West Coast Main Line Franchise Extended Yet Again by the Government

Published 17th October 2012

UK - Virgin snatch temporary victory in West Coast debacle

The Department for Transport (DFT) proclaims that its purpose is to “provide strategic direction and to procure rail services”.

The last few months suggest that they would do well to change this statement on their website! Why should this be?

The announcement trickled out by the Government on October 14 and 15 means that Virgin will remain operating the West Coast Main Line (WCML) after their franchise ends on December 8.

This franchise had already been extended by seven months by the DfT because they delayed deciding about the introduction of new carriages for the Pendolino fleet.

Once the investigations have reported back to the DfT on the future shape of rail franchising, the extension end date will be agreed with Virgin. Then the next franchise will run for just two years while yet another competition will be held for a long term WCML franchise. Graciously the DfT have said that anyone can bid for the two year franchise.

Virgin and the DfT have denied that the temporary extension breaches EU law, but they would wouldn’t they!

Cards on table?

But this time, there would have been little real negotiating between Virgin and the DfT because the incumbent operator held all the cards. It takes a minimum of three months to transfer ownership of a franchise and the DfT had simply run out of time following Virgin’s legal challenge.

Therefore, Virgin will not have lost out financially on the deal as the Government had, in essence, nowhere else to turn. Their fully owned subsidiary, Directly Operated Railways had been mobilised to run trains from December 9 but the timescale was against them once it was established that the errors lay with the DfT.

Game of Monopoly

Virgin, like First Group, are very good negotiators, and both have outwitted the DfT in previous deals. This time, the worst possible business scenario reared its ugly head as it meant a monopoly was negotiating with another monopoly, in this case, the DfT and the incumbent train operator. Both knew that each other had no alternative competition so the question is, will anybody go to jail without passing go or will Virgin be funded by the community chest?

Virgin rollover

Virgin will make yet more millions from the Government in the railway lottery and taxpayers will pick up the tab.

To recap, the first time the franchise was renegotiated took place a decade ago when the WCML modernisation did not deliver the contractual promises. The franchise was operated on a management fee arrangement, probably repeated again for the next extension which will run between nine and 13 months.

What does this mean?

The Franchise improvements promised by First Group and Virgin will not be delivered because there will be no guaranteed financial return on them given the short termism of the new deal.

So station improvements and new train contracts will probably fall by the lineside while the hiatus remains unresolved. Businesses want certainty and this deal does not offer that in potentially multi-million pound deals that involve for example, a ten year train maintenance and operation lease.

National Rail train timetables are agreed a year in advance for logistics reasons. Therefore the promised timetable developments and resulting service improvements promised by bidders are unlikely to be delivered for another year, at least.

Fares development in so far as special offers may not be so beneficial to passengers because there will presumably little incentive for Virgin to grow the business, as was alleged by First Group in the war of words.

Trains will continue to operate, this will be the key priority for all concerned.

Taxpayers liability

The foregoing will combine to ramp up costs to taxpayers and by the time the proposed timetable for a revised franchise framework and resulting competition is resolved, it will be very near to the next General Election. Despite political assurances, this will most definitely be reflected in how any changes to how our railways are masterminded by the Government.

Government control of our railways

The Government continues to micro-manage our railways and most railway professionals realise that this is the worst solution. This leaves little room for innovation and for once, Network Rail is innocent!

Where does this leave the McNulty proposals?

The Sir Roy McNulty report was made 18 months ago with little progress reported. The establishment of The Rail Delivery Group was made to oversee the introduction of recommendations. It is headed up by Tim O’ Toole, who also leads First Group. It will be interesting to see what he does in this role given the recent upheavals!

They said:

Transport Secretary Patrick McLoughlin said:

The cancellation of the InterCity West Coast franchise is deeply regrettable and I apologise to the bidders involved and the taxpayer who have a right to expect better.

My priority now is to fix the problem and the first step is to take urgent action to ensure that on the 9 December services continue to run to the same standard and passengers are not affected.

I believe Virgin remaining as operator for a short period of time is the best way to do this and my officials and I will be working flat out to make this happen.”

On 3 October the previous competition to run trains on this line was cancelled following the discovery of significant technical flaws in the way the franchise process was conducted.

The department also paused the on-going franchise programme including live competitions on Essex Thameside, Great Western and Thameslink and set up two independent reviews into what went wrong with the West Coast competition and the wider DfT rail franchise programme.

Virgin Trains issued the following statement on 15 October 2012:

Our customers have made clear they want Virgin Trains to continue its excellent service and we now have the chance to deliver that and offer customers some short-term continuity.

We will now be working hard to make sure we continue to provide the service that has made us successful. Virgin Trains is grateful for the fantastic support from customers and staff over recent months.

Rail ramifications

The actions of the DfT mean that a wholesale review of how our railways are run will be undertaken led by Richard Brown, Chairman of Eurostar. The current contractually based matrix is unwieldy and one of the worst ways to operate a busy rail network.

Successive Governments have shied away from wholesale change which is why the cost to taxpayers and passengers is so high.

While the Government runs our railways but pretends it is a straight commercial relationship with franchisees, the system will not materially change.

For example, rolling stock orders are procured by the DfT, the IEP project is late and the Thameslink fleet procurement is running a year late, despite having a year’s slack built in to the timetable.

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