Windfall rewards for innovative rail firms

Rail contractors could enjoy substantial windfalls if they show innovation when pricing up work packages under Network Rail's seven new track renewal contracts.

Speaking exclusively to CJ, the rail operator's chief executive John Armitt said negotiations are taking place to allow contractors a generous gain and pain share on forthcoming regional work packages, believed to be around 5% to 10%.

The exact details of the gain/pain share has still to be decided as the renewals programme has only just reached preferred bidder stage. However, initial signs indicate that contractors will be able to make substantial gains on their bottom lines in a series of packages ranging between £5m and £15m over the five-year duration of the contracts.

The preferred bidders include Amey, Balfour Beatty, Carillion, First Engineering and Jarvis. Work on the new packages is set to start in April next year.

"Contractors are pleased with the deal so far, although they didn't want the gain and pain figures set too high and to be unrealistic," said Armitt. "The gain/pain share could be based on how a contractor goes about planning its possessions with Network Rail engineers, or how productive it can be when laying track or using machinery."

However, Armitt hinted that contractors will be kept on their toes as Network Rail will set different targets for contractors to achieve on each round of work packages.

Network Rail will now sit down with the preferred bidders to thrash out terms and will make an announcement before September.

Commenting on why the renewals awards were delayed, Armitt said: "The decision took time as we were determined to get it right and we still had 10 months left on the existing contracts."

However, one insider told CJ that Network Rail "stifled innovation" during the procurement process and "just went for lowest cost".

Armitt replied: "We have two stages in procurement. At first we wanted an apple-for-apple comparison. We asked contractors to just tell us what their price was for a basic job. This won't stop us going back to the contractor for ideas on innovation in the second stage."