Specialist rail plant contractors have launched a hard-hitting attack on the industry’s “boom and bust” funding model, saying that it dramatically increases costs, lowers productivity and threatens to put some firms out of business entirely.
They are calling on the government to create an immediate and urgent review of how the rail infrastructure sector is funded and managed.
The attack comes in a new discussion paper published by the Rail Plant Association (RPA), the rail specialist section of the Construction Plant-hire Association (CPA), whose members include the majority of suppliers of rail plant in the UK.
The heart of the problem is that delays in agreeing future funding levels create a sharp drop in workload which is then followed by an unstable boom as the industry tries to catch up lost ground.
Total funds for the current period – running from April 2019 to May 2024 and known as Control Period 6 – were agreed earlier this year by the government, the Office of Road & Rail and Network Rail.
But experts argue that decisions are taken too late in the cycle to avoid a hiatus and a sharp drop in work.
As a result, members of the RPA say current workloads have fallen by between 30% and 40% and are now so low that they risk causing “irreparable damage” to the rail maintenance supply chain.
The RPA’s discussion paper - entitled The UK Rail Plant Industry in 2019 – coming off the tracks? – says: “Rail plant is at the heart of maintaining the rail infrastructure in the UK – yet there are doubts around the sector’s long-term viability due to the economic uncertainties facing those companies operating this specialist equipment.
“This phenomenon is nothing new. The boom and bust nature of workloads and funding for rail maintenance work has blighted the industry for years.”
The problems make it very difficult to retain good quality and experienced staff and mean companies are reluctant to invest – resulting in lower productivity and increased costs.
One RPA member said that their company had laid off over a quarter of its highly-trained operational staff as a direct result of the downturn, and a further 10% had left the company for more secure employment in other sectors.
“The level of skills lost is a tragedy for our industry,” he said. “When companies reduce headcount, it is difficult to reverse these changes when work returns.
“It can take two years for a plant operator from a traditional construction background to learn the skills needed to operate a road-rail excavator. That cost and experience is lost once they leave the industry.”
Another RPA member stressed the negative impact on productivity. “The uncertainty leads to a lack of confidence in planning and longer-term business investment. Investment in new machinery and equipment is held back because of the uncertainty of return, resulting in higher than necessary costs of capital.”
This also leads to reduced support for research and development and new technologies, so undermining the industry’s ability to deliver the very efficiency savings being demanded by the government and regulators.
The RPA member added: “All product development … has been halted. This will impact the company and industry for years to come.”
Of course, the problem of big swings in workload does not just affect rail plant companies, but most firms in the rail infrastructure supply chain.
Many of the major civil engineering contractors have been expressing similar views.
In a move that underlines these growing concerns, the contractor Keltbray recently announced that a lack of major rail piling projects in the coming 18 months means it will be scaling back this part of its business. It is currently consulting with staff about possible redundancies and redeployments.
The plant sector’s warnings come after similar concerns were expressed by the Rail Industry Association, the trade association for the UK-based suppliers to the railway industry with almost 300 member companies.
Like the RPA, the RIA says that the funding uncertainties stifle investment in skills and new products and threaten the very survival of specialist small firms – and it says that the cost of rail infrastructure work is increased by up to 30% as a result.
In response to well-publicised concerns about the state of the railways, the government established the independent Williams Rail Review in September 2018.
Chaired by Keith Williams, deputy chairman of the John Lewis Partnership and former chief executive of British Airways, the review was briefed to look at the structure of the whole rail industry and the way passenger rail services are delivered, prioritising passengers’ and taxpayers’ interests.
The review’s findings and recommendations will be published in a government white paper, with reform to begin in 2020.
But much to the dismay of many in the construction and rail supply sectors, the review excluded infrastructure.
As a result, the RPA is now calling for the creation of a separate “Williams-style” review to look specifically at the rail infrastructure industry.
In its discussion paper, the RPA says: “The review should consider each element of the infrastructure network – including future trends and developments in technology and the skills needed.
“It should consider what works well in the commissioning process and where the industry has made efficiency savings while working to schedule.
“It must also look at where the industry is failing – and why.”
It adds: “The review must provide workable, practical solutions that both the industry and the government buy into and commit to – especially around the boom and bust cycle.”
The RPA also calls for the creation of an industry- and stakeholder-led working group that meets regularly with the government to help deliver and build on the recommendations outlined in the review.
It also says that urgent action is needed to help the rail plant sector maintain and develop its skills base.
And it calls for a fundamental culture change in the industry “to overcome the inflexible, rules-based compliance model with suppliers given greater freedom in meeting outcomes”.
The RPA’s members believe that greater management flexibility and innovation would lead to improved efficiency and higher productivity – without compromising safety in any way.
CPA chief executive Kevin Minton commented: “The fact that the current Williams review is not considering infrastructure and maintenance issues is a huge missed opportunity and in our view makes no sense whatsoever. You cannot separate out infrastructure issues from the debates about the issues facing the rest of the network.
“It is imperative that the rail industry deals urgently with the current unstable funding arrangements. We will be taking every opportunity to put our arguments forward to government, regulators and the wider rail industry, and to work with other stakeholders whenever the opportunity arises.”
RPA chairman David Simmons underlined the depth of the crisis: “Many plant suppliers are saying they feel betrayed.
“Companies are now experiencing a perfect storm. Already highly geared from investing in Control Period 5 and with commitments to new plant and upgrades ready for Control Period 6, income to pay off debt is falling sharply throughout the industry.
“Overheads remain high due the compliance issues that are specific to the rail industry and it is difficult to see a way forward.”
He added: “Already we are seeing insolvencies of specialist contractors and our members believe that this will be the trend within the industry for the immediate future.
“Because there are so few suppliers, it will take many years to get back to a reasonable supply of plant and competent labour.
“We implore all industry leaders to take a look at the situation and work together to see how the current dynamics can be changed and the workload reset.”
The RPA paper – six key points
1 Rail plant workload has fallen by between 30% and 40% recently
2 Urgent need to review funding systems and eradicate delays
3 Call for government to set up a “Williams-style” review for rail infrastructure
4 Industry-and stakeholder-led working group proposed to improve accountability
5 Need for improved support to help the rail plant sector maintain core skills
6 Culture and regulatory changes needed to boost innovation
This article was first published in the November 2019 issue of The Construction Index magazine