Written evidence submitted by Severn River Crossing Plc (SEV 04)

Executive Summary

 

 

 

 

 

Introduction

  1. Severn River Crossing Plc (SRC) welcomes the decision by the Committee to hold an inquiry into the future of the Severn River crossings and it appreciates the opportunity to provide a written submission. The submission has been limited to those areas where SRC feels it can add value to the discussion.

 

  1. In this submission SRC describes the current legislative structure and concession arrangements (Paragraphs 1 to 8), the existing means of toll payment and their relative take up (Paragraphs 9 and 10). In Paragraphs 11 to 26 the inspection and maintenance arrangements are described, demonstrating the level of compliance of SRC with the requirements of the Concession Agreement. Finally, in Paragraphs 27 to 37 SRC discusses the challenges faced in achieving timely agreement to facilitate a smooth, safe and efficient handover at the end of the Concession.

 

  1. SRC is the Concessionaire that designed, built and financed the Second Severn Crossing and which operates and maintains the two crossings including the right to collect tolls.

 

  1. The obligations and limitations upon SRC are fundamentally set out in the Severn Bridges Act 1992 and the subsidiary Regulations. These are further defined in the Concession Agreement between the Department for Transport (DfT) and SRC.

 

  1. Highways England holds an agency remit from DfT and represents the most common point of contact on contract matters. It is also responsible for operational decisions on the M48 Severn Bridge, with the South Wales Trunk Road Agent performing the same operational role on the M4 Second Severn Crossing.

 

  1. SRC is supported in the management of maintenance by Laing O’Rourke Plc and tolling operations by Cofiroute UK Ltd.

 

  1. The Company gave evidence to the Committee at the last inquiry in 2010. Since then SRC has continued to invest both in the assets and the service provided to customers. Having implemented credit/debit card facilities in all lanes on behalf of DfT, this is being expanded to include Contactless technology (implementation by end-June 2016). Online Tag applications are now possible, and online payment of fees and top up of Tag balances have both been implemented. SRC is currently redesigning the approach signage to improve driver understanding and is about to release a new ‘shared tag’ product aimed at encouraging car-sharing. All these projects since the 2010 credit card programme have been delivered at SRC’s expense with the purpose of improving the service to customers.

 

  1. On the crossings SRC has invested heavily in improving access and maintainability, including items such as upgrading the Second Severn Crossing maintenance access train, implementing an innovative new WEBdeck access system underneath the Severn Bridge and installing jacking points for maintenance of bearings. SRC has invested over £2m since 2010 to improve the long-term maintainability of the bridges and to reduce their environmental impact. By the end of 2016 SRC’s maintenance teams will have reduced energy use by 58%, water consumption by 40% and carbon emissions by 28%, all over a three year period.

The available methods of payment and the scope for an electronic pre-pay system

  1. Around 30% of customers use electronic pre-pay via the Severn Tag Automatic Vehicle Identification system. This can be purchased online, by Direct Debit, post or by attendance at the SRC Tag Sales Office (currently on the M48, about to be expanded to the M4 as well).

 

  1. Customers can pay at the tolls by credit / debit card (shortly to include Contactless) or cash (including common foreign currencies). Credit / debit card is now the most common form of payment (35%). Online payment is now also available for a range of products and take up is growing rapidly.

The current condition of the Crossings and the costs associated with ongoing maintenance

  1. SRC is responsible for the inspection and maintenance of the two Severn Crossings under its Concession Agreement.  The M48 Severn Crossing has an overall length of 3km and, in addition to the iconic Severn Bridge, includes two viaducts and the cable-stayed Wye Bridge.  The M4 Second Severn Crossing comprises two 2km long concrete viaducts and a 1km long cable-stayed bridge.  Requirements for each Crossing are defined via Inspection and Maintenance Manuals provided by the Designers and formally reviewed by the DfT. They are regularly re-appraised to ensure that they continue to meet or exceed Highways England standards. 

 

  1. The design life of the crossings, against which SRC is required to base its maintenance strategy, is 120 years. At the point of handover the Severn Bridge (rebased following strengthening works in 1990) will be approximately 25% through its design life and the Second Severn Crossing approximately 20%.

 

  1. Inspection and maintenance is carried out by SRC’s highly experienced permanently employed engineering staff who are employed exclusively on this Concession.

 

  1. SRC is proud of its engineering workforce. It has invested heavily in training its staff to achieve or surpass recognised industry standards and its excellent record of staff retention means that the average length of experience and service amongst engineering staff on the crossings is 16 years, with 25% of staff having over 20 years’ experience.  SRC has recently introduced an apprenticeship scheme recruiting an initial two apprentices in 2015 to help ensure that experience and skills continue to be maintained into the future. All engineering staff work under the supervision of a Chartered Engineer, who operates in close liaison with the Government’s Representative appointed to monitor the inspection and maintenance of the crossings on behalf of the DfT and Highways England technical experts.

             

  1. Regular inspections are carried out on the Severn Crossings by SRC, to determine the condition of the structures and associated concession areas.  The inspections are categorised as General, Principal and Special.  These inspections are carried out in accordance with the Manuals and with Highways England’s Standards and Advice Notes.  The inspections ensure that all significant defects are recorded so that a suitable repair can be undertaken.

 

  1. The General Inspection is a visual inspection; the inspection interval depends on the criticality of the structural component and can be anything from monthly to two-yearly.  Principal Inspections are carried out at least six yearly, when any component being examined must be within touching distance of the inspector.  Special Inspections are instigated when it is felt that there is a need to investigate an area or issue in greater detail.   The annual inspection programme is always completed.

 

  1. In 2012 it was agreed with DfT that SRC would carry out a class of Special Principal Inspections on a rolling basis.  These inspections, along with SRCs other inspection and maintenance commitments, are audited by Highways England and the Government’s Representative and are undertaken to evidence SRC’s proper discharge of its obligation to hand over the bridges in a satisfactory condition.  Over the four years this regime has operated there have been zero non-conformities and just 29 minor observations raised by the auditors; 19 of these have been closed out and resolution of the remaining 10 is expected during 2016-2017. This programme of inspections continues.

 

  1. SRC’s annual inspection and maintenance programmes are reviewed in advance by the Government’s Representative; both Highways England and the Government’s Representative have expressed satisfaction with SRC’s maintenance of the crossings.

 

  1. SRC has consistently invests over 100,000 man-hours each year inspecting and maintaining the two Crossings. This will continue until the end of the Concession.  The graph on the previous page shows SRC’s year on year expenditure on maintenance in real terms indexed to 2008. It demonstrates a consistent profile of expenditure for the maintenance of structures, with minor peaks and troughs associated with the timing of more significant works. Note 2016 and 2017 are ‘budget’ figures. SRC is currently developing a maintenance schedule to 2020 which will demonstrate that current maintenance levels will be sufficient for the medium-term. The graph excludes ‘non-SRC’ costs such as the current Main Cable Inspection works.

 

  1. SRC maintains dialogue with maintainers of similar structures on an international basis to ensure sharing of knowledge and best practice. For example, following the recent incident at Forth which resulted in the closure of the bridge to traffic, a review of the inspection requirements on the two Severn Crossings was carried out.  Although structurally different to Forth, critical structural components were reviewed and while no similar issues were found, in some cases the frequency of inspections was increased to help mitigate any risk.  In carrying out the review consideration was given to the potential human factors surrounding the Forth incident, addressing for example, difficult to access areas.

 

  1. Annual routine maintenance programmes, prepared in accordance with Highways England standards and the Inspection and Maintenance Manuals, are agreed in advance with the Government’s Representative each year.  In addition to completing the planned maintenance each year SRC is constantly implementing works to improve the safety and efficiency of maintenance operations, including development of an innovative system which has been shown to seal concrete cracks less than 20 microns (20/1000ths of a millimetre) in width.  Any defects found during inspections are assessed for severity and criticality and their repair is either addressed by reactive maintenance or through incorporation into the next phase of routine maintenance.  Defects are tracked using bespoke computer software which records all the details of the defect and the subsequent repair works.  Defects and defect repairs are tracked as part of the Government’s Representative audit and required to be completed to the Government’s Representative’s satisfaction. Routine and reactive maintenance is carried out by SRC’s skilled multi-disciplinary workforce, supplemented by contractors where specialist skills or knowledge is required.

 

  1. Painting of structural elements is carried out as part of the routine maintenance; additionally any areas of concern identified during inspections are addressed.  A major painting programme on the c.60,000 m² (equivalent to eight football pitches) of the M4 Second Severn Crossing cable stay bridge deck steelwork is in progress, using in-house painters who have undertaken an Institute of Corrosion Approved Training Scheme.  This is currently 82% complete with completion programmed in 2017.  This project will cost in the region of £5.1million.

 

  1. Following the discovery of significant corrosion to the main cables in similar suspension bridges in the United States, an internal inspection of the Severn Bridge main cables was carried out in 2006.  This revealed that significant corrosion was present, resulting in the M48 Severn Bridge being classified as a sub-standard structure when assessed in accordance with Highways England standard BD21/01.  Although this type of latent defect is not SRC’s responsibility, it managed the installation of dry air dehumidification on behalf of Highways England.  A second internal inspection of the cables in 2010 did not reveal any further deterioration, suggesting that the dehumidification has been effective in preserving the strength of the cables at their 2006 level.  A third inspection is currently in progress. As a Latent Defect the associated costs form part of the Accumulated Deficit (the debt to be recovered by UK Government from toll revenues post-Concession as permitted under the Severn Bridges Act).

 

  1. SRC, supported by its maintenance management contractor Laing O’Rourke, has an excellent safety record, having achieved over 1.5 million man-hours without a reportable accident, whilst winning several awards including RoSPA Gold Awards and British Safety Council Merit Awards.  The commitment to Corporate Responsibility includes promoting engineering and construction in schools in collaboration with the Institution of Civil Engineers, as well as supporting environmental and charitable initiatives.  In recognition of this commitment the project has received a Considerate Constructors Gold Award.

Summary

  1. SRC employs highly trained and experienced personnel who are supported by international construction company Laing O’Rourke as maintenance management contractor. The experience of the management and workforce ensures that inspection and maintenance commitments are recognised and met or exceeded, and this will continue to be the case until the end of the concession period.

 

  1. SRC will hand over the structures in a condition which is commensurate with their design life.  Forward planning demonstrates a consistent level of maintenance effort, continuing through and beyond handover to DfT.  This is supported by the regular formal auditing undertaken by Highways England and the Government’s Representative.  However, SRC recognises the need to respond to any new developments or information, as evidenced by its response to recent events on the Forth Road Bridge.

The handover plan and timescale for the Crossings to revert to public ownership

  1. The Concession Agreement allows SRC to collect toll revenues until it reaches a defined value (known as the Required Cumulative Real Revenue or RCRR), or for a maximum of 30 years, whichever is sooner. The value of the RCRR is £1.029Bn at 1989 prices.

 

  1. At that point, both bridges along with maintenance facilities and toll plazas are handed to the Department for Transport at nil cost and debt free (other than the Government’s Accumulated Deficit). Actual ‘handover’ and termination of the Concession is to be as soon as reasonably practicable after the RCRR has been achieved.

 

  1. During the intervening period between achievement of RCRR and actual handover SRC is only permitted to recover its continuing costs from tolling revenues.

 

  1. DfT has the freedom to set tolls to whatever level it wishes (subject to the maximum set out in the Severn Bridges Act 1992) following achievement of the RCRR. If the arrangements between DfT and SRC are constructed properly it is the view of SRC that VAT would not be chargeable on tolls during the intervening period up until handover.

 

  1. SRC calculates the RCRR will be achieved between 9th October 2017 and 20th February 2018. This date is uncertain because:

 

    1. SRC pays UK corporation tax and the reduction in rate has had a beneficial effect for SRC. The Concession Agreement has a ‘no pain / no gain’ clause for tax changes which means that DfT may request compensation. This is subject to discussion but is expected to be around £10m. This saving could be used to reduce the Concession length and requires agreement with DfT.

 

    1. The rate of traffic growth determines the rate at which tolls are collected and so affects the timing of when the RCRR is achieved. Traffic growth was strong in 2015 and in the early part of 2016 helped by the reduction in fuel prices and general economic recovery.

The range quoted above represents the difference between optimistic and pessimistic traffic growth forecasts and the options for treatment of the Corporation Tax rate change.

  1. SRC has recommended to DfT that the parties agree a pre-defined handover date immediately beyond this range. This allows everyone to work to a fixed date which helps plan successor contracts and allows SRC and DfT to meet their TUPE obligations and manage the supply chain effectively. This approach gives the best opportunity for a smooth, safe and efficient handover at least cost to toll payers and does not prevent DfT implementing any reduction in tolls it sees as appropriate.

 

  1. SRC has concerns about what the future for the staff might be, as well as what will happen to associated matters such as pensions.

 

  1. The Concession Agreement was one of the first such contracts in the UK, having been drafted around 1987/88. Not only has much changed since then in respect of new technologies but only limited consideration was given to termination. There are about 750 pages in the Concession Agreement, but only around three pages in total address handover. Of those most are in the form of ‘the parties will agree a procedure on how to ….’. The deadlines for such agreements are typically one year before the achievement of the RCRR.

 

  1. It is the considered view of SRC that there are issues of substance which require agreement before the final year of the Concession is reached (i.e. potentially by 9th October 2016) if handover is to be achieved without undue risk. Examples of this are decisions on the future involvement of SRC’s two main contractors and agreement on detailed handover processes including SRC’s own assets and systems used for maintenance and tolling operations.

 

  1. Based upon the experience of SRC’s management team of similar Concession negotiations here and elsewhere, SRC is of the view that time is now of the essence.

 

  1. SRC looks forward to working with the Committee and all relevant public bodies to ensure a successful and seamless transition into the next stage in the life of these vital parts of Britain’s infrastructure, within the tight timescales that now apply.

 

22 April 2016