Global menu

Our global pages

Close

Contestability of the UK Railway Market – An update on the Hansford Review

  • United Kingdom
  • Transport - Rail

13-10-2017

What is the Hansford Review and what is its purpose?

Professor Peter Hansford was commissioned by the Board of Network Rail to chair an independent review of “contestability” in the UK Rail Market, with the intent of “encouraging third party investment and infrastructure delivery on the National Railway” whilst building on the recommendations of the series of reviews on this or related topics published since 2011 including the 2016 Shaw report on “The future shape and financing of Network Rail”.

The Hansford Review report entitled “Unlocking rail investment – building confidence, reducing costs” (the “Report”) was published on 31 July 2017 together with Network Rail’s statement of response entitled “Network Rail open for business” (the “NR Response”)1.

The findings of the Hansford Review

The Report notes that:

“A contestable market has few barriers to entry and threat of competition to incumbents. Increased contestability can lead to greater innovation, better value for money and deliver more for customers. Where there is little competition, a monopoly organisation can become unresponsive to its customers and lack the incentive to reduce costs2

The Report describes the underlying tenet of the review as being that a more contestable market for rail projects would create pressure on Network Rail and its suppliers to be more innovative, to improve cost performance, deliver projects more competitively and predictably and therefore offer better value for money. The Report addresses:

  • attracting funding and financing;
  • removing barriers to third party involvement;
  • increasing contestability to provide more opportunities for third parties; and
  • using different contracting strategies, so third parties can deliver for less cost.

These review areas were determined following the conduct of a consultation of relevant public and private sector stakeholders (including the Government) which identified the following commonly perceived barriers which such stakeholders considered operate to discourage or prevent third parties from investing in rail infrastructure projects:

  • lack of specific party responsibility for ensuring the creation of a more contestable market;
  • lack of visibility of a pipeline of third party projects;
  • Network Rail roles and behaviours;
  • inappropriate risk transfer;
  • issues in relation to standards and scope control;
  • issues in relation to asset protection agreements; and
  • complex business cases and funding arrangements.

Rather than fundamentally altering the way that Network Rail and the rail industry operate, the Report seeks to build “upon transformations already underway in Network Rail”, and the Report cites National Rail Infrastructure Projects (NRIP) - set up since 2012 - as an example of a positive development in this regard3.

The Report outlines that Network Rail benefits “from a natural monopoly due to its ownership of most of the UK’s rail network infrastructure and its position as the main route for the majority of government investment in rail4”. It also notes that alternative choices to Network Rail for delivering projects already exist, including the use of Special Purpose Vehicles such as Crossrail Limited and HS2 Limited, stating that “larger scale schemes, like Crossrail, demonstrate some of the benefits of the contestable market, but have been undertaken as one off projects5”. The Report seeks to identify how the benefits of contestability can be more generally unlocked.

The Report concludes that creating a contestable market would put “pressure on Network Rail and its suppliers to be more innovative, improve cost performance and deliver projects more successfully6” . Its findings also “uncovered a number of barriers that currently prevent third sector companies investing in rail projects”, and, in response, 12 recommendations were put forward in the Report as to how this could change7.

Recommendations put forward by the Report

The recommendations are grouped into four sections:

  • delivering more value for money, aimed at showcasing a commitment to contestability on a day to day basis;
  • broadening third party investment by creating a transparent decision making structure, providing certainty of costs before third parties bid for projects, and providing a clear picture of future opportunities for investment which are likely to arise;
  • enabling third party projects, principally through transforming Network Rail’s culture and approach towards working with third parties and modernising Network Rail’s Code of Practice to include a service level commitment towards them; and
  • oversight arrangements, which looks at altering the governance structure of Network Rail as necessary.

Key elements of the proposals include:

  • identifying pathfinder projects to demonstrate commitment to the removal of the identified barriers;
  • defining roles and accountability for key individuals within Network Rail who third parties can interact with;
  • amending Network Rail’s legal documentation to reflect a better balance of risk between Network Rail and third parties, and
  • assessing third party opportunities using transparent appraisal methods.

How has Network Rail responded?

In the NR Response Chief Executive Mark Carne said:

“The review makes a number of recommendations for Network Rail which we accept wholeheartedly. We are now committing to changing our behaviours and approaches so that a range of organisations can come forward with alternative solutions and new ways of working.

My message to the industry is that Network Rail is open for business.8

Network Rail plans to implement a variety of measures to build upon the internal changes it has made over the past three years in relation to its dealings with third parties.

By the end of 2017 the devolved Network Rail businesses will publish a pipeline of opportunities at an early stage of development. These are likely to be smaller schemes and the experience gained will help develop best practice criteria. Network Rail confirmed that it was committed to improving asset protection and risk transfer arrangements to give contractors greater confidence as to what they will get from Network Rail.

Control Period 6 begins on 1 April 2019 and the NR Response noted that “CP6 will be built with contestability at its core9” .

Conclusions

The Report and the NR Response represent an exciting further step in a rail industry reform programme which is incremental but, in aggregate, fundamental.

There is a broad consensus that the contestability agenda has the capacity to more efficiently and effectively deliver much needed enhancement projects. This will benefit rail users, taxpayers and wider stakeholders and give industry participants new opportunities to grow their businesses by more effectively meeting the needs of the market.

 


 

1. See: http://thehansfordreview.co.uk/2017/07/new-publication-of-the-hansford-review/
2. Hansford Review Report, p4.
3. Hansford Review Report, p5.
4. Hansford Review Report, p4.
5. Hansford Review Report, p5.
6. Hansford Review Report, p4.
7. Hansford Review Report, p37.
8. “Network Rail open for business”, introduction
9. “Network Rail open for business”, paragraph 2.1

 

 

For more information contact

< Go back

Print Friendly and PDF
Subscribe to e-briefings