A move to more outcome-based contracts would require a collaborative approach to build a better future, says Elaine Clarke, Rail Forum CEO

Back in the June issue we explored how SMEs could work collaboratively with clients. We focussed on innovation and the SME challenges that the Rail Forum has developed and that have helped to bring SMEs and clients together to solve real issues or problems. These challenges have been based around specific opportunities as identified by a client, or group of clients, and as we look forward we have been asking ourselves how could the process be improved for future challenges and what other learning can be derived from them.

Let’s start by looking back at the previous challenges, what have we learned and how could the process be improved for everyone involved? All the challenges we have run to date have been fairly broad with the problem being quite ‘loosely’ described. So, they have been somewhat all encompassing in nature, with clients perhaps seeking to give SMEs as ‘wide a remit’ as possible to work with. Whilst this approach has been well intentioned it could also be argued that it’s given clients too broad an overview of a wide range of potential products and solutions to issues they didn’t even know they had.

Whilst there is real value in this approach it doesn’t necessarily lend itself to focussing on a specific and targeted solution. It has also, perhaps, made it more difficult for SMEs to focus their responses to what the clients really need and can afford; financially and in terms of internal resources required to take ideas forward. Having listened to over 50 Dragons Den pitches some SMEs have struggled to articulate the benefits of their solution and demonstrate that they fully understand the needs of the client. There may be many reasons for this; lack of resource to fully address the opportunity or lack of understanding of the client and their actual need so really fine-tuning the problem statement to focus on what ‘good would look like’ would really help.

The learning point here is to encourage clients to be absolutely clear on what they are trying to achieve and to consider setting outcome-based challenges that SMEs can then respond to in a more focussed way. This would ensure best use of time and resources for both parties and should lead to suppliers being able to articulate clear benefits to the client.

This outcome-based approach for a specific issue or challenge is just as, if not more relevant, when we delve into the normal contracting world. Whilst there has been much talk in the industry about outcome-based specifications and contracts actual progress in this area is much less clear. I’ve recently heard someone say ‘outcome-based contracts don’t work for us, they don’t fit with the nature of what we need’.

I would challenge this assumption – outcome or performance-based contracts can work in many circumstances if specifiers and procurers could just put their minds to defining what success looks like and think a little bit differently. No one is saying it’s easy but it can make a significant difference and can drive valuable improvements. This different approach can reduce costs because the supplier is trusted to deliver what is needed in the way they choose to and in the most cost-effective way they can find; it can set higher standards because of the way deliverables are defined and managed whilst providing flexibility and freedom on ‘how’ to deliver the product or service rather than suppliers having to follow a very prescriptive input driven approach.

If we step back to take a wider more strategic view of where we are as an industry the outcome-based approach could have a really important role to play here too. We know the rail industry is faced with a complex set of challenges. Current government focus is firmly on the impact of the reduction in fare revenue as a result of changed ridership habits post Covid. The Department for Transport’s drive, along that with that of HM Treasury, is therefore on the need to reduce costs to close the gap between what it costs to run the railway and the income we receive through fares.

We constantly hear the mantra that people are not travelling as they used to, ridership is down etc. And we know that although in some geographical areas, and on some services, passengers have now bounced back to close to pre-pandemic levels journeys are ‘different’. More leisure travel, more weekend travel and so on. Whist I am not going to dispute the numbers, what is a concern is the fact that we, as an industry, don’t seem to be making the case for growth. Any ‘normal’ company faced by a challenging marketplace doesn’t just look at how it can reduce its costs it also looks at how it can do things differently, win more customers, more market share, develop new products or services to attract additional revenue and so on.

Government constantly says that it supports the railway and wants to see it grow. So, how about defining what GBR needs to achieve in terms of outcomes, rather than prescriptive inputs? This concept could be reflected in the licence conditions with specific outcome-based targets outside the licence but linked to specific timeframes. One particular area that there seems to be an opportunity to do this is in the rail freight market. The recent launch of a specific consultation by government looking at setting a growth target for freight could pave the way for this. This approach could be extended to consider for example customer satisfaction levels, modal shift to rail, costs per km for specific work and so on. What this approach also drives is collaboration. By establishing a culture of performance based on outcomes it can really encourage early and meaningful dialogue between clients and their suppliers leading to stronger more trusting relationships and better outcomes for everyone.

So, in summary, as we hopefully move to more outcome-based contracts collaboration should become more of a feature in client-supplier relationships.

But a word of caution. Collaboration isn’t a panacea for everything and it only works if organisations ‘want’ to work together and can gain mutual benefit from the relationship. Suppliers need to be allowed to make a reasonable return and profit – this encourages future investment in technology and skills. Hammering them down to an unrealistic price, stringing them along and then taking their good ideas to deliver inhouse or put into open tender situations won’t encourage the behaviours we need. An outcome-based approach that invites input from suppliers can support the right behaviours and we need more of it in rail.

Elaine Clarke is Chief Executive Officer of Rail Forum. She is also a member of the Rail Supply Group Council.