Cementing Britain's train-making industry
by ManMohan S. Sodhi
12 September 2011
What are the options for industry and government following the controversial decision to award the Thameslink contract to Siemens?
The British government finds itself on the horns of a dilemma. On one horn, to retract the earlier decision to go with Siemens on a £1.4 billion, 1,200 carriage-contract for Thameslink and keep jobs in Derby's plant - owned by Canadian Bombardier - but risk retaliation and loss of reputation for a protectionist move against an EU manufacturer. Or on the other horn, to stick with the decision already made. Fortunately, a solution can, and possibly has been, found that is better than the morass of the status quo.
When the Thameslink carriage contract came through the tendering process, there was high hope that it would go to the Canadian company for building the carriages - at its Derby plant, the last such operation in the UK. The elimination of French manufacturer Alstom earlier in the process boosted this hope. In the end, though, given the objectives of the process - it was the German maker Siemens that made the cut, with the ensuing brouhaha. While the Prime Minister David Cameron has stuck to his guns not to revoke the award to Siemens, others in the government and his party have made their displeasure public.
Bombardier reacted to the decision by saying they would shut down the Derby plant, leading to not only a loss of 1,600 jobs - but also completely ending Britain's capability to make trains or carriages in the future. Derby's Conservative leader councillor Philip Hickson made the case clearly and compellingly: "I do not think the government has grasped the widespread anger in the city and in the country as a whole. This is the last train manufacturing company in the country. And if it goes - in the future - every train, every tram, every underground train will have to be imported. That can't be right."
There has since been humming and hawing about revoking the decision despite the Prime Minister's unequivocal stance. Can the decision really be revoked even though European Union rules forbid discrimination against a manufacturer on domestic considerations? Transport Secretary Philip Hammond has stated that the Department for Transport had the legal right to scrap the award to Siemens. Indeed, there are precedents. In 2008, the US Department of Defence revoked its award to EADS/Northrup Grumman for the aerial refueling tanker aircraft in favour of Boeing - buckling under political pressure despite Boeing having been found as improperly offering jobs to decision-makers and their family members, to influence contract awards.
But revoking the award may not be wise and the Transport Secretary has hinted as much; EADS did not even protest the decision as the US is a large buyer and there will be other opportunities. But the UK may not fare so well in Europe by what would have been seen as discrimination against an EU manufacturer and that too in favour of a Canadian one. Still, the situation is not hopeless for the government or for the UK train-making industry. The government can use the present confusion to its advantage by negotiating with Siemens and Bombardier to keep the focus on preserving Britain's capability to manufacture and, therefore, on the Derby plant - rather than on any particular manufacturer.
There are three approaches the government can take. Firstly, persuade Siemens to use Bombardier as sub-contractor in the manufacture of carriages - in Derby - with the quality and cost resting with the Siemens as per the tender terms. This could also bring German capability and quality to British manufacturing. Second, persuade Bombardier to sell the Derby plant to Siemens for £1 - which would be a lot better than losing money to close the plant and persuade Siemens to use the plant. Ditto on German capability and quality. Lastly, promise extra consideration to Bombardier for future contacts as with the upcoming £16bn Crossrail contract - more than ten times the value of the Thameslink project.
The recent delay of the Crossrail tender hints that the third approach is the one the government is pursuing, but this may also open up the first two and encourages discussion between Bombardier and Siemens as regards the future of the ownership of the Derby plant. The dilemma would transfer to the companies as the marshmallow test: eat one now, or wait and then eat two contracts.
Professor ManMohan S. Sodhi works out of the Cass Business School at City University London and the Munjal Global Manufacturing Institute at the Indian School of Business
The British government finds itself on the horns of a dilemma. On one horn, to retract the earlier decision to go with Siemens on a £1.4 billion, 1,200 carriage-contract for Thameslink and keep jobs in Derby's plant - owned by Canadian Bombardier - but risk retaliation and loss of reputation for a protectionist move against an EU manufacturer. Or on the other horn, to stick with the decision already made. Fortunately, a solution can, and possibly has been, found that is better than the morass of the status quo.
When the Thameslink carriage contract came through the tendering process, there was high hope that it would go to the Canadian company for building the carriages - at its Derby plant, the last such operation in the UK. The elimination of French manufacturer Alstom earlier in the process boosted this hope. In the end, though, given the objectives of the process - it was the German maker Siemens that made the cut, with the ensuing brouhaha. While the Prime Minister David Cameron has stuck to his guns not to revoke the award to Siemens, others in the government and his party have made their displeasure public.
Bombardier reacted to the decision by saying they would shut down the Derby plant, leading to not only a loss of 1,600 jobs - but also completely ending Britain's capability to make trains or carriages in the future. Derby's Conservative leader councillor Philip Hickson made the case clearly and compellingly: "I do not think the government has grasped the widespread anger in the city and in the country as a whole. This is the last train manufacturing company in the country. And if it goes - in the future - every train, every tram, every underground train will have to be imported. That can't be right."
There has since been humming and hawing about revoking the decision despite the Prime Minister's unequivocal stance. Can the decision really be revoked even though European Union rules forbid discrimination against a manufacturer on domestic considerations? Transport Secretary Philip Hammond has stated that the Department for Transport had the legal right to scrap the award to Siemens. Indeed, there are precedents. In 2008, the US Department of Defence revoked its award to EADS/Northrup Grumman for the aerial refueling tanker aircraft in favour of Boeing - buckling under political pressure despite Boeing having been found as improperly offering jobs to decision-makers and their family members, to influence contract awards.
But revoking the award may not be wise and the Transport Secretary has hinted as much; EADS did not even protest the decision as the US is a large buyer and there will be other opportunities. But the UK may not fare so well in Europe by what would have been seen as discrimination against an EU manufacturer and that too in favour of a Canadian one. Still, the situation is not hopeless for the government or for the UK train-making industry. The government can use the present confusion to its advantage by negotiating with Siemens and Bombardier to keep the focus on preserving Britain's capability to manufacture and, therefore, on the Derby plant - rather than on any particular manufacturer.
There are three approaches the government can take. Firstly, persuade Siemens to use Bombardier as sub-contractor in the manufacture of carriages - in Derby - with the quality and cost resting with the Siemens as per the tender terms. This could also bring German capability and quality to British manufacturing. Second, persuade Bombardier to sell the Derby plant to Siemens for £1 - which would be a lot better than losing money to close the plant and persuade Siemens to use the plant. Ditto on German capability and quality. Lastly, promise extra consideration to Bombardier for future contacts as with the upcoming £16bn Crossrail contract - more than ten times the value of the Thameslink project.
The recent delay of the Crossrail tender hints that the third approach is the one the government is pursuing, but this may also open up the first two and encourages discussion between Bombardier and Siemens as regards the future of the ownership of the Derby plant. The dilemma would transfer to the companies as the marshmallow test: eat one now, or wait and then eat two contracts.
Professor ManMohan S. Sodhi works out of the Cass Business School at City University London and the Munjal Global Manufacturing Institute at the Indian School of Business
COMMENTS
It's a myth that German products are higher quality, I have worked for two high tech German companies and the rubbish that was pushed out of the door it was unbelievable, I also bought an expensive German bottle opener costing me £50 and it fell apart just after one year,
Mr jones - Oxford
