Examination of Witnesses (Questions 380
WEDNESDAY 31 OCTOBER 2001
380. Can you give us an example of what those
issues may be? It is important the public know who is running
our railway infrastructure.
(Mr Bloom) Absolutely.
381. Can you give me some examples of what you
are responsible for and what Mr Marshall is responsible for?
(Mr Bloom) Absolutely. Mr Marshall's team is responsible
for running the day to day operations of the railway network.
As a result of administration, examples would be issues like contractors,
for example, who might be concerned as to the effect the administration
is going to have on Railtrack's ability to continue to buy services
from them, and those are representations which are made, for example,
by the administration team as opposed to necessarily made by the
382. As a lay person it is difficult for me
to understand how a company can maintain and operate our railway
infrastructure when you are involved and deciding issues of a
contractual nature with sub-contractors which seems to me to be
extremely important and Mr Marshall and his team gets on with
the rest of it?
(Mr Bloom) I gave the contractors as an example. It
has not been done in isolation. What happens is that it is a joint
team effectively of administrator and the Railtrack team. If we
are faced, for example, with a particular major contractor that
has got issues, some of those issues would be dealt with by the
management team, some of those issues would be dealt with by the
administration team and we are talking to one another and meeting
one another all the time. So we are not operating in two separate
vacuums. I think you should take some comfort that that relationship
is working very well. In fact, Mr Marshall has been kind enough
to notify the staff that the relationship is working very well
at the senior level.
(Mr Marshall) Yes. If I maybe could be allowed to
something. I would offer some comfort. The administrator and his
team have not been intrusive. They have got involved but not in
a way that confuses the running of the railway. That is not amongst
my list of concerns at all. My principal concern in the area that
you are clearly probing is that if the period of uncertainty is
not brought to an end very quickly, and if the Government does
not work out what it wants to do with the railway, our ability
to retain and attract the quality skills we are crying out for,
not least in engineering, will be severely impaired.
383. My second question, very quickly, is about
the West Coast Main Line. Mr Marshall, I was privileged to be
on this Committee and equally privileged to ask you the question,
you will recall. The question was if the Government did not agree
to pay Railtrack £4 billion in grant, free, gratis, would
West Coast Main Line go ahead? Your answerit is on recordwas
no, it would not. Now, given that we have got estimates of the
West Coast Main Line that vary from 6.3 to 7 billion, I have seen
10 billion, I would like to ask two questions. One, what is the
estimated cost today of the West Coast Main Line improvement and
given that the costs have escalated, whichever figure you come
down on, is it going to go ahead in administration and, if so,
(Mr Marshall) Perhaps if I could address the cost
issues and the latest position and then obviously the administrators
will comment on future funding.
384. Yes, perhaps you can talk about your estimates.
(Mr Marshall) We advised the market, along with many
other matters, in our full results in May that the latest estimate,
the updated estimate, for West Coast was £6.3 billion. We
also said that there were some significant commercial issues that
we needed to address with our key customers, not least Virgin,
and that they were matters that we needed to agree by negotiation.
The update cost of the £6.3 billion has not changed or we
would have advised the market accordingly. We were in the process,
immediately in the run up to the 5th October and the Government's
action, of discussing with Virgin and made some progress as to
how we might vary the West Coast agreement to de-risk and control
the cost because there were clearly significant cost risks that
we had flagged. Indeed, we were due to present those jointly as
options to the Department on Monday 8th October, clearly we never
got the chance. Now that we are where we are, and subject to the
administrator's comments on funding, clearly what we now need
to do is work with customers, with the SRA, now they are permitted
to be involved in the process, and see how we can take the project
forward in a sensible way.
Andrew Bennett: How much more money did you
want when you went to the Department?
385. Was that your final final estimate?
(Mr Marshall) What we had was a £6.3 billion
estimate but still the need to have sought to resolve those commercial
risks on areas such as journey times, whether 140 mile an hour
was the right solution or not. We had a package of options which
we had made progress with Virgin on which we were due to jointly
discuss with the Department on 8th October, we never got there.
We have to pick that up now and take it forward.
386. What was the price tag on them?
(Mr Marshall) There was not a price tag because what
it wasand it is commercially confidential so forgive me
for being deliberately slightly vaguewas a package of things
that would have included some compensation to customers who were
impacted and it was a package of things which would have reduced
certain specifications and adjusted certain journey times. That,
if you will forgive me, is why there is not a number. It was a
package of things to adjust the project.
387. Just forgive me, what was your original
estimate of that upgrade?
(Mr Marshall) Originally because thisa very
brief historywas a project conceived as part of the privatisation
packageGod help itit was then adjusted by a new
agreement that was signed in 1997.
388. I think we remember how we got there, Mr
Marshall, what was your original estimate?
(Mr Marshall) I was going to come immediately on to
that. The original estimate to my recall was of the order of £2.5
389. And your last estimate?
(Mr Marshall) The last estimate was £6.3.
390. You believe that the package you were going
to put to the Department was in itself negotiable, possibly upwards
as well as downwards?
(Mr Marshall) It was a package of measures that was
not just a cost issue, it was adjusting outputs.
391. The cost could have gone upwards or downwards?
(Mr Marshall) It could have been either but net was
unlikely to change.
392. The administrators have costs, what are
your estimated costs?
(Mr Rollings) We have been obviously looking through
the company's costs to date and that assessment is still underway.
The figure of £6.3 billion is a familiar one and that is
the number that has come through the costs to date.
393. Familiar in the sense we have heard it
(Mr Rollings) Familiar in the sense that, yes, it
is the most recent cost level. There are, as Mr Marshall has said,
clearly commercial risks attached to that because there are development
levels at which these things are priced and this has been priced
at a development level which is not, if you like, finally reached.
394. It could just drift a little, could it,
(Mr Rollings) I think it would be fair to say that
there is scope. I think that is what Mr Marshall has acknowledged.
395. There is scope for driving, yes, I think
that we have taken on board.
(Mr Marshall) As we set out in May.
Chairman: Oh, yes, we remember your evidence,
Mr Marshall. Indeed, we have committed it to heart.
396. Mr Marshall, do you feel your normal direct
style, as you put it, was actually a factor in the Government's
patience running out with Railtrack earlier this month?
(Mr Harding) I think Mr Marshall's style was not a
factor in that at all.
397. Do you feel it is helpful now for you to
be particularly public in your criticism of other aspects of the
Government's administration in helping Railtrack to get through
this difficult hiatus?
(Mr Marshall) I am unashamedly, if I can be frank,
wearing two hats. I am concerned, of course, at the way in which
shareholders have been treated, and may I say 90 per cent of our
employees is something that the Government one way or another
will have to address. But, my second hat, and the one I am going
to wear every single day for the next five and a half months,
is I am desperately concerned that the company and the industry
is able to hold itself together effectively while we have got
the uncertainty. I am also concerned that the solutions that appear
to be being set out by Government, sketchy as they are, are ill
thought out and I do think it is appropriate if I think that to
398. Can I ask a question of Mr Bloom. I hark
back to the time when Yorkshire Water failed to deliver its public
responsibility by not supplying the public in Yorkshire with water
and after a public inquiry undertaken by Professor Uff they only
came back round to create a company that actually addressed the
problem with a completely new board and management. Do you feel
that in the long term that is going to be necessary in order to
make any progress in New Track/Railtrack, whatever it is called
in the future?
(Mr Bloom) I think Railtrack and its successor company
are clearly only part of the solution here. I think what I would
have said in my closing remarks but I will say it now is that
I think in a strange way administration actually presents an opportunity
to get Railtrack positioned right going forward and in the context
of both the regulatory environment and the structure in the industry
which a lot of people have commented on in the past months and
years indeed. I think so far as the management team is concerned,
we already know we have to replace Steve Marshall as Chief Executive,
so we know we have got one major change to make there as well.
I think management teams constantly evolve over time and whatever
the structure is going forward it will have to have a strong and
robust management team to take it forward.
Chairman: I think the question was not about
individual executives, it was about the board of directors.
399. It was about public confidence which has
been shattered, basically. There is generally public approval
of the Government having acted to do something about that. It
does seem to me that your job is to help restore public confidence.
How do you propose to do that?
(Mr Bloom) We are working very hard indeed and with
the existing management team to keep business as usual so far
as the travelling public is concerned. Our commitment to safety
and our commitment to smooth running of the operation is absolutely
paramount. It is the number one priority for the administrators.
Indeed, the transfer, albeit absolutely critical to get into good
ownership going forward, is secondary. The paramount obligation
is to keep things running as smoothly, safely and properly as
we can. That is our absolute commitment.