Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 440 - 459)

WEDNESDAY 31 OCTOBER 2001

MR STEVE MARSHALL, MR DAVID HARDING, MR ALAN BLOOM AND MR MICHAEL ROLLINGS

  440. You got your figures wrong and you then decided you could not continue with your own estimates?
  (Mr Marshall) No, no that really is unfair. If you will permit me to explain.

  441. I would never dream of being unfair, Mr Marshall. I am trying to work out whose figures were they?
  (Mr Marshall) They were priced by Railtrack.

  442. Yes.
  (Mr Marshall) If I can be absolutely clear.

  443. Please.
  (Mr Marshall) The reality with rail projects, and it is going to be as much an issue for Railtrack's successor and who is picking up the risk as it has been in the past, is entirely dependent on what stage of evolution that feasibility study of the project has got to.

  444. What stage of evolution the project has got to?
  (Mr Marshall) Yes.

  445. Therefore your figures could be wholly wrong because the project is evolving?
  (Mr Marshall) Because it is too early to price it accurately, absolutely.

  446. Why did you then price it? Is this unusual? Do people not normally give prices at the beginning of a project and make at least a wild stab at staying somewhere near them?
  (Mr Marshall) You make a wild stab early on because everybody wants a wild stab and as you do your pre-feasability level, you define the scope of a project. You then do a full feasibility. You talk with your client or your funder constantly as you are going through that process. The reality is until you have got the scope up and down, and you have probably spent about ten per cent of the cost of the project, nobody in their right mind would go on risk and price it and say "This is the final price, this is what will be the project".

  447. So no-one should take any of your prices seriously at the beginning of a project?
  (Mr Marshall) They should not take anyone's guesstimates at the beginning of a project seriously.

Mr O'Brien

  448. Mr Marshall, is it true that at the beginning of this year you did say that the cost of the East Coast Main Line had increased by nearly 100 per cent in some of the instances? Now this is a point the Chairman was making. Here we have got a situation that an estimate was made and then within a short period of time it had increased by 100 per cent. Is that a fact? Is that something that did happen?
  (Mr Marshall) Firstly, it is not a fact at all.

Chairman

  449. What was the increase?
  (Mr Marshall) The underlying increase—and you will recall perhaps that the SRA came out with the statement two weeks after that assertion had been made—was less than 20 per cent, that is a fact. The second point, if I may, because it is relevant, is that the Rail Regulator, not known as a soft touch, himself has come out in his regulatory framework and said that no project that Railtrack enters into should go on risk, priced as we were calling it, until it gets to level five which is the point I was suggesting to you, a full feasibility study, the scope nailed down and at that point one goes on risk to the customer.

Mr O'Brien

  450. Would it be fair to say that with the reports that we have got—and this was on 1st May this year—that some of the estimates had increased by 100 per cent, that Railtrack said they could not handle the improvements and the work required on the East Coast Main Line, that there was this question of facilities for passengers which were being withdrawn or reduced, would it be fair to say, Mr Marshall, with that scenario that the Secretary of State was right to say Railtrack had got it wrong and that he wanted to make sure the business went ahead in the best interests of the travelling public?
  (Mr Marshall) You are tempting me to get into areas which I suspect Madam Chairman will prevent me from getting into but if I could respond in shorthand. Firstly, whatever the merits and views about the future of the industry, the way the Secretary of State choked Railtrack by his own actions is unforgivable and will have a huge cost to the public purse in the ability to raise public finance.

  451. Are we not saying then that the way that Railtrack handled the East Coast Main Line development was unforgivable?
  (Mr Marshall) It certainly is not unforgivable. The fact is that Railtrack itself, when nobody else was prepared to fund it, took the initiative and launched phase one.

Chairman

  452. What was your function, Mr Marshall, if not to find upgrades of railway systems?
  (Mr Marshall) It was and, indeed, that is why —

  453. Clearly it is hardly relevant to say that no-one else was prepared to undertake that task?
  (Mr Marshall) No, forgive me, we went ahead without funding sponsorship. At the end of the day Railtrack can only borrow and fund if at some point it is going to get a return on the scheme. The point I am making is that we went ahead.

Mr Stevenson

  454. On this point about Railtrack's responsibilities here. I put to you earlier on, Mr Marshall, West Coast Main Line, you gave evidence to this Committee, quite clearly in your blunt fashion, very much appreciated that if the Government did not come forward with a £4 billion grant for the West Coast Main Line, which you were committed to, it would not go ahead. You have walked away from the East Coast Main Line, you have been kicked out of the Channel Tunnel phase two, what major project have you actually done without saying to the Government "We want you to pay for it"?
  (Mr Marshall) Firstly, we were not kicked out of phase two of the Channel Tunnel Rail Link at all, we chose not to exercise our option. Secondly, the fact is that no private company can fund upgrades without being paid. If one looks at the West Coast Main Line, £4 billion of the £6.3 is renewal of the network that is already there.

  455. We are going to get stopped here but I think the Committee does really want this clarified. You are making the point, which you consider to be valid, that really it has been Government that has choked you off, it has been the Treasury that has done this business and all the rest of it, when the reality is that West Coast Main Line would not go ahead—and it was not £6.3 when there was £4 billion, it was 5.8, you then shoved it up to 6.3—unless the public purse paid for it. The question I am asking is—to try to put this in context—which major project have Railtrack been responsible for that has not actually involved the Government, the public purse, paying for it? Which one? Tell me one.
  (Mr Marshall) Absolutely none. If I may explain why, without any embarrassment. The fact is that no major projects in the rail industry are commercially viable.

Mr Donohoe

  456. No private money at all?
  (Mr Marshall) It does not matter whether it is British Rail or Railtrack or son of Railtrack, private money and raising on the debt markets, as Railtrack has done, £4 billion debt on the debt markets helps but the reality is, and particularly with the renewal of the core network which is two thirds of any major upgrade you choose, that has to come via the regulator because the railway commercially does not pay its way.

  Mr Stevenson: That is very helpful.

  Mr O'Brien: A question to Mr Bloom. The three phases which have been referred to for the East Coast Main Line, the three phases that Railtrack is reported as saying they could not handle, has that been identified with any of the business or research that you have taken over from Railtrack?

Chairman

  457. Is that part of your continuing programme, Mr Rollings?
  (Mr Rollings) It is indeed, yes.

  458. Are you looking at these figures?
  (Mr Rollings) Yes, we are looking at them but there is not much progress on that as we speak. I cannot give you anything today.

Mr O'Brien

  459. Could you let us have a note on that because after all said and done the East Coast is important and the West Coast is important. We have been told that Railtrack could not handle these three phases. I want to know what is happening and what the estimated cost will be? I wonder if you could let us have some information on that.
  (Mr Bloom) Yes.


 
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