PAC criticises unacceptable cost increases and delays on pilot tram-train project

The Sheffield to Rotherham tram-train scheme will see vehicles run across the local tramway and the national rail network for the first time in the UK.

In May 2012, the Department for Transport approved a pilot project to test the costs and operational issues of this new technology, and consider the potential to roll-out similar schemes across other cities in the UK.

However, Network Rail’s works to modify the national rail network have encountered unacceptable cost increases and delays. It seriously under-estimated the scale and complexity of the works, and failed to factor-in the risks involved in delivering new technology.

These are the same failings that we saw in the Department’s handling of the Great Western Railway modernisation programme.

The Department failed to scrutinise or challenge Network Rail’s plans at the outset and then did not challenge hard enough as Network Rail’s costs rose from an initial budget of £15 million to £75.1 million.

Neither the Department nor Network Rail have properly quantified the benefits expected from the project, so decisions to go ahead and continue were made without knowing if it provides taxpayers with value for money.

Whilst Network Rail now has a revised plan to complete the works, albeit two-and-half years behind schedule, we are concerned that the project will not achieve the wider benefits that were originally intended.

Network Rail and the Department have not yet done enough to learn the lessons from the pilot project, including whether the technology is useable elsewhere and calculating the likely costs of developing new tram-train schemes.

There are wider lessons from this project for how the Department and Network Rail plan wider projects.

COMMENT FROM PAC CHAIR MEG HILLIER MP

“This project promised great benefits for passengers and, importantly, a potential model for similar schemes in cities such as Manchester, Cardiff and Glasgow.

“Instead the reality is another rail project with all the makings of a 'how not to' seminar for senior civil servants.

“This pilot was trialling technology new to the UK, yet neither Network Rail nor the Department for Transport properly considered the high level of risk and uncertainty.

“Unrealistic costings went unchallenged, resulting in an initial budget of £15 million spiralling to some £75 million. There have been long delays, and it is still not clear how, or even if, the experience of running this pilot will reduce the costs and improve delivery of any future tram-train schemes.

“Not for the first time, we heard evidence intended to reassure Parliament and the public that lessons learned on this project will ensure the failings identified will not arise again.

“We will be expecting Government to back this up with a meaningful review of the way it manages such projects, from calculating cost estimates through to transparently evaluating results.

“Actions speak louder than words and on behalf of taxpayers we will, if necessary, recall witnesses responsible for current and future projects and hold them to account for their performance.”

CONCLUSIONS AND RECOMMENDATIONS

Network Rail’s early cost estimates were wholly unrealistic and the Department failed to properly challenge them. When the project was approved in May 2012, Network Rail estimated the works would cost £18.7 million. However, it had not completed the project design and did not have a clear idea of the work required. The Department accepted Network Rail’s estimates with minimal challenge and no independent assurance, agreeing a budget of £15 million on the basis that Network Rail could make efficiency savings. Both knew that the pilot was trialling technology which was new to the UK, yet neither made provision for the high level of risk and uncertainty. As the work progressed, the cost of Network Rail’s infrastructure works rose to £75.1 million – an increase of 401% against the original budget. The reasons for the increases are the same as those Network Rail encountered on projects such as the Great Western modernisation programme, where it also underestimated the scale and complexity of the works. Since Network Rail’s reclassification as a public body, the Department has enhanced its oversight and changed the way projects are approved. Network Rail has committed to only making final investment decisions after design work has been completed and quality assurance work carried out.

Recommendation: Network Rail must improve its ability to produce realistic cost estimates and ensure they make appropriate allowances for risk and uncertainty.

The Department should ensure these estimates are properly scrutinised so that it can challenge Network Rail over cost assurance and deliverability. 

Both Network Rail and the Department should write to the Committee by March 2018 to explain how these new processes have improved the way that they work.

The Department allowed the project to continue, despite rising costs, without re-assessing whether the project offered good value for money or understanding whether it would achieve its wider strategic goals. The Department accepted the project offered ‘low’ value for money from the outset. It approved the project because of the potential strategic benefits of rolling out similar schemes elsewhere in the UK, including lower industry costs and economic benefits for the cities involved. It acknowledged, however, that these benefits were “very uncertain”. When the costs first increased in 2014, the Permanent Secretary allowed the project to proceed in order to achieve these strategic benefits. When cost increased further in 2016, the Rail Minister rejected the Department’s recommendation to cancel the project, also citing the need to achieve the strategic benefits. Despite the cost increases, the project business case was never revised. The Department acknowledged it should have challenged Network Rail harder as the project’s costs increased and the benefit-cost ratio fell.

Recommendation: The Department should put in place clear evaluation plans at the start of any future pilot projects,

and re-assess the business case should there be significant cost increases and delays.

The Department and Network Rail do not know how much taxpayers’ money has been wasted on future-proofing for an electrification project that has now been cancelled. In July 2012, the Department announced that it would electrify the Sheffield to Doncaster line at 25KV shortly after 2019.  Its decision affected the north-eastern section of the tram-train route. Network Rail originally intended to electrify the whole tram-train route using overhead powerlines at 750V. After the announcement, it proceeded with this plan but changed the design so the overhead powerlines could be converted to 25KV later with minimal disruption. In November 2014, Network Rail estimated the additional cost of this ‘future-proofing’ would be £5 million.  It told us that the expected costs were now higher but could not provide an exact figure. In July 2017, the Secretary of State for Transport announced that the electrification of the Midland Mainline to the north of Kettering had been cancelled. The money spent on future-proofing Network Rail’s infrastructure works was therefore wasted.

Recommendation: The Department and Network Rail should undertake a full review of the cost of the project, establishing how much money was spent on the aborted future-proofing works, and provide the Committee with a full breakdown of these costs by the end of January 2018.

The Department and Network Rail have not evaluated how the lessons learned during this pilot project could reduce the costs of future tram-train schemes. Achieving the wider strategic benefits of the pilot is dependent on other tram-train schemes going ahead.  It is vital, therefore, that the Department and Network Rail learn lessons from the pilot and promote these to local authorities. However, each project is different and Network Rail has not established how widely applicable technical lessons from the pilot may be. The Department is planning a three-stage post-project evaluation, with reviews in May 2018, early 2019 and late 2020. It has not, however, assessed how the pilot project might reduce the cost of future tram-train schemes. The Department has not actively promoted the estimated costs and benefits of tram-train projects to local authorities, and at present, the scale of the cost increases do not send out ‘good signs’. There is potential interest from Manchester, Glasgow, Cardiff and Blackpool but, at present, there are no firm plans for further tram-train projects.

Recommendation: The Department and Network Rail should, by the end of March 2018, write to the Committee with their assessment of the potential cost savings to future projects and what they calculate is an efficient price of building a tram-train system.

The Department should publish its formal evaluations of the project, including a full assessment of the project as a whole, not just the Network Rail elements.

The full text of the Committee’s Conclusions and Recommendations is included in the Report attached to this email.