into the strategic objectives and drivers of NPR. Early Engagement is key to understanding outcome-based specifications. A great example of this is the East Coast Mainline model. As suppliers, we have the experience of migrating onto an operational network as well as establishing new lines, deploying optimised plans. There also needs to be sufficient tendering time for suppliers to provide an optimal offering, providing a balance between risk and incentivised contract. Projects with multiple technical interfaces need 13

to be appropriately incentivised, not punitive. The larger a project the more essential it is that a partnership approach is undertaken with common incentivisation targets being applied across partners.

Workshop Notes •

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Learn lessons of Crossrail o Understand the constraints from the Systems that apply to the Infrastructure o Start System Integration early and identify and deliver the minimum viable product o End to end programme – test thoroughly – don’t underestimate Entry into Service and assurance o Note technology is always advancing – use output specification to mitigate the risk o Allow local innovation – protect interfaces between ‘trades’ o Note MOD procurement provides the platform for latest technology Projects which went well o Olympics, Heathrow, A14 o Thameslink – collaboration – right person – empowered Packaging o Alliances would allow the contracts with the right party o See construction playbook

3) NPR will be procuring packages of significant contract value. How would you recommend NPR procure these?

Questionnaire Responses Consider macro level issues such as the maximum available labour resource in the market to deliver large infrastructure contracts at any given time, potential to tender by “wave” based on overall project delivery plans versus loss of commercial value through disaggregation.

Call off’s around phases of work with a consideration of alignment of work streams to gain efficiencies.

Poor specification – appropriate investment, early engagement of Subject Matter Experts This is a hard one to answer, the likelihood is that NPR won't want to deal with multiple suppliers and will instruct NR to manage and procure these contracts in my view.

The traditional approach drives to the selection of low cost bidder to deliver a system against a standard. Very few ITT marks for offering a better solution or a different technology solution. Customers also tend to recruit large engineering teams and over specify, this leads to greater cost and less realisation of benefits. A KPI based approach to offer the best overall outcome at cost might be better.

As above, work with the Principles of Project 13 to engage with local specialists who are inherently bought into the strategy and drivers of NPR. There will clearly be a requirement where specialist large scale capability is required, this should be recognised as specific packages which are identified early and with a clear national / international procurement strategy - but it should not be the norm, these should be the 'one offs'. The norm should be about encouraging the local capability to stand up and grow under the umbrella of the NPR Programme, leaving a true and lasting legacy.

To answer to this would largely depend on how the customer wished to manage its contracts. Our view is that an Alliance structure would be the preferred method.

Development of co-located collaborative alliances and teams between customers and key suppliers to reduce ‘man-marking’, increase collaborative designs and supply chain 14

integration. This could significantly reduce overall costs and interface risk. We would develop a consistent requirement set and documentation for all tenders and the resulting projects. The aim would be to develop consistency across all projects, and so increase the efficiency of central tendering and procurement teams. This would also enable simplified flow-down of requirements into supply chains to speed tender responses, contracting timescales and enable cost efficiencies Workshop Notes See also Q2 • Are NPR going to procure large packages of work? If not who?

• Off Network Rail Assets – Brown/ Green field site – DBFT or EWR or HA/ LA approaches are recommended • On Network Upgrades – is NR to be the delivery Body? Clarity is needed • Consider the systems integration across both types • A controlling mind is needed – TfN? o Where is the project and procurement strategy? o How is TfN success judged? What are the project outcomes/ outputs? A clear line of sight is need. o How will this be cascaded to suppliers in procurement criteria? Eg social value vs commercial 4) What do you see as the main risks in delivering rail projects on the scale of NPR? How would you advise the risk are shared across the parties?

Questionnaire Responses Supply of labour, gain/pain share to drive delivery on time quality and cost, flexible staged payment profiles to support contractors’ cashflow (recognising SMEs will be supporting the tier 1 supplier) Programme delays – take Crossrail both pre and mid pandemic.

Shared proactive risks – workshop’s taking place pre, mid and post tender to ensure all parties have a full awareness of the risks / issues / opportunities. A shared risk approach minimises assumptions / risk pots within pricing increasing the overall price.

Pre-tender workshops with internal and external stakeholders.

Land access is a huge risk, the strategy needs to be nailed on very early. For example, EWR are already looking to appoint a Land & Property partner for the central section.

Customer's ability to deliver the dependencies or asking for UK bespoke requirements that do not allow for the use of a standard global product without a large amount of customisation.

NR do not ask apple to customise the iPhone they provide to staff but ask for significant UK adaptations to other technology.

The main risks include: • Scope stability: Major projects of this nature frequently have unstable scope or may include elements of preferential engineering. These risks can be mitigated through a variety of actions, including; early contractor involvement in scope design, including a review mechanism following scheme design to ensure the detailed design and delivery methodology are structure to achieve the most advantageous delivery in terms of functionality, programme and budget. Output based specifications. Robust quantitative risk analysis and ensuring the

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contingencies set aside for unseen events. Risk allocation included in overall budget including optimum bias Technical Interfaces: We recommend that common review and incentivisation mechanisms are applied across partners.

Contract Structure: Contract structure should be focused on early identification and mutual resolution of issues in the best interest of the project. The contract terms should not be over-engineered, as this can result in commercial considerations and administration processes increasing costs and hindering best for project decisions.

Trying to be technology neutral for too long into the design period reduces the ability for innovation and approvals of new tech.

Survey content: carrying out the wrong surveys or not warranting the appropriate surveys cause multiple spend events to find the same information. This can be a result of surveys not informing requirements in enough detail at the correct stage. This needs a strategy preparing and agreeing with industry as mentioned in previous responses.

Workshop Notes • Risks -see notes above • Risk should be owned by those best able to manage • There should be an agreed risk matrix ownership – client, main contractor, subcontractor • Risk is mitigated by clear project development strategy • On-network projects – essential to understand interfaces to systems and access • Note political risk of funding – smooth flow of funding drives efficiency – timely authorities for spend • More transparency, clarity of monitoring and control – so bad news can be delivered in timely way to mitigate the consequences.

• Note competing demand for scarce resource – see first point above o Skills opportunity delivered by pipeline and programme confidence o Note Levelling Up agenda

5) What do you feel are the best mechanisms to managing risk? (e.g. form of contract, ECI, contract sizes, joint ventures) Questionnaire Responses Depends on the specific procurement and must reflect market activity and commercial appetite. Overall has to be accepted that risks are shared in practice and whichever contracting model is adopted the risks should be visible, understood and an agreed methodology for managing between NPR and the contracting parties agreed.

Where there is a clear scope of work our preferred option is to work to a fixed price contracting model as it offers certainty to all parties.

We are comfortable working with most model forms of contract, NEC, JCT, ICC on the basis that they are not heavily amended to pass all risks and liabilities down the chain but that they promote collaborative working and shared risk approaches.

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Knowing exactly what you want and why is the best way of reducing risk, not overcomplicating procurement, contracts, project delivery is all key. Having an early, well defined scope and specification is crucial.

Gain / Pain through NEC Option C leads to a collaborative approach. The risk is of a company under bidding to secure the work and leaving the customer to fund a significant amount of the pain. Potentially a minimum Target Price criteria for the tender is a good idea to avoid this. It also means the solution is procured at a realistic and achievable level, with cost certainty and means greater focus in the ITT on the solution.

If we follow the Project 13 model then the importance of understanding, risk and where it best sits, the importance of true ECI , the effectiveness of the overarching delivery model play to a programme of this size and how the Commercial framework sits across the enterprise all naturally comes together.

In our experience the approach to managing risk should be determined after understanding the key features of the project. For projects with a stable scope of low to mid-sized value, utilising proven technology, with either no or limited third party interfaces, risks may be most appropriately managed by a single primary contractor.

There are a number of model form contracts, e.g. NEC or ICC which provide the appropriate contractual mechanisms for contract manage with only limited requirements for adaptation for specific projects. As contracts increase in value and complexity more collaborative contract mechanisms are needed. Awarding contracts to whichever supplier submits the lowest initial head-line price and absorbs, or fails to identify or understand, the most delivery risk is likely result in problems for budget, programme and quality down the line. Some particular factors which may be relevant to mechanisms which will be relevant to managing risks on complex projects are: •

Recognition that problems will occur: Every high-value complex project will encounter problems during delivery. Often these problems are predictable, but sometimes they are not. The success of the project, in quantifiable terms such as on-time delivery, outturn cost and system performance, will largely be dependent upon how all parties to a contract, and interfacing parties, identify and work together to resolve these problems. Consideration should therefore be given to mechanisms that commonly incentivise achieving of project aims of a Best or Most Advantageous for Project basis. The alternative is to seek to resolve problems on a strict liability basis, which while often appropriate for smaller less complex projects, does not operate to manage risk well on complex projects and can result in entrenched contracting positions. The pattern of customers moving to more collaborative contracting mechanisms is increasing across the railway industry. Examples include the Thameslink re-signalling scheme, ECML Train Control Partnership, proposed HS2 contracting models and the increasing number of alliance-based contracts.

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Scope Complexity: Over-engineering scope always increases costs. It may also increase technology development or local application risk and lead to an increased likelihood of claims as changes arise. All these factors add to cost and programme risk. There will inevitably be a balance to be struck between the level of detailed scope control which a customer needs to possess and delivery risks introduced to the project. Consideration should therefore be given to the use of output based specifications and, with a view to achieving

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the most advantageous project outcome, which outputs are ‘must haves’ and which are ‘nice to haves’ depending upon cost and associated delivery risk.

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Change Control Process: Change control processes should be simple, clear and facilitate quick decision making. The more complex the project scope, the greater more likely that the need for change will arise. It is important that the Employer has the right to instruct that works proceed, and that the Contractor is entitled to proceed with instructed works, pending final determine as to the status of the instruction as a change. The more closely the Employer, the Contractor and key interfacing parties are incentivised to work together (shared risk and reward) the more likely problems are to be quickly resolved in the best interests of the project.

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Audits: Audits of both the Contractor and the Employer should be carried out early on major projects with a view to identifying the best practices. This enables early identification and remedy of any issues and allows best practice to be used during delivery, rather than raised retrospectively.

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Collaborative Practices: For the most complex projects we would strongly advocate investment in common collaborative contracting training for the Employer and all key contractors.

Workshop Notes o See earlier o Collaboration is key o Clarity of risk allocation – matrices as per Q4 o Continuity/ fixity of client specification and funding o Appropriate and collaborative Form of Contract with appropriate flow down o Headline principles (not actual form) ▪ Apportionment of risk etc ▪ Establish a decision tree ▪ Supported by an industry charter that highlights principles ▪ Flow down to all levels o Design considerations ▪ How is it controlled?

▪ How is it integrated? o Technology partners should be involved early (consultants may not have the expertise) 6) Delivery of NPR will require integration of various subsystems provided by different suppliers. What recommendations would you have for managing this integration risk?

Questionnaire Responses Workshopping and buy in to a shared programme Consistency across supplier contracts to avoid disadvantages and creating a clear mutual end goal with all parties bought in to working collaboratively to achieve this.

Shared risks via collaborative contracts where subsystems have strong inter-dependency.

Refer HS2 commercial models.

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Work closer with fewer. Having a project management organisation in place manage the interfaces has been successful in the past Rather than procure a different supplier for each railway system, select a delivery partner, a construction partner and a technology partner. The technology partner is then responsible for all the technology and the integration. Most technology suppliers have already integrated their own products on other railways so the customer gains the benefit of a low cost and lower risk solution.

Risk needs to be shared across the correct organisations involved and managed by common incentivisation rather than penalties. Risk should identify the System Integrator, demonstrating past experience and capability of managing potentially complex and diverse interfaces. The System Integrator should be clearly defining the roles and responsibilities for each part of the suppliers’ scope.

Workshop Notes

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HS2 considering shared risk pot (similar to London Bridge – partnership model) Key milestones in the programme to test systems delivery See also points in Q5 about technology partner engagement and collaborative arrangements

7) NPR are keen to engage with early contractor involvement (ECI). What approaches to ECI would you recommend? Where has it worked well? What are the lessons learned?

Note – speaking with NPR, they are looking to commence ECI once the 7 target routes are down to single options, currently 3 are single options, with the rest completed by end 2021.

Questionnaire Responses Open dialogue, clear “framing” of the approach so all parties understand, strong levels of engagement with industry through both relevant trade bodies (general headline messaging only) and through individual and joint comms events, clarity on the emerging commercial strategy taking on board feedback from industry Early engagement on a group basis, bringing together all disciplines lends to a more seamless delivery phase through a better understanding and clarity of individual requirements, goals, dependencies, issues, risks etc What do you want from ECI? NPR need to ask themselves this question. Again, don't over complicate things, have very specific requirements you want to achieve from ECI. MS Team briefings are good, but come and talk to the individual suppliers about how they can best define and deliver a solution.

NPR are taking the right approach by waiting until they are down to single options, they also need to ensure they have clearly defined and agreed the output specification and have funding in place with Government. Recent experience shows that a huge amount of money is wasted in ECI phase where outputs are not agreed or are ever changing; this can be further compounded when government have not formally committed to the spending and each phase of the Programme has the danger of becoming a political football which can easily be played into the long grass.

Early Contractor Involvement has in our view produced positive outcomes. Projects such as The East Coast Mainline Power Upgrade, ETCS Signalling and Thameslink have all proceeded positively with a strong ECI process in place. Our view is that ECI needs two 19

elements to meet its full potential. Firstly, the client must be fully engaged with the process and the right person is responsible for engagement and is also empowered to make decisions for the client. Secondly if the supplier involved in ECI gets to deliver the works this has a positive impact on delivery. Obviously guaranteeing that the supplier involved delivers the work presents a potential issue in that the tender has not yet been won and no supplier successfully appointed. Perhaps this could be circumnavigated by paying for ECI participation? This would allow successful contract appointments to then consider solutions developed and behaviours demonstrated during ECI rather than solely on initially submitted price.

Workshop Notes • • • • •

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ECI has multiple meanings – need to be clear about what ‘level’ of ECI is being proposed ECI is recommended to get concepts sorted at the outset ECI on A14 – three packages brought together to find synergies with agreement on overall objectives Early stage ECI - Should not preclude the opportunity to bid if you want to get the right participants What are the requirements of ECI at different stages? – each needs an output spec – clear outcome/ charter cf Olympics o Business case o Outline design o Detail design Need an ECI strategy – more than just putting everyone in same room – needs the right skills at the right stage

8) Based on the nature of your business, what specific form of contracts (e.g. NEC based contracts) would you recommend? And why?

Questionnaire Responses As detailed above we prefer to work to fixed price contracts and therefore NEC Option A, JCT Design and Build, ICC Design and Build as they provide certainty to all parties. It is our experience that Tier 1 Contractors have a tendency to heavily amend such contracts or rely on CECA Subcontracts to pass all risks and liabilities onto their subcontractors. Whilst it is understood that all parties have their roles and responsibilities and should accept their share of the risk and resulting liabilities, disproportionate main contract liabilities can increase pricing / assumptions and lead to less collaboration due to parties feeling the need to protect themselves from punitive clauses.

Tier 1’s need to cascade down realistic LD’s, liabilities, LD’s should reflect value We work under a whole range of contracts successfully across multiple sectors.

NEC3 Option C and NEC3 Option E The response to this depends on the scale and known scope of the contract. Where there is a clearly defined scope and known variants then a fixed price lump sum could be used; where there is a less than locked down scope with significant development required or risk then an open book target cost type contract is more suitable. In truth a programme of this size could easily have different styles of contract dependent on the variables and this would have the added benefit of providing value for money comparators to test the wider supply chain and programme performance.

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Both NEC and ICC are widely used across the UK Rail industry and therefore understood by the supply base. In our opinion they are a suitable baseline for many infrastructure projects. However, we need to be aware that they were primarily developed for the infrastructure and on-site engineering projects and that they may need to be adapted for complex technology projects. For example, under NEC linking People Costs to Working Areas is often inappropriate for technology projects where software development, manufacture and even elements of application engineering may be managed on a global basis. Most traditional model contracts operate on an old-style liability based decision making model. This is often appropriate for less complex projects but is unlikely to lead to the most advantageous decision making on complex projects, particularly those involving third party interfaces. For a truly collaborative approach for high-value projects with complex interfaces we would recommend looking at Network Rail’s NR21 Alliance templates. The NEC4 suite of contracts have also introduced a form of Alliance Agreement. Other examples of major projects which encourage collaborative decision making include Thameslink Re-signalling and the ECML Train Control Partnership. Where technical interfaces exist between different contractors, mechanisms should be considered which incentivise mutual support and resolution of project issues, rather than ring-fencing of liabilities. This will always be an important decision for the customer, so incentives should be carefully considered around areas which can offer key delivery or operational benefits to the customer. Special conditions should not be over-engineered, as this can result in commercial considerations and administration processes increasing costs and hindering best for project decisions.

Workshop Notes • See earlier 9) Do you have experience of output based specifications. And if so, what would be your recommendations for using output based specifications on NPR? Questionnaire Responses Yes, but not within this industry. If used appropriately output based specs can deliver optimal results – may be viable for some elements of the work to be delivered?

Normal NR approach is to procure design and build contracts through Grip4/5 their GRIP process but this can lead to Suppliers being constrained by standards – i.e. PADS approved equipment which can limit our ability to be innovative to gain pricing and programme efficiencies Solutions can be constrained by railway standards which limits innovations; pushes towards a specific solution.

Output based specifications are great but only alongside a specified budget. There is a 'Rolls-Royce' solution to every problem but if the budget isn't there it is a waste of money developing them.

Excellent idea, not least as it can reduce the significant technical resources required by the customer.

On a programme such as NPR which will have the benefit of a significant proportion being 'green field' then it's made for output based specification. where the programme interface with existing infrastructure will require some consideration, but in the main output specification would work well.

We have significant experience of and would be keen to see the development of outcomes-based contracts. This would provide the opportunity to introduce 21

innovation via systems and/or processes for the delivery of signalling & electrification schemes at reduced costs or increased value. It would also provide the ability to deliver more output for the taxpayer with increased capacity and reliability for passengers. We would welcome collaborative contracting structures, where the contractor, in partnership with the customer is able to apply innovation to the design solution.

Workshop Notes • • • • • •

Suitability varies for On/ Off network assets Off asset is more suitable for output spec (cf PPP on TGV) Outputs balanced by budget/ programme Fixed price lump sum contracting does not suit output specification Control interface between output spec and adjacent works cf MOD shipbuilding Outputs must support outcomes/ benefits – clear line of sight

10) Balanced Scorecards are being introduced across the rail sector. For example, Network Rail are developing as part of the Sustainability Pillar of the Rail Sector Deal, likewise HS2 and their supply chain are using them. The draft Rail Sector Deal balanced scorecard is shown below. Would this work in your business? Would it be effective with your supply chain?

Questionnaire Responses For supply chain – yes, absolutely but taking on board the comments provided above and recognising the need for Tier 1 suppliers to adopt a pragmatic approach with SMEs etc.

Ultimately the Qs included in the document should have maximum relevance – there is an associated supply chain cost to the activities outlined.

Telecoms tends to be at the smaller end of the scale on a number of areas, waste and community benefits. Would see these sort of areas led by the larger tier1 (Civils) type companies with telecoms a contributor rather than lead on these aspects I don't think this would work across all of our business. This looks like it would be much more suited to large civils contracts Yes but most of the technology companies are involved in complex projects, On Time Delivery can fail due to the customer rather than the supplier, this point is true for lots of the criteria, so getting a fail balanced score card is difficult. there are three things for the balanced score cards (1) are they focused on the key outputs / KPI's; (2) are they efficient to produce ie don’t create a cottage industry to provide reports; (3) are they 360 degree ie we are truly learning from them as a programme and therefore continuously improving - if the answer is yes to all three then its's a great step forward and should be built into the remuneration structure of the commercial model Scorecards must be focussed on elements that matter to the customer to ensure they are targeted. We are also of the opinion that they should be standardised across the industry so organisations don’t need to maintain multiple versions for use depending on the customer.

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Workshop Notes • •

Recommend NPR – adopt the Construction Playbook and balanced scorecards where appropriate Where using NR as delivery agents – work with NR to integrate relevant principles of Construction Playbook and Balanced Scorecard with NR processes don’t overlay them as additional processes

11) To encourage the use of SME’s if we were to produce a SME charter for Transport for the North and NPR would you recommend was included?

Questionnaire Responses What would a charter include and look like?

What benefit or encouragement would it give to the SME. Subject to the relevance and size of the SME would this be of real value?

In our experience it’s been more about fair payment charters and adhering to them.

My view is that we should follow a best fit for the job approach, if that is an SME then great but SME inclusion should not dictate how projects are procured and delivered.

Whoever is best placed to deliver a piece of work should do that.

Great idea. Also identify the 15 or 30 SMEs you want the suppliers to work with, as well as the suppliers bringing their own SMEs. Absolutely, hopefully it is completely in line with my earlier answers around the use of local specialist suppliers who are able to influence the strategy and sustainability of the NPR intent without being 'directed' by the big players SME usage should be stipulated as a customer requirement with a minimum cap on volume. There should however be incentives to utilise a number higher than the minimum requirement to encourage increased local economy stimulation in areas where projects are being undertaken.

There are a no of SME initiatives at the moment – Network Rail, Department of Transport and RIA. We need to harness this work into an SME charter and not reinvent the wheel.

Here is an extract from Network Rail SME Action Plan – Tier 1 support. Some of these can read across into the NPR environment.

Network Rail are requesting that our ‘top 100’ Tier 1 suppliers (by spend), consider supporting Network Rail’s SME Action Plan by choosing to make a clear commitment to implement some or all of the following twelve actions: 1. Commit to the Governments SME target of a minimum 33% spend with SME’s by 2022 (or whatever subsequent targets the Government set).

2. Commit to submitting SME spend data in a prescribed format by a set date/time, (to maintain high response rate to gathering indirect spend data) and support ‘supply chain mapping’ 3. Commit to payment of SMEs promptly (ideally within 5 days) and publish SME payment statistics.

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4. Commit to ensuring adequate tender durations 5. Appoint an SME Champion and adopt an escalation process to resolve disagreements 6. Adopt Network Rails approach of providing supplier references for those suppliers within your supply chain bidding for overseas contracts (to support the Rail Sector Deal Export & Inward Investment Strategy) 7. Commit to encouraging and sponsoring SME innovation 8. Publish procurement pipeline 9. Commit to stop withholding retention 10. Ensure your supply chain have free access to Network Rail Standards 11. Commit to supporting Network Rail phase-in payment of the ‘real living wage’ to our supply chain.

12. Commit to implementing the Social Value Act, by adopting 10% ITT evaluation weighting for social value in accordance with Government guidance.

Workshop Notes o o

As Q10 be consistent with NR and other practice On Q10 and Q11 – avoid bespoke TFN approaches – to give consistency for suppliers and other clients

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Appendix B – Workstream Contributors Justin Moss - Siemens Pieter Rypma - Siemens Phil Price – Keltbray Ken Kyle – Telent Thomas Brine - Siemens Michael Toher – Systra Simon Cresswell – Skanska Adrian Calder – RSK Group David Taylor - Thales David Clarke – RIA Milda Manomaityte – RIA

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