Sir David Higgins is facing a thankless and (some might say) impossible job - to cut the cost of running Network Rail by a couple of billion pounds or so in the next few years, in the context of a railway growing at about 5% annually, and where capacity is ‘maxing out’ on some routes.
Throughout our interview, Higgins keeps up the refrain that “you cannot have everything”, and that piling more and more trains onto a crowded network, while seeking lower costs in the context of improved performance, is a very ‘big ask’ indeed.
At a recent appearance before the House of Commons Transport Select Committee he banged the same drum repeatedly and at considerable length, to get his message across to this key monitoring body. It worked, too. By the end of Higgins’ solo one-hour session on March 13 (RAIL 692), TSC members’ questions were indeed focused sharply on what might be dubbed ‘The Higgins Question’.
Just how DO you ensure access fairness to all operators, rising performance standards and lower costs, when the network is overwhelmed in the key places?
TSC members (well, the right wing free marketeers, anyway!) did indeed end up expressing incredulity that the only option left to control an out-of-control market - pricing - is not available to Network Rail. You could almost hear the penny dropping that regulated access to a network for multiple operators only functions properly when there is capacity left in that network for a regulator to allocate.
Once it’s all gone, and business continues to grow, there are no tools left to compel the regulated (NR) to produce and efficiently run capacity that simply isn’t there. The only option left (although these words were unspoken) is to manage chaos as best you can. Higgins must have been well satisfied that his day’s work did indeed seemingly end up with TSC members ‘getting’ this essential and unavoidable contradiction.
Not that this will (in any way) silence, or even pacify, those who hawkishly regard Network Rail as a flint-eyed monopoly that needs to be kept on a very short leash indeed, regardless of any and all difficulties.
The reality is that both viewpoints hold water. While NR is indeed wrestling with some particularly difficult problems, strong regulation will remain an essential requirement, to ensure that all behaviours and outcomes are properly motivated and monitored.
NR is having something of a ‘sweet and sour’ period at the moment. On the one hand we have the triumph of King’s Cross (RAIL 692), and the ongoing massive investment programme; on the other we have the tragedies of the Grayrigg and Elsenham disasters, and the associated court cases.
Both instances were the result of appalling management failings that happened well before Higgins joined NR.
If there was any real justice, previous managers would be recalled from their bonus-funded havens to account for what happened ‘on their watch’. Instead they can keep their heads down and remain silent, while the company they ‘led’ takes it on the chin corporately for management failures for which today’s leaders were not responsible, but are accountable. Such are the pitfalls of corporate life at the top.
Higgins is philosophical about such things - he cannot change them, and they are a fact of corporate life. However, the unspoken frustrations doubtless put a sharper edge on his determination to see fundamental change.
At the start, Higgins found too many highly paid managers following the easy path of risk aversion and ‘discussion by committee’, rather than grasping a situation and really ‘owning’ it. A year ago, he was determined to change this. Has he? Not quite yet, it would seem, because an essential prerequisite - procedural reform - is not yet done.
This is becoming a matter of some urgency to Higgins. “We have to reform process and procedure,” he says, forcibly. “Because if we don’t we’re going to wear out our front line - there’s absolutely no doubt about that. We’re putting more and more standards, procedures and process on them in a tightly limited timeframe.
“We’re not going to have fewer trains on the track. We’re not going to have lower growth. It’s going to get more and more complicated, therefore we have to be smarter. When we go onto a track now, there’s a wad of papers this thick behind you - when you do the same job in Austria you just swipe a smartcard and walk straight onto the track.”
As all such processes are safety-related, I point out that he’ll have to tread carefully if he’s to avoid being seen as rolling back the railway’s essential safety margins - especially if cutting back procedural red tape also means cutting back headcount. The unions (and the health and safety police) forever lie in wait for any such signals, and I await progress here with interest.
“In terms of risk and judgement, the area I’m really interested in now is level crossings,” he says. “They concerned me when I arrived here, and for a number of reasons. Firstly, they’re all risky, but you really shouldn’t have any on express lines… but we do!
“Where the real risk is, however, is that NR’s risk assessment process on our database wasn’t where it should be. So we couldn’t stand up and defend ourselves. We’re getting much, much better now.”
I mention the Elsenham court case, where NR has just pleaded guilty to safety offences involving the deaths in December 2005 of teenagers Charlotte Thompson and Olivia Bazlinton. He says he wants to come back to this, so for the moment we stay with structures.
“Structures are the other areas we must get better at. We have 40,000 bridges and 40,000 other structures. One thing that has become obvious is that unlike track, it’s heterogeneous. It sounds a simple statement but think about it - very few bridges are the same, they’re all different.”
Higgins highlights the obvious (but perhaps overlooked) difference between track and bridges.
“The ORR should be able to require us to fully understand track, including even complicated things such as rolling contact fatigue, and how to price for it,” he explains.
“But how you get productivity improvements on bridges is very different, because they’re all different. But even more complicated is this question: how do you make that judgement between replace, maintain or life extend?
“Take the Forth Bridge. We’ve painted it and that means it’s right for 30 years - maybe 40. But that doesn’t mean it’s there forever. That means in 20 or 30 years’ time we’ll come back and look at it, at the quality of the paint and the steelwork, at what the loadings are at that particular time, and what new technologies have come along. And we’ll ask what we do with that bridge in those circumstances, to determine whether we can get another 100 years out of it, or 50 years. What shall we do then, on that curve of deterioration?”
This is a principle that seems to be taking hold - or rather, returning (thankfully!) - to railway management, just as it seems to be being heard more frequently in the corridors of power at the Department for Transport.
In the recent briefing for specialist journalists on the Government Command Paper, Secretary of State of Transport Justine Greening herself used the words “one size does not fit all”. Now Higgins is saying the same thing.
This is a VERY different philosophy to that prevailing at NR under the previous regime, where high-profile, strict command and inflexible control of a single way of thinking was vigorously enforced across the entire company. It’s no exaggeration to say that most of the Higgins philosophy would have been regarded as heresy - it certainly wouldn’t have been wise to voice such proposals, according to those who worked within the previous regime.
Higgins is clear that flexibility has to be the key to how the network is managed, with professional judgement absolutely essential. It is the bedrock of how change at NR can be triggered, implemented and successfully achieved.
“It’s not a case of just turning a handle,” he says. “You cannot just press the button on a calculator and it will tell you what to do to this bridge. They require individual judgement. We have to have inspections and standards, but ultimately it comes down to judgement. Professional judgement. And we must have that.”
There are, he says, 112,000 structure inspections a year, and NR is investing in more inspectors, with support from the Regulator. He is determined that inspections will be of high quality, and gather quality data.
“We have to make sure our asset base is fine, and then we have to work out what to do in each circumstance. Frankly, you could spend as much as you like on these structures, but you have to take a risk-based approach.
“We have some of the best railway engineers in the world keeping this amazing historic network together. We need to rely more on them. We need to train them to be more skilled and we need to challenge the processes. That’s not going to be easy.
“I’m spending more and more time on that this year. Then we’ll be looking at components and asking the question: are we buying for resilience, or cost? I think we need to tilt it more to the principle that higher capital cost up front will bring lower operating costs down the line. Look at our axle counters on the West Coast - they fail all the time…”
His comment tails off in evident frustration. I ask why axle counters that seem to work perfectly reliably across Europe fail here so frequently. Have we ‘modified-in’ problems because we must have things ‘our way’?
“Of course!” he fires back, eyebrows raised. “We modify everything. With axle counters, I think it was a two-year mean time between failures - now it’s 17 years, which is good. But we need to do that on all our components.”
Like Billy Connolly suddenly returning to a story he branched away from a good while back, Higgins suddenly brings up McNulty. He had promised to come back to Sir Roy… and he’s as good as his word.
He dives straight in, and challenges the ‘received wisdom’ (reinforced by ORR) that NR is around 30% to 40% more expensive than it should be, compared with European benchmarks. He’s far from convinced.
First, he points out that the advantage Germany enjoys today in railways stems from the terrible destruction wrought during the Second World War.
Germany was brought to its knees by the Allies in 1945, and had to rebuild its railways from scratch - which it did, to a much higher standard.
In Britain, the railways were utterly worn out from the war effort, did not get the investment they needed, and were nationalised in largely clapped-out condition.
Modernisation using diesel or electricity was out of the question (no money), so a new range of nearly 1,000 BR Standard steam locomotives were built. We have struggled to either catch up (or even stop ourselves falling further behind) ever since.
Higgins adds that nor do European railways have 600 ‘delay attribution’ staff, doing the ‘timetable and performance two-step’ to avoid picking up penalties for poor performance.
“But are we really 40% less efficient than them?” he asks. “I would say I have no clue because we don’t have any figures.
“France has more than 2,000 kilometres of high speed network, which is the envy of Europe. But SNCF as a structure has over 200 different corporate structures within it, all with linkages that are so complex that none of our rocket scientists can work it out. So, what is the level of state subsidy? Who knows? We certainly don’t, and we’ve spent years trying to understand it!”
Higgins then points to European reports about ‘renewals holidays’, and that tens of billions of euros will need to be spent to catch up. The message is clear - NR might not be perfect, but it’s nowhere near as bad as it’s often portrayed in the wider media.
He hammers home the point. “My story on Europe is that high-level headline figures are irrelevant, because they don’t have the data, there’s no level of transparency, and you’re comparing different networks. So to say we’re 30% to 40% less than Europe - who knows?”
He then highlights how NR also has to contend with sharply diminishing Government support, while in Europe state subsidy remains very heavy.
“We’re going through a transition, we’re taking away the state subsidy. This is a conscious decision, and I fully support it - but we’re moving steadily from the taxpayer to passenger for support.
“So the reason that fares go up above inflation, while our costs are coming down below inflation, is that we’re taking public subsidy out. On our forecasts, for the ten years from Control Period 4 to Control Period 5, we reduce public subsidy from £5.9 billion to £1.9bn a year.”
He sets out what this means for NR: “Network Rail’s share of that in those two control periods is that we take out - in real terms - £2bn in costs.”
NR’s maintenance costs in CP4 alone (2009-14) are due to fall by around 50%, from £1.5bn to £750m.
“If the entire railway sector can take around £2bn out of a £600bn national budget I would say we’re paying our way!”
Higgins returns repeatedly to asset knowledge, and how more intimate understanding of infrastructure condition can fine-tune rail renewals - especially into areas of need rather than the scattergun approach of high-volume replacement.
Internal and cultural issues also continue to occupy Higgins’ attention. I ask if there is a resistance within those crucial middle layers of management to what he’s trying to do? Is the ‘permafrost’ still deflecting or resisting change?
“It was a revealing moment when I announced that we would plead guilty to the Elsenham tragedy,” he explains.
“I walked around the offices in various parts of the organisation and asked: ‘Do you know why we’re pleading guilty?’ A number of people replied that it was because we did not wish to go through a jury trial in Essex, and that the guilty plea was a pragmatic solution. I said: ‘No, we’re pleading guilty because we got it wrong!’
“I had to make clear that we’re not pleading guilty because we think the community or the parents or the schools should have done something different. We’re pleading guilty because we were wrong - really wrong.”
To make sure the entire workforce properly understood, Higgins wrote directly to 35,000 staff and explained NR’s guilty plea. He is excoriatingly honest about NR’s failings of a decade ago, which led to the teenage fatalities.
“It’s because there were inspections in 2002 and 2005 that were done incorrectly. Staff at the time then used wrong data and wrong assessments, and wrongly rated the level crossing at a lower risk. After the tragic accident, and the two girls died, the inspections were redone and it was rated as one of our highest-risk level crossings.
“Then there were two memos that somehow got lost in the system - and there’s no evidence we actually did anything about that, either. So it doesn’t matter whether or not we know it’s difficult to build a bridge, because the community didn’t want one. And it’s irrelevant that a bridge proposal would not have got through planning before the accident.
“None of that matters because in the end we didn’t do the risk assessment correctly. If we had, who knows what could have happened? We might have given a leaflet to the school, or the community might have been more aware and they might have taken a different decision - you never know.”
Higgins was gratified that many NR staff contacted him to express amazement that he was prepared to say these things during the court case, and explain to staff precisely what went wrong.
He adds: “I think we owe it to ourselves, when things don’t go right to learn from them. We have to be honest enough to admit that.”
We ponder what this reaction of surprise and amazement to this painful honesty tells him about the NR of the past.
“There has been a lot of fear in the organisation,” he concedes.
It cannot be easy or comfortable for a CEO to accept the reality of what outgoing chairman Rick Haythornthwaite’s inquiry through RSSB discovered… that the previous regime left a culture of fear. IS he making progress on eradicating this toxic legacy?
“The Grayrigg inquiry did conclude that NR had a culture of bullying. Well, bullying and fear were a drive to get performance, so I think in the end there had to be command and control - I don’t think there was any alternative.
“When you look at the state the railway was in after Hatfield, you had to have command and control and discipline. But I think the organisation has moved on. It’s more mature, and that’s great because we do need an organisation where frontline troops feel they can make a decision and be backed up. They need to feel sufficiently supported that they’ll be prepared to take a risk on their judgement - and that we’ll back them. Which we will.”
Has this filtered down to the frontline yet? Because there was a shared sense that you didn’t change anything for fear of getting it wrong and paying a heavy personal price?
Higgins gives a thin smile. “I’m realistic enough to know it’ll take years to finally permeate the whole organisation. You can’t change culture overnight. But we’re moving in the right direction.
“I was in a depot in Newport yesterday, and we had 20 of the frontline engineers and troops just round the mess room. We were talking about what we need to do, what’s going right, what’s going wrong, and it was interesting to get the feedback. The comments from the floor were that no one dodged any questions and it was a very open discussion, with all the issues out on the table.”
And they all felt able to say what they felt and wanted?
“Yes, and it’s a start. There’s progress, such as in the response from being open about what happened at Elsenham, and then just trying to address the issues of our frontline troops.”
A year before, Higgins had said that NR’s central monopoly of supply was to be scrapped. And while its National Delivery Service (NDS) would continue to supply rails, sleepers and ballast, it too would be opened up to the bracing winds of competitive buying and supply. What’s the picture here?
“It’s going fine,” he says brightly. “Yesterday I was looking at a supply depot, and they were saying there’s absolutely no doubt that central buyers are the cheapest in Europe for ballast, logistics, the trains. But I’m determined to prove that we can honestly buy things that are not safety-critical more cheaply locally - the monopoly’s not there any more.”
So the devolved routes must buy their rails from NDS - but they can buy lightbulbs from Tesco?
“Yes. And other things, including some equipment. The other thing is, there has been huge change across Simon Kirby’s major projects area. Firstly, they’re relocating to Milton Keynes, so we are losing quite a few people. Also, we want more client-led programme management.”
Higgins points out that NR has already made considerable progress on reducing headcount and boosting productivity. Thameslink 1, for example, was done with 550 people, Thameslink 2 with just 250.
He’s cagey, however, on what the eventual headcount reduction will be. He acknowledges the “concern” in the company, and is quick to point out that he doesn’t want to lose the best people.
I ask about the so-called ‘deep alliance’ emerging between NR’s devolved Wessex area and South West Trains, run by Stagecoach (RAIL 688). Here operations and maintenance will be managed by a single executive joint team, led by SWT Managing Director Tim Shoveller.
RAIL has already reported on NR’s confirmation that if this works, it will scrap its own Route Managing Director’s post. Is this a blueprint (or pilot) for the whole country?
Higgins is quick to deny this. “This is the only radical experiment we’re doing,” he emphasises. “We’re doing this uniquely here because of firstly the partner - who’s prepared to go out on a limb and set aside disruption payments, so there’s the security of that - and also because of the quality of the asset.
“I’m totally committed to this alliance and to getting the right people to make it work. Our teams are already working well with Tim Shoveller and Richard O’Brien , and I’m really pleased we’re working with them. I’m confident. If I said it’s going to start on April 1 I’ll get a nasty phone call, because there’s work to be done, but it needs to happen soon.”
You say it’s a one-off?
But if it works, and successfully yields 30% savings, there will be inexorable pressure from Government, Treasury, DfT and everybody else to say: ‘Right. Do it like that everywhere - and do it next week!”
Higgins responds: “It’s about learning overall lessons. In the end, the biggest thing we’ll work out is how we look at overall performance, behaviour and track access in the first few years.”
Higgins believes the SWT/Wessex deep alliance will flush out essential lessons more quickly than normal evolution, but without the cataclysmic shocks (and costs!) of revolution. He reckons the railway can “jump to a much better endgame than through traditional processes”.
I think he’s right - not only on this, but also in the general thrust of his approach.
Early signs are that the Network Rail supertanker has slowed down from headlong command and control, and has started to steer towards a less abrasive, more partnering approach.
Higgins tells me that the feedback from numerous open-house discussions with groups of staff is that they find the new regime and its approach to be supportive and encouraging, open, honest, straightforward and motivational. Staff believe that nothing in the discussions is being “dodged”.
A year ago, Higgins challenged the train operating companies to “put their money where their mouths are”, and put their own risk capital down. He wanted to know if they’d be “brave enough to go for it”. Are they? Is the Alliance evidence of this?
“Stagecoach obviously is,” replies Higgins. “And there is certainly peer pressure between TOCs wanting to go further now. We’ll see!”
Higgins also said last year that success would be “when customers, stakeholders and partners vouch for us”. Is that happening yet?
He thinks for a moment. “I suspect that at the coalface, contractors will say that we still take a tough contractual approach to wring the last pound out of them - and that’s probably true. However, I would also point out that we’ve let a string of framework agreements, and a seven-year signalling framework for £1.7bn for three major organisations.
“We also let all the contracts for London Bridge, 12 months before anything starts. When you look at how we’re doing Hitchin right through to Stafford, we’re doing some really big projects very differently in strategic terms. But at the coalface, I’m sure we’re still a tough client - that will take a while to resolve.”
It’s been a few minutes since Higgins’ PA Sophi told him his next appointment is waiting, and we start to wrap things up. As we part, I ask him what he’s proudest of in strictly personal terms. He answers without hesitation.
“The most important thing that I’m always proud about is safety. It was my priority at my last job - and it’s my priority here.
“I think we’re in a better position now on level crossings, and I’m really pleased that we’re getting progress. We have a long way to go, though. And I think we’re getting better in terms of our workforce safety.”
“We should have moved onto the people issues sooner rather than later. Because when you look at the frontline and the people issues there, there is an urgent need for progress and improvement.”