13 February 2009

Trains, jobs, spin and short-term tactics

Rightly the press are questioning the number of UK jobs that will be created by Agility Trains, the consortium that has been given preferred bidder status to provide a maximum of 1400 carriages for Network Rail.  See here for the history.  The outline of the announcement is best described in the FT here.

Iain Dale  has posted here and here and Lobbydog is on the right path on the jobs front.  I have given initial comments on these posts.  I have now looked into the matter further.  This procurement process rises serious concerns together with the employment issue.

I should add that I have 25 years experience in working in the UK rail industry.  I no longer do so and have no interest in this tendering process or contracts.

I should also add that there should be no criticism of Agility Trains (AT), the Hitachi consortium.  The issues are not of their making.

1. The specifications, as the FT suggests, were badly developed by DfT and in many ways unworkable.  The trains have to be a hybrid of diesel and electric so they work on both the East Coast Line and the Great Western;

2. AT provided the best technical solution, and apart from price, this is why they won.   Due to the bad specs, this will cause many contractual difficulties with possible consequent time delay and increased cost, which is entirely of DfT’s making;

3. Initially only 400-500 carriages will be built.  They will be manufactured outside the UK in Japan and elsewhere and assembled in the UK.  I understand that even if the full 1400 carriages are delivered, no manufacturing will take place in the UK;

5. The UK supply chain knock-on for jobs is a complete red herring.  Hitachi already have a global one.  More importantly it would break procurement rules to specify suppliers at this point;

4. The number of new UK jobs created could be very small.  Lobbydog says it will be between 200 to 500.  In fact it could be less during manufacture and assembly;

5. Hitachi, who supply the trains, will want to bring in their own senior staff.  There will be natural employee migration from the other UK train suppliers who have lost out.  How much is impossible to quantify at this time.  Therefore the number of new jobs could be very small;

6. John Laing will build the assembly plants and the maintenance depots.  How many new positions this will create is unknown at present and again there will be natural migration from other civil contractors;

7.  The new jobs that will be created will be for the long term maintenance of the trains.  This does not happen until 2013 at the earliest.  This number can be easily determined by rail experts but will not be in the thousands;

8. My understanding is that this is very important job for Hitachi’s strategy.  They will use this as a springboard for further contracts in the UK and Europe.  Only if they are awarded any further contracts will any manufacturing take place in the UK;

Remember AT have only preferred bidder status at present.  The dynamics of the eventual contact could well change, and there will be much political pressure for this to happen relative to where the trains are manufactured (this doubtful due to cost and risk) and on the job front.

It is understandable in the present climate for the Government to want to spin this story for all its worth, but to quote a figure of 12,500 jobs at this stage, for whatever reason, cannot be sustained.  To have quoted any number is not justified because, as I have argued, it cannot be proved.

Not only do we have pending contract using bad specifications, but an employment issue that could overtake the whole process.

The Government have created a huge issue that could have easily have been avoided.  They could have announced the preferred bidder yesterday without any reference to jobs and let the guess work on the numbers be done by others. 

The use of short-term tactics has backfired in spectacular fashion.

PS. I am happy to be corrected on any of the above points if there is a need to do so.

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  2. good run down Events. In fact I have a question.

    How 'reverasble' is this? Does having "preferred bidder" status mean either party can withdraw? Or would there be legal and financial obligations already? What needs to happen now to make it final and how long does it take?

  3. In principle either party can withdraw but it would be most unusual for this to happen. The client wants the contractor to get on with the works and the contractor wants the contract, etc.

    The "preferred" period is usually fairly short for this type of contract. In the main i's and t's to be crossed.

    What could stop the process is if either party changes the principles of the contract, which fundamentally alter the price. This could happen but again unlikely.

    The onus is for both parties to close this deal ASAP, which is when legal and financial obligations kick in.

  4. Thanks again, I'll be back with more questions soon!