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PAC publishes report on progress in delivering the Thameslink programme

29 October 2013

Public Accounts Committee publishes it's 26th Report on Progress in delivering the Thameslink programme.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“It was clear as long ago as 1989 that the Thameslink route needed to be upgraded but passengers will not start to see the benefits until the 2020s.

The first proposals to modernize the route and increase capacity were developed by a succession of rail industry sponsors but nothing much happened until the Department for Transport became sponsor in 2005. The Department has done well to deliver the first phase of the infrastructure project under budget and on time.

The other two aspects of the programme are going less well. The procurement of new trains through a £1.6 billion PFI deal has taken over three years longer than expected. And the timetable and approach for letting the new franchise have been revised.

The planned completion date has been put back to 2018. But meeting the timetable for delivering the new trains will be very demanding and risky. We are also sceptical about using PFI to fund this project. It is alarming that the Department compared the PFI option against only one other private sector option and did not construct a public sector comparator to understand better the relative costs, risks and rewards of choosing a PFI funding route over a public one. We intend to examine the contract which the Department has recently awarded to Siemens and Cross London Trains.

Another source of worry is the small size of the Department’s core Thameslink team – just five people for a programme of this size and complexity. We question whether the Department has enough people with strong project management and commercial skills necessary to take forward its very ambitious portfolio of big projects.

The impression that there is a scarcity of these skills is reinforced by the apparent need to move the key civil servant leading the Thameslink team, the man whose experience, skills and continuity have been crucial to the delivery of the programme, over to the High Speed 2 team.”

Margaret Hodge was speaking as the Committee published its 26th Report of this Session which, on the basis of evidence from the Department for Transport (the Department) and Network Rail, examined progress in delivering the Thameslink programme and the risks to delivery that remain.

The Department is sponsoring the programme to increase passenger capacity on the Thameslink route through central London. The programme comprises three interrelated projects— to improve rail infrastructure, to buy new trains, and to let the new franchise to operate the new services. The infrastructure project to improve tracks and stations at a cost of £3.55 billion (2006 prices), is being delivered through Network Rail.  The Department is buying the new trains, with an estimated capital cost of £1.6bn, through a private finance initiative.  It is also responsible for letting the new franchise and overall management of the programme.

The excessive time taken to get the Thameslink project off the ground means passengers have to wait far too long—over 30 years—for this upgrade.  There was clear evidence of the need to upgrade the Thameslink route in 1989 but passengers will only start to see the benefits in the 2020s. Proposals for the route were developed throughout the 1990s and early 2000s by a succession of rail industry sponsors, until the Department became sponsor of the programme in July 2005 and put in place delivery arrangements in 2006.  The Department told us that the lessons learned from the slow start on Thameslink show that clear objectives, political consensus and a stable, predictable funding base are important factors in getting big projects up and running quickly.

Recommendation: The Department should develop a long term investment strategy for transport projects built on a strong evidence base, including better passenger travel data and more reliable forecasts. This should help to secure political consensus and greater certainty of funding, which will in turn help to get projects up and running much more quickly.

The Department suffers from a shortage of strong project management skills. There is a core Thameslink team of just five which seems too small for a programme of this scale, compared with teams for other complex government projects. The programme management skills and the continuity of the current senior responsible owner (SRO) have been crucial to the project so far, but he will now be moving to support delivery of High Speed 2. We are worried about the impact this will have on the Thameslink programme given the scale of what remains to be done to complete it by 2018. The apparent need to move the Thameslink SRO onto High Speed 2 illustrates the scarcity of the project management and commercial skills that the Department has available.

Recommendation: The Department must put in place a clear plan to build sufficient, appropriate skills in the organisation to match the scale and ambition of its portfolio of projects.  Clear succession plans should be built into project plans taking into account the key points in the project lifecycle when staff moves can be made with minimal impact.

We are sceptical that the programme will be delivered by 2018 given the delays in awarding the contract for new trains, and have concerns about the Department’s choice of PFI for this project.  The delay of more than three years in awarding the contract to buy new trains means that there will be less time for the trains to be delivered than was originally planned. The Department said that it is confident that the trains can still be delivered on time but was unable to cite any examples of a manufacturer delivering trains early and we are not confident that the trains will be delivered on schedule. The Department told us that the delays are partly down to underestimating the complexity of the procurement and to difficulties in raising finance in the current market. Both of these issues highlight the importance of understanding properly the risks of the chosen delivery model from the start. In this context, it is alarming that the Department only compared the PFI option against another private sector option and did not construct a public sector comparator to understand better the relative costs of choosing the PFI route. Since our hearing the Department has awarded the contract for supplying new trains to a consortium of Siemens and Cross London Trains and we intend to examine this deal further.

Recommendation:  For all future procurements the Department should evaluate all the delivery and funding options and ensure that it fully understands and compares the costs, risks and rewards of each option.

The Department was too slow to recognise the impact of planned infrastructure works and new trains on its plans for letting the new franchise.  In July 2012 the Department considered and rejected using a ‘management-style contract’ under which the franchisee is paid a management fee for operating the route instead of being dependent on revenue from ticket sales. This would transfer a lower level of risk to the franchisee than conventional franchise arrangements as the Department receives the revenue from tickets but bears the risk that sales are lower than expected. However, in January 2013 the Department changed its view and decided to adopt this approach as the franchisee will have to deal with disruption from planned infrastructure works and focus efforts on bringing new trains into service, rather than on growing passenger revenue on the route. The Department knew about these factors well before 2013 and should have made the decision to use a management-style contract earlier.  We are concerned that the change in approach to the franchise indicates a worrying lack of forward planning or integrated thinking across the programme.

Recommendation: The Department should focus on integrated planning and aligning decision making across the different elements of complex programmes from the very start. 

We are not convinced that the Department has thought through all the risks associated with letting a new style of franchise for the first time.  The Thameslink franchise will be expanded to bring Great Northern, Southern and parts of the South Eastern franchises together under one operator. It will be the first time the Department has let a management-style contract and it will be a seven-year agreement. The Department acknowledges the challenges of letting a new style contract, and outlined measures it has taken to strengthen its franchising programme as a whole. However, the Department did not explain how it would address the specific risks of letting a management-style contract for the first time. Our report on the cancellation of the InterCity West Coast Mainline franchise shows the mistakes that can be made if insufficient time and resources are invested in adopting a complex new approach.

Recommendation: The Department needs to invest sufficient time and resources in considering the details of the management-style contract and develop a clear approach to running the Thameslink competition which identifies the risks and shows how these have been managed.

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