Britain’s Embattled Network Rail: Why did California hire them?

In June 2015, the California High Speed Rail Authority (“CHSRA”) awarded a seven year, $700 million contract to manage the overall project to a consortium led by Parsons Brinckerhoff (PB).

Network Rail was part of the winning consortium.

Who is Network Rail anyway?

British Rail, the old nationalized railway system, was dismembered a number of years ago. Different train lines are now run by private operators who bid for the right to provide service. The tracks and infrastructure used by these operators are managed by a government owned infrastructure company called Network Rail. [For those interested in learning more, CHSRA peer review member Lou Thompson wrote a comprehensive history for the World Bank].

Britain’s Network Rail has been in the news lately, and not in a good way.  They are being blamed for serious problems with a major UK rail electrification initiative and failing to deliver on a number of other projects. Lawmakers have publicly stated that the company has “lost its grip.” There is a real possibility that Network Rail does not survive the current crisis and there have been calls to again reform the rail system.

Reference check?

Part of the battle surrounding Network Rail revolves around the classic ‘who knew what when.’ The BBC reported that UK government officials knew about Network Rail’s failures and financial woes in March 2015, but did not come public until after the UK election in May 2015, possibly because it would have reflected badly on the government.

Did the CHSRA selection committee really check references like they said they did between March 24, 2015 and April 3, 2015? And if they did call up Network Rail’s references at the UK Ministry of Transport, did they get a straight answer from officials?

Network Rail’s problems were certainly brewing in the media well before the summer of 2015 when California awarded them the contract.

The proposal submitted by PB showcases Network Rail’s skills by focusing on the modernization of the “Great Western” rail network, a project Network Rail actually hired PB to help with and the project whose travails are headline news this month in the UK for being four years late and triple the original cost due to “inadequate planning.”

Conflict of interest?

Guess who is often bidding for the many contracts that Network Rail awards? Parsons Brinckerhoff.

PB has won a lot of work in the past from Network Rail, including a systems integration contract on the aforementioned (and now infamous) Great Western electrification project. And, Network Rail, if it continues to exist, will have many more contracts to award as part of an enormous upgrade planned for the British rail system.

Parsons Brinckerhoff has been the primary consultant on the California high speed rail project for decades. They were heavily favored to win the large program management contract awarded in June 2015. Indeed, only one other bidder even tried to compete for it.

Network Rail was eager to win international contracts and winning the California project is a significant feather in their cap.

When a large engineering firm effectively helps an important client win prestigious work, it creates a number of potential conflicts of interest.

Conflicts of interest cannot always be avoided, but they are very real. In this case, it is not at all clear why Network Rail is a good fit for California’s needs.

What does Network Rail bring to the California project?

According to the proposal submitted by the PB consortium, Network Rail was included as a partner to provide an “operator’s conscience” and give important feedback from the perspective of the future train operator.

An “operator’s conscience” is also known as a “Shadow Operator”. For projects where the rail operator has not been selected, it is common to hire an operator to provide feedback on the infrastructure from the viewpoint of someone who will have to use it eventually. If you are building a restaurant, you might want to ask a chef where the stove should be.

Notably, in 2010, French rail company SNCF, who actually operates trains rather than just maintain the tracks used by trains like Network Rail Does, proposed that the California High Speed Rail Authority pay an operator for their feedback. Admittedly it was self serving on SNCF ‘s part as SNCF would likely compete for the contract, but was still a good idea to include operator feedback.  However, the Authority (who presumably consulted with their main consultants at the time – PB) thought differently and told SNCF to get lost and not come back.

Over the years the Legislative Peer Review panel for the California high speed rail project has repeatedly voiced concerns that an operator has not been involved when critical decisions about system design are currently being made.

Who knew what when?

Given the Authority’s (and PB’s) prior dismissal of SNCF’s previous suggestion to bring in a shadow operator, we were quite surprised to see that PB and Network Rail’s winning proposal included this concept.

The original procurement package , the board presentation when the procurement was initially mulled and the board memo when the contract was awarded don’t even hint at involving an operator to provide feedback, like Network Rail is supposed to do. If they had, questions about the appropriateness of Network Rail might have been asked.

If only someone had known…

Despite PB’s key role in managing the California high speed rail project, the CHSRA has never published the proposal PB submitted. We only received a copy on a disk through the Public Records Act (California’s FOIA) after contract documents were signed. We were surprised by many of the details in the document.

The carefully worded winning proposal highlighted the need for the involvement of an operator noting “Early perspective of NRC [Network Rail Consulting] as the operator’s conscience will provide the Authority an accurate and experienced commercial perspective.”  

This theme is infused throughout the proposal which conveys the impression that Network Rail actually operates trains, despite the fact its actual role is limited to managing the infrastructure that is used by train operators. At the June 2015 board meeting where PB’s contract was approved, CHSRA staff even noted, “…PB brought significant new team members while integrating operations expertise into their team. “

If a shadow operator was something the Authority was now interested in, why wasn’t there a separate contract for a shadow operator to try and get a wide range of bidders? There are more than a handful of firms that seem like they would have been good contenders. An example is JR East, one of the 8 firms who expressed interest in the program management (“Rail Delivery Partner”) contract. In the end, only PB and Bechtel submitted proposals.

Bechtel did not include a shadow operator in their proposal. Other bidders would likely have assumed from current board chair Dan Richard’s rhetoric that the idea of a shadow operator would not have been welcomed by the agency.

Did Parsons Brinckerhoff have any insider knowledge that the Authority would be receptive to  a shadow operator concept? If so, this would give PB an unfair competitive advantage – beyond the inherent benefit in being the long-time incumbent.

At this point, there are more questions than answers.

Will California legislators take action?

California legislatures are holding  oversight hearings next week.

Will Legislators ask the Authority to re-consider Network Rail’s involvement and instead consider contracting separately for a shadow operator?

Will they order the Authority to release bidders documents in the future before things are finalized to improve transparency and get public feedback?

Transparency is not just a buzzword – it can help avoid situations like this one.

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