Third-party rail investment in transport projects

Why would a scheme require third party investment?

The railway as a partnership between the public and private sectors has already delivered significant improvements and innovation (for example High Speed 1), but the scale and extent of this investment nationally needs to increase. We are in a very constrained economic environment and there is a move to reduce the burden of maintaining, upgrading, and operating the railway away from the taxpayer. By providing opportunities for third party and private developers to invest in the railway, we are taking steps to unlock the economic potential that the UK rail network can bring.

These increased opportunities for third party investment will bring about increased competition, which should drive down costs and allow for improvements in efficiency and innovation. Third party investment could take the form of either delivering, funding, or financing a railway development project. Each with different risks, opportunities and economic drivers. The un-tapped economic potential of development on land around and indeed above stations and railway lines brings enormous opportunity, albeit with a unique set of risks.

What are the benefits of investing in the railway?

There are a variety of benefits and opportunities for investors in the rail sector. On one side you have the commercial benefits for private companies of being connected to a world class railway from a return-on-investment perspective. For example, development of Rail Freight Terminals or connecting Ports to the network.

There is also a focus on how railways and stations can create or develop communities by unlocking residential and commercial opportunities through development. This poses a range of opportunities for investors not limited to housing, including opportunities to develop the area local to the railway, to improve community living overall. There are many examples of thriving social and community spaces built around railway stations. This “place-making” creates largely car-free spaces around transport hubs that are catalysts for local economic growth and regeneration. Railway stations as social hubs continue to have excellent community and commercial opportunity, for example at King’s Cross and there are ambitious plans for mixed use development at York Central.

There is also the focus on developing the Strategic Freight Network, enhancing, and increasing the numbers of strategic rail freight terminals, offering opportunities for investors to improve the network and speed up the transportation of goods around the country, in a more sustainable way.

On the other side, it could be a decision to improve passenger experience to benefit the local community, to provide access to employment or to reduce inequalities in a region where there are poor transport links. By enhancing the network from a private perspective, investors are generating benefits locally, and more widely, generating economic growth through rail investment.

There are some big schemes like TRU (Transpennine Route Upgrade Programme) with major investment focusing on the railway between York and Manchester and Northern Powerhouse Rail focusing on better connections between economic hubs in the North, and these offer their own set of opportunities for investors. But there is now limited funding nationally for rail enhancements and so there are increasing opportunities for local transport authorities or third-party developers who may want to invest in the railway.

Local Investment

Local authorities or PTE’s (Passenger Transport Executives – local government bodies responsible for public transport within large urban areas) can take these opportunities for a range of reasons but an example would be that they want to improve accessibility across their network. This can be done through interventions such as line extensions (increasing the reach of their network and allowing access to jobs) and improving accessibility through schemes, such as providing step-free access across the network. This has a real impact on communities. These investments enhance equality and create opportunities for communities and minority groups.

What is our experience of delivering projects with third party investment?

Projects with third party funding are one of our key areas of expertise particularly in rail, so we offer a full turnkey solution for third party investors from design, programme, and project management, cost consultancy, CDM and expert advisory services.

Our expertise covers the expanse of rail projects, whether it’s on a smaller scale delivering a new station building, delivering station enhancements or large carparks, to accessibility schemes where we would be putting in new footbridges or subways, right through to large schemes offering third party investment as part of programmes like TRU and reopening your railways.

How does a project with third party delivery differ from one without?

A third-party delivered project needs to be integrated with Network Rail. It’s a high risk, highly regulated environment, which has often been seen as difficult to enter, as it has been seen to have lots of barriers for outside parties to overcome in order to be involved. Network Rail has made a move to be more open to third party investment, so there are new ways for third party investors to work with them.

There are some services that only Network Rail can deliver, and Network Rail will offer that service through asset protection. But there are a lot more contestable services becoming available (activities that could be done by Network Rail but can now be delivered by third parties.) This offers a “light touch” approach from Network Rail and is less limiting for investors.

Contestable Services

Contestable services are a way for other organisations to be involved in railway projects – the benefits of these services for TOC’s is that they are creating channels for:

• Increased innovation
• Efficiency
• Opportunities for new ideas
• A reduction in cost
• A move to increase the number of their suppliers
• Positively impacting local businesses and communities
• Supporting economic growth

Castleford Station Project is an example of our work with contestable services.

Services Provided: Quantity Surveying and Principal Designer

Description: Where West Yorkshire Combined Authority delivered a series of station upgrades on the station through Northern as the delivery agent. Network Rail were retained through the ASPRO process to advise and guide on certain elements, but this process works well with Northern’s ability and reputation to deliver projects. This process not only provides third party investors with alternatives, but actually increases the railway industry’s capacity to deliver schemes and overall deliver investment and modernisation quicker.

How do we approach a project with third party investment?

Whether being delivered by a third party or by Network Rail, we still maintain the same principles of:

• Maintaining safety
• Ensuring quality
• Value for money

Our experience means we make sure we are operating within all required regulations and Network Rails standards and we’re maintaining quality and safety throughout the programme.

What are the risks for investors?

Working next to an operational railway is very challenging and a potentially risky environment and you need expert advice to navigate those barriers. Partnering with the right team is critical to the success of projects, but particularly critical in a project of this kind where there are specific risks and high levels of regulation.

Why is Vextrix the right team for this type of project?

We are experts at working with third party developers or delivery agents and partnering with delivery agents, both private and public to get work done on the railway. Our experience means we’ve got a deep understanding of the asset protection process, of the types of agreements that are required, of the risks and legal implications of the work, and a full lifecycle view of these types of projects. From feasibility, funding, business cases, right through to construction and hand back.

How does Vextrix operating as an SME assist these projects?

We take a partnering approach to the delivery of all our projects so that means in this case, even if the client has very little rail experience or doesn’t quite know what they want, we can help them to shape this into a valid investment project. We provide cost support, project management support, design, leadership and manage that whole interface without the client needing to grow a large development team behind them.

At the same time, we’re an SME so we’re agile, we don’t add large amounts of costs, we have a particular delivery model, we become partners with our clients without creating a large overhead for them. This value for money could be for the taxpayer or for a private investor, we approach all our projects in the same way.

To discuss your project with our professional team, contact bgillespie@vextrix.com