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Perhaps because the permanent way is the basis of the railway, British Rail kept its civil engineering maintenance and renewal in house, long after the traction and rolling stock manufacturing works had been sold off and supply passed to the private sector. While in its final years BR had dipped its toe into the water of the private contracting market, the civil engineering establishment conceded this development only under duress.
Self sufficiency survived the reorganisation of the railway into businesses in the late 1980s. Each business now ‘owned' its infrastructure and the Infrastructure Director was responsible for the performance of track and signalling, with a budget and a contribution to the bottom line.
This was the apotheosis of the vertically integrated railway. While it imposed commercial disciplines on the engineers, it also encouraged technical innovation. Thus InterCity Director John Prideaux was able to reduce journey times by investing in dynamic track stabiliser machines which allowed relaid track to be reopened at line speed. The commercial benefit paid for the investment.
But because civil engineering had not been exposed to external competition, when privatisation came there was no obvious pool of potential buyers. Britain had its specialist railway contractors, notably Balfour Beatty, but their primary market was overseas. Most of the potential buyers were expected to come from the general construction industry.
To make the former Chief Civil engineer's empire saleable is was broken up into seven geographic areas. This was bad enough from the point of view of potential buyers, but the industry was then further fragmented by making infrastructure maintenance and track renewal separate businesses within each area.
Obviously, the aim was to produce bite-sized chunks with turnovers n the range £100-150million, but this artificial division robbed the emerging private infrastructure industry of valuable synergy.
Only Balfour Beatty showed an appetite for rebuilding the fragmented industry. Other players, such as Amec and Tarmac, said ‘stick' after one acquisition. Thus, towards the end of the sale in mid 1996 there was little enthusiasm for the remaining businesses until earlier management buy outs came to the rescue.
Northern Infrastructure Maintenance Company (NIMCo) looked set to be an orphan until Jarvis entered the railway scene and bought the last of the maintenance companies at the lowest price in terms of pence per pound of turnover.
At the start of the 1990s, Jarvis was a construction and property group and a not very successful business at that. It made losses for three consecutive years leading up to the arrival in 1994 of a new management team headed by Chief Executive Paris Moayedi. When he took over the share price stood at 10p.
But by 1996 the turn round was well underway. When the acquisition of NIMCo was announced in May that year Jarvis had just reported a profit of £500,000 compared with a loss of £4.9m in the previous financial year.
What had attracted Jarvis to the railways? Paris Moayedi had repositioned the company, with similar thinking to that of the train builders. Build a train and you get paid once. Build a train and then maintain it and you get paid throughout its working life.
In the railways we call this ‘total train service provision', in the construction industry the buzz word was ‘facilities management' and that was the basis of the new look Mr Moayedi brought to Jarvis. This matched the expectations of those responsible for creating the privatised railway, that the infrastructure maintenance companies would be in the business of managing Railtrack's facilities.
A year after the NIMCO acquisition Jarvis took over the failing Relayfast. This was the Scotland Track Renewals management buyout, which had also bought Western Track Renewals as private sector enthusiasm waned.
But the track renewals companies had been sold with a diminishing proportion of the workload guaranteed. In the 1997 bidding round, when 50% of work was up for competitive tender, Relayfast lost its existing 50% and failed to win any new business.
A month later and Jarvis announced that it was acquiring another MBO, Fastline. In contrast, Fastline was a successful business which had acquired Northern Track Renewals. The synergy with Jarvis and NIMCo was clear.
When these acquisitions were completed Jarvis and Balfour Beatty were the ‘big two' in the new industry. Jarvis also owned a large proportion of the track maintenance machinery fleet, which had been allocated to a separate wholly owned subsidiary as a condition of the Fastline deal.
A year ago, the Jarvis share price stood at around 660p compared with 250p when Fastline joined the group. But facilities management on the railway had run into difficulties. Perhaps naively, Railtrack had thought that it could give the infrastructure maintainers a contract and assume that they would maintain the assets to the required standards.
It didn't work out, and with the arrival of Chief Executive Gerald Corbett at Railtrack rigorous regime of measurement of maintenance performance was introduced. Arguments over past performance, quality and costs followed with a number of contractors – including Jarvis which was eventually forced to put approaching £20million of disputed payment down to goodwill.
This rang alarm bells in the City, which was already worried about the privatised railway and today Jarvis shares are around 140p. But shortly before I met Mr Moayedi at his London office for this interview, Railtrack had awarded Jarvis Rail one of the first of the new generation IMC2000 maintenance contracts. Worth £250million over five years, the Central IMC2000 contract covers 1,163 route miles and includes over 2,200 switch and crossings and more than 6,250 signals.
And that was only part of the good news. Jarvis had taken a gamble and ordered a high output track renewal train (TRT) from the United States in the belief that it would be needed for the West Coast Route Modernisation. The TRT has just completed its commissioning tests and is expected to transfer to the West Coast Main Line.
Currently Railtrack and Jarvis have formed an alliance which is developing programmes and costing for plain line renewals on the WCML. Given that the WCRM is critically dependent on high output equipment (HOE), Jarvis has a strong hand – strong enough for Railtrack to bar the company from bidding for the supply of the expected second TRT.
Another strength is that Fastline had perceptively agreed to manage the High Output Ballast Cleaning Train for Railtrack. This piece of (HOE) will be essential if forecast expenditure on the railway is to be achieved.
‘So, how has this bumpy ride over the past four years coloured your view of the railway as a business to be in', I asked. Paris Moayedi?
‘We are absolutely committed to the railway market', he replied, ‘but we accept that in the short term there will be ebbs and flows in demand because of the way the railway was privatised' he replied.
In common with many in the industry he sees the key problem as the original structure of track access payments which fail to provide incentives for Railtrack to invest. ‘Railtrack has shareholders who are not looking for rewards that might accrue in 20-25 years time'. In his view, for there to be investment in the railway there have to be readily available rewards and this is an issue privatisation failed to address.
At present, of course, the Rail Regulator is carrying out his periodic review of track access charges which will set the financial ground rules and, in particular, the rate of return on investment and treatment of enhancements, for the five years from 2001. From what he has seen so far, Mr Moayedi is reserving judgement on the Regulator's approach.
With Railtrack's ability to raise finance for investment vital to the future prospects of the civil engineering companies like Jarvis, Mr Moayedi concerned that not only is Railtrack not incentivised to invest, but the current incentive regime results in ‘a big stick and very little carrot'.
This only makes funding investment harder. ‘The bigger the stick, the more shares fall and the less chance there is of raising capital', explains Moayedi. And, as Railtrack's share price shows, this can create a downward spiral.
While we have been talking specifically about Railtrack, the ratio of carrot to stick applies beyond the black tower at Euston: ‘For Railtrack read the railway industry', says Mr Moayedi with feeling. And given Jarvis' investment in the TRT he speaks with some authority when he adds ‘we all need to push to get the investment for this industry to modernise itself'.
But for the railway civil engineering contractors, Railtrack's dominant role in the market is also a threat to investment. If you maintain railway infrastructure in Britain you have what is virtually a monopoly customer. Even worse, you have a monopoly customer still largely staffed by managers brought up in the public sector who not only do not understand how the private sector works, but still tend to assume that private companies are out to rip them off.
We can see this in the IMC2000 contracts which are based on open book contractor's costs, a management fee to cover overheads and shared productivity benefits.
In this situation one way to succeed is to get closer to the client. Railtrack is keen on ‘partnerships' and ‘alliances' with its suppliers and Jarvis was the first to set up an Alliance Board. This covers the North East contract area. Not only are customer and contractor represented on the Board, on the new IMC2000 contract the two organisations will be co-located the same new offices.
‘Our alliance board has worked well in the North East', according to Moayedi, and he attributes this in large part to the example of London North Eastern Zone Director Nick Pollard – significantly recruited from outside the railway industry.
In fact, what the Alliance Board seeks to do is put back together two parts of the fragmented railway, almost recreating the former InterCity East Coast Infrastructure Director's organisation in the area of the IMC2000 contract. ‘We manage the budget together for maintenance and upgrades – it's the essence of partnership', Moayedi told me.
But not all Railtrack Zones are as enlightened as LNE. Clearly speaking from experience Moayedi adds ‘Some people see partnership as a form of indentured servitude'.
For example, investment in track maintenance machinery would be ‘foolhardy' unless the commitment was backed by true partnership with the customer.
‘A £20,000 machine is a liability to the contractor, because it needs feeding with work to earn a return', Moayedi points out. But what if, the contractor having made the investment, the customer then claims that the prices are too high and the expensive machine can sit in the siding until charges are redeuced. ‘Instead of a halo we would have a noose' Moayedi says simply.
But he remains optimistic on future relationships. With the arrival of outsiders at Railtrack, such as Major Projects & Investment Director Simon Murray, Jarvis is already seeing ‘a much more informed attitude to supply chain management'
Supply chain management, another popular concept at Railtrack, is a further another reminder that the structure of privatisation was made up as the previous Government went along and was based on some fairly extreme views on the need for competition. Both Railtrack and its contractors are now having to thrash out a better structure and more effective commercial relationships, while living with inherited contracts.
Which is not to say that there have not been benefits, although comparisons of pre-and post privatisation costs should be treated with caution. When the maintenance and track renewal companies were being sold, hawks at Railtrack (now departed) were claiming that they had existing contractors in the wings who could deliver an immediate 30% reduction in costs. Paris Moayedi reckons that Jarvis has cuts plain line track renewal prices by 20% since the group was formed.
But today, the regulatory eye is more focused on track quality, rather than cost, and all contractors are now judged by their performance against Gerald Corbett's Key Performance Indicators (KPI), where the monthly spreadsheets of results are colour coded Green for good, orange for OK and red for unsatisfactory.
Paris Moayedi is particularly proud of Jarvis Rail's performance against the most recent development, a KPI for track renewal.
Railtrack not only grades its contractors on their performance, the KPI are also applied to Zones as a measure of how well contractors are being managed. In the latest results, the top four zones on the track renewal KPI were all Jarvis customers.
And Moayedi emphasises that there is no weighting of the KPI to compensate for the volume of work. A Zone with several miles of renewals, with greater scope for error, is judged on the same basis as one with a few hundred yards.
This grasp of the minutiae of a fairly arcane subject like track renewal KPI hints at Mr Moayedi's management approach to Jarvis' £300million rail business. ‘Yes', he agrees, ‘to serve the rail business you have to be committed and focused' and as a group Jarvis has chosen to work only in niche markets where such focus can be achieved. Thus in railways, ‘all our plant is niche, our skills are niche, you can't use them elsewhere, everything is niche'.
And Kevin Hyde, the recently recruited Chairman of Jarvis Rail, and a long serving railway manager who held chief executive posts in New Zealand and Hong Kong , says that no other railway has matched the focus he now sees in Britain 's privatised railway. ‘The pressures of competition are intense' he told me. ‘The penalties on contractors who create train delays make it imperative to fix the problem immediately. In many ways the management of large scale railways are being reinvented here in Britain '.
Like the rest of the railway contractors, Jarvis has been ‘learning on the job' as the industry has sought to make the privatised railway work. The IMC2000 contract shows the way ahead. But equally the future development of the business is crucially dependent on Railtrack's ability to fund investment. And that remains the big imponderable.Return to 21st Century Ford Archive.