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      "text": "On balance, L.E.K. would recommend a cash expenditure approach for the sharing of cost and revenue out/underperformance relative to a defined baseline (i.e. Options 1, 2 and 4) but this would require the baseline to be adjusted to reflect changes in renewals scope to the extent that these are not efficiency related",
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      "text": "ORR/ATOC/Network Rail. Rail industry cost and revenue sharing.",
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      "text": "The scope of the PR08 Efficiency Benefit Sharing Mechanism is: \"... all operating, maintenance and renewals expenditure and a number of revenue elements...\"",
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      "text": "As such, the current mechanism is based on cash expenditure rather than revenue requirement. The key difference between them relates to expenditure items that are capitalised (i.e. renewals and enhancements)",
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      "text": "revenue requirement: NR capitalises renewals and enhancements expenditure, adds this to its RAB and receives revenue to cover amortisation of the RAB and an allowed return on the RAB.",
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      "text": "cash expenditure: This is a good measure for the efficiency of delivery of a defined scope of work but is less suitable for changes in the scope of work.",
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      "text": "On balance, L.E.K. would recommend a cash expenditure approach for the sharing of cost and revenue out/underperformance relative to a defined baseline (i.e. Options 1, 2 and 4) but this would require the baseline to be adjusted to reflect changes in renewals scope to the extent that these are not efficiency related",
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      "text": "… all operating, maintenance and renewals expenditure and a number of revenue elements (variable track access charges associated with additional traffic, retail and property rental and schedule 4) … our efficiency benefit share mechanism does not cover enhancement projects … (ORR, PR08, paras 27.31 and 27.53)",
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      "text": "1 – Scope: Network Rail costs (1 of 6): L.E.K. would recommend a cash expenditure approach rather than a revenue requirement approach for Options 1,2 and 4. However this would require the baseline to be adjusted to reflect changes in renewals scope to the extent that these are not efficiency related",
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