Published 17th January 2013
Richard Brown, Chairman of Eurostar and a highly respected career railwayman has issued his report which was requested by the Secretary of State for Transport regarding the Department for Transport’s (DfT) mistakes in the InterCity West Coast franchise last year.
This award was the inaugural competition in the most extensive programme of franchising since privatisation and like the Laidlaw report, says that it is clear that significant errors were made by the DfT during the competition. This caused the cancellation of that franchise award at considerable public expense and halted the remaining franchising programme as it doubted the DfT’s ability to conduct it.
Mr Brown was asked to explore the wider implications of the Laidlaw Report and consider the National Audit Office (NAO) report at the same time.
He suggests that the complexity of rail franchising allows for endless tinkering to take place but that overall, the rail industry works, and that there is no credible case for major structural change. But, to allow real progress, a concerted effort is required on a significant but manageable number of key areas, from which lasting and tangible improvements will flow.
Possibly emphasising the Tim O’ Toole speech reported on this website, Richard Brown re-iterated that since privatisation, our railways carry 92% more passengers, more safely, on more and newer trains, more of which arrive punctually. Franchising is an important
component of the privatised industry structure, and it is highly unlikely that these successes could have been delivered if franchising was fundamentally flawed.
There have been a number of reviews over the years, the latest undertaken by this Government in 2010, summarised in the January 2011 paper ‘Reforming Rail Franchising’.
The Brown report looks at the key issues of appropriate risk allocation and incentives for
franchisees, and change mechanisms to ensure franchises can adapt to new opportunities and challenges. It tries to provide a blueprint for franchising for the next few years, taking account not just of the lessons from the ICWC competition but also from all of
our experience of franchising to date. He also says that it is very important that the franchising programme is restarted as soon as possible.
This is vital to realise savings outlined by the May 2011 McNulty Rail Value for Money
Study and to continue the massive rail investment where franchisees are both delivery partners and ‘customers’ for major infrastructure improvement schemes.
The temporary suspension of franchising has had a very negative impact on the industry’s supply chain as many downstream decisions hinge on new franchise awards, such as rolling stock upgrades and refurbishments.
It is equally important that as the programme is restarted, this is done at a pace that both the Department and the industry can sustain. It is clear that the key priority is for the
Department to rapidly strengthen its franchising organisation, including bringing in a number of senior, commercially experienced people. There is a sharp asymmetry between the experience and capability of bidders and that of the Department’s franchising teams.
The bidding process is not fundamentally flawed, but there is significant scope to improve it suggests Mr Brown. The Government should be clear about what it is seeking to ‘buy’ in a franchise – value for money and a partnership approach to developing and managing the franchise – and state its specific objectives for each competition. The bidding process should focus on these objectives and be further simplified to reduce unnecessary requirements and help reduce bidding costs.
The DfT’s organisation and franchising capability needs to be strengthened and the capability and experience of the franchising authority should match that of the bidders’ teams. The Franchise term should be determined by the circumstances and size of each individual franchise probably with a 7 to 10 year initial term with pre-contracted continuation, subject to agreed franchise criteria being met, for further terms of 3 to 5 years giving eventual terms of up to 15 years, but with intermediate break points.
Franchisees should only be responsible for risks they can manage and not expected to take external risks and a clear mechanism to adjust franchise premium/support payments triggered by variations in Gross Domestic Product and Central London Employment (CLE) growth rates for example. It is obvious to most people that the less risk you have to include in your bid, the bidder will incorporate lower profit margins giving better value to Government.
Bids should also be explicitly scored on their proposals for improving service quality for passengers and their approach to management. Their score should form part of the
evaluation process and Mr Brown’s report recommends that a weight of 20-40% (which
will vary depending on the nature of the franchise) should be attached to quality in the final evaluation.
The report proposes that further franchises are devolved to local control to the relevant Passenger Transport Executives (PTEs) or Integrated Transport Authorities (ITAs), in the regions, and that further devolution of services within London is actively considered. This is likely to affect the Northern and London Midland franchises in particular.
This may lead to the Mayor for London Boris Johnston to take over local rail services as he has previously suggested. In Liverpool, Merseyrail and Birmingham, Centro already specify rail services.