Conclusions and recommendations
1.Network Rail’s early cost estimates were wholly unrealistic and the Department for Transport (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.
2.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.
3.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.
4.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.
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