30 October 2003
Network Rail's staff cuts, the loss of a major contractor and its decision to bring contracts back in-house present lessons for purchasers, says David Arminas
Britain's rail infrastructure owner is to make swingeing middle management job cuts, in areas including purchasing, as it struggles to pare costs.
The purchasing exodus starts when Les Mosco, head of supply chain and a respected former CIPS president, clears out his desk tomorrow.
At the same time Network Rail has done a complete volte-face on outsourcing of rail maintenance. After Jarvis, a major rail maintenance contractor, decided to pull out of its contract earlier in the month, the rail operator decided to bring back in-house all of its outstanding contracts.
The company will take back upwards of 18,000 contractor staff to continue rail maintenance, a massive venture in itself. But most importantly, the U-turn on outsourcing and Mosco's departure throws Network Rail's procurement strategy into disarray. With outsourcing proving an abysmal failure, the pressure is on for in-house maintenance to improve on contractor performance.
Network Rail's problems provide a warning to all those clients and contractors in the public and private sectors that embark upon high-risk, high-value and high-profile contracts.
The key question for purchasers is how to avoid the apparent mistakes of Network Rail and its contractors. How could their relationship have been improved, and could it have translated into better performance on both sides, including no rail accidents?
Paul Maltby, a research fellow at think-tank the Institute for Public Policy Research, has no doubt that the answers lie with improvements in three areas: risk management and reward, client and contractor communication, and political and public pressure.
"When the consequences of failure are more than just massive financial losses but can destroy entire business reputations, there needs to be closer relationships between government, contractor and the subcontractors," notes Maltby.
Also, when there is a serious risk of poor performance resulting in catastrophic failures, including dozens of deaths, one of the issues at the beginning of a contract is whether the work should be outsourced in the first place.
Maltby believes that at the privatisation of Railtrack, the predecessor of Network Rail, it lacked a good idea of the state of the nation's rail infrastructure. Neither contractor nor client knew exactly what the risks were.
Once a contract has started, client and contractor communication must be of the highest order. But in complex projects, the supply chain can stretch down several levels to subcontractors, and this elongation makes communication harder. If the risks to life, limb and corporate reputation are so great, then purchasers may need to be personally aware of what is happening several tiers down to ward off any potential problems.
Train travel is a subject that Britain's workers hold dear, and so public scrutiny through the media will always be high, piling the pressure on to purchasers to get it right.
Meanwhile, purchasers in two other areas - London Underground and the Department of Health - should take note of Network Rail's problems, and how they solve them.
London mayor Ken Livingstone has grudgingly come around to accommodating the government's desire for public-private partnerships to maintain London Underground's infrastructure. But the public will not remember whether the administration was for or against PPP, and so the Underground's purchasers can expect major media scrutiny over contract arrangements when, not if, accidents happen - as they already have.
Last week the Underground had two non-fatal derailments at Tube stations within 48 hours of each other. The problems were blamed on track maintenance issues.
Purchasers in the National Health Service should also consider their relationships with suppliers. The NHS is considering ramping up the use of private healthcare providers for operations such as hip replacements.
The vetting of doctors on a supplier's roster might not at first appear to be a purchasing concern. But purchasers would be in the thick of public scrutiny if deaths were to occur in private clinics working for the NHS - through, for example, a supplier using an unqualified doctor.
Arguably, this might happen now with an NHS-employed doctor, but a purchaser would not have been even indirectly responsible in this case.
When the stakes are this high, purchasers must get closer than ever to their suppliers. All lessons that are learned must be shared, for the good of not just the profession, but also the public. For this reason alone, senior purchasers in Network Rail, London Underground and the health service should get to know each other better.