Brown found “a sharp asymmetry between the experience and capability of bidders and that of the Department’s franchising teams”. Among his recommendations were:
- Franchise terms of 7-10 years with three- to five-year extensions subject to criteria being met, to achieve the right balance between limiting the inherent risk of longer projections and a reasonable payback period.
- Refined residual value mechanisms to encourage investment.
- A reduction in the exogenous risks franchisees are expected to bear.
- Simple profit-sharing mechanism.
- Transparent capital requirements that provide reasonable protection for Government.
- Scoring to reflect passenger benefits.
- A greater role for regional authorities in ITT specifications.
- More flexible change mechanisms.
- A partnership approach between DfT and the franchisee, based on a franchise management capability that matches the letting process.
- Franchise competitions should follow a 24-month timetable.
- No more than three to four franchises a year should be awarded.
Brown also expressed concern over various aspects of the process: the optimism of some franchises in their forecasts; tighter franchise specifications; the trend towards fewer, larger franchises; and the scale of capital requirements for them. Moreover, the desire to eliminate entirely any risk of franchisee default came at a cost to the Government, especially when the franchisee has to factor in substantial disruption through modernisation work.
The DfT addressed its structural shortcomings by establishing a Passenger Services team to focus on franchise letting and management, and by creating a Franchising Director who works closely with the ministerial team. A number of ‘Direct Awards’ were made to incumbent operators during the hiatus in the franchising process. And the DfT set up an Integrated Delivery Directorate to manage the interdependencies between franchisees, infrastructure work and allocation of trains.
But have the reforms within the DfT been sufficient? Not according to the House of Commons Public Accounts Committee (PAC), which in February 2016 found there were “still gaps in its ability to… manage the contracts effectively. Furthermore, the Department has not yet developed the partnerships with operators that are required to support innovation, improve efficiency and improve services for passengers.”
POST-DEBACLE FRANCHISES
In only one year since privatisation has passenger growth dipped, and the 129.8% increase has encouraged more ambitious ITTs and responses to them.
Gales rather than winds of change were evident in the competition for the ScotRail franchise from April 2015, in the way it elevated passenger needs and experience and reduced somewhat the focus on subsidy. Transport Scotland’s ITT was seen as ground-breaking in addressing structural shortcomings such as unaligned incentives between TOC and NR, in giving higher scores for qualitative benefits, and in looking for outcomes to stimulate economic activity generally and tourism especially.
Subsequent franchises have all offered far more than the ITTs required. Rail North and Transport for the North both had an input into the ITTs for the TransPennine Express (TPE) and Northern franchises, which both began in April 2016.
Arriva Rail North (owned by Deutsche Bahn) has promised investment of £1 billion with full refurbishment of the existing fleet, 281 new electric and diesel carriages, the removal of Pacers within three years, and 2,000 additional services per week - a 12% increase across the network and 37% in peak-time capacity. Timings on newly branded Northern Connect services on 12 routes will be accelerated.
Staff will be provided at 45 currently unstaffed stations, and 243 stations will receive ticket-buying facilities. Refurbishment of 355 stations will include better information, security and video help points. Northern’s long-standing partnerships with community rail groups are being continued, and the subsidy will be reduced by £140 million over the nine years to 2025.
First TransPennine Express is investing £500m, acquiring 220 new carriages in 44 five-car sets costing £400m as well as refurbishing its Class 185s. A new Liverpool-Preston-Glasgow service will start in December 2018, and the Liverpool-Leeds-Newcastle will be extended to Morpeth and Edinburgh from December 2019. Peak-time capacity will increase by 80%.
TPE’s 19 stations will have £18m spent on improved facilities, while ticketing initiatives include discounted fares for young job-seekers and groups, paperless ticketing and integration with smartcards. The franchise moves from being subsidised to paying a premium of £303m.
But both these franchises will already require modification, given slippage in the electrification schemes on which assumptions were made about their impact on revenue.
The most recent franchise is even more ambitious. In its successful bid for East Anglia, Abellio has committed to replacing the entire fleet - the first time such a commitment has been made by a franchisee.
Starting in October 2016, the nine-year franchise envisages delivery of 1,043 new vehicles between January 2019 and September 2020. Bombardier is to be awarded a £900m contract, financed by Angel Trains, for the supply of 665 Aventra EMU cars from its Derby facility. And Stadler is to enter the British main line passenger rolling stock market for the first time, with a planned order for 378 FLIRT electro-diesel and EMU cars.
Abellio will at least be able to hit the ground running, as it is the present incumbent. And although it is refurbishing some of the fleet before the new arrivals, it will only gain the ‘new trains’ uplift from 2019-20.
