Does the appointment of Bombardier’s Dr Francis Paonessa signal switch to so-called "factory thinking" at rail operator, asks Jackie Whitelaw?

It would be fair to say that a few eyebrows were seen to rise this week following announcement by Network Rail that Bombardier Transportation UK managing director Dr Francis Paonessa was to replace Simon Kirby to run its £25bn programme of enhancements and renewals. Could it be seen as a hint that the rail operator is considering an overhaul of some of its traditional construction industry habits?

Paonessa has a background in manufacturing. His is the third top level appointment at the business to go to someone whose skills are more akin to production line delivery of products and infrastructure than traditional construction - the company’s new(ish) chairman Richard Parry-Jones is a graduate of the Ford Motor Company and its new chief executive Mark Carne had a career in the world of oil and gas with Shell and BP.

Paonessa – a mechanical engineer with a PhD in fluid mechanics – ran Vosper Thorneycroft’s shipbuilding facility before joining Bombardier in 2010 as president of UK rolling stock and being promoted to MD of the whole UK transportation business earlier this year.

Skills in managing businesses whose backbone requires direct relationships with multiple SMEs is clearly what is currently required as Network Rail inevitably reassesses any automatic use of main contractors to carry out this function.

It is a process already being rolled oiut in the water sector. For the next AMP 6 spending cycle we see water firms increasingly focused on so-called “factory thinking” – the process of picking up common items needed across multiple projects and asking the supply chain to design them to a cost. This effectively bypasses and so removes the cost of Tier One contracting and consultancy suppliers.

"Transactional costs have been estimated to make up 50% of the final price of infrastructure investment"

London Underground is also heading down this path. This week it appointed a number of SME contractors and three designers to work directly with it on the upgrade of 70 stations; with no Tier One contractors in the chain (see story).

The biggest challenge for infrastructure operators now – with affordability for consumers so much to the fore -  is to take cost out of constructing and maintaining their assets.

And while there is of course no suggestion that Tier 1 contractors would ever be ruled out entirely, it is a fact that clients are increasingly seeking ways to shift to more innovative procurement.

Transactional costs created by traditional construction arrangements with multiple contracts managed by Tier One companies, while allowing the client to pass on risk, have been estimated to make up 50% of the final price of infrastructure investment. And lowest cost tendering has totally stifled the innovation required from the supply chain to increase efficiency and cut costs. 

Network Rail’s appointment of Paonessa is being seen by many as a sign that it too is determined to introduce fresh ways of thinking.

“It is no surprise to me that when recruiting to deliver infrastructure you would choose someone with a background in manufacturing,” said one industry expert. “They have a clear idea of the production system needed to make something in the most efficient way.”

At Bombardier, Paonessa successfully managed a range of large scale, complex projects and led a major culture change programme. He achieved a significant increase in productivity across the business and led his teams to win orders with Southern Railways and TfL. The latest was the £1.3bn award to provide the trains and a depot for Crossrail – a major boost for the business after it lost out to Siemens on providing trains for Thameslink.

Paonessa and his team argued for and won £20m of investment from the parent company for a new rolling stock platform to form the backbone of the Crossrail bid. Then he and his 100 strong team spoke to train operators and rolling stock owners to find out what they wanted from new trains. The result was a modular product that could be easily adapted for differing needs.

It would be fair to expect more along these lines when Paonessa joins Network Rail in July.