Events, or rather non-events, dear boy’, scupper the franchise replacement master plan
FRANCHISE REPLACEMENT
During an interview in 2016 Michael Gove famously remarked ‘I think that the people of this country have had enough of experts – from organisations with acronyms – saying that they know what is best and getting it consistently wrong, because these people – these people – are the same ones who got it consistently wrong’. This has been truncated into people having had enough of experts and it is experts getting it wrong that has progressively demolished Franchise Director Peter Wilkinson’s beautifully rational Rail Franchise Schedule since its first appearance in March 2013.
With the July 2017 version the Schedule reached its seventh iteration and the flash flood of announcements around the launch of Transport Secretary Chris Grayling’s ‘Strategic Vision for rail’ on 29 November 2017 presages the eighth edition early in the new year. I’ll start with the less controversial change.
PERPETUAL GWR
In the consultation document on the next Great Western franchise the Department for Transport notes that the current franchise expires on 31 March 2019 and observes that ‘this is not an ideal time to plan for a potential change of franchisee as it falls in the middle of a major programme of change, which is scheduled to be completed by December 2019’. So in this case the experts who are getting it wrong continue to be Network Rail. Back in September 2015, the length of the current GWR Direct Award franchise was timed to coincide with the completion of the Great Western Electrification Programme (GWEP) in March 2019. The new fleet of Inter-city Express Programme (IEP) trains would be delivered in parallel. Someone had some savvy in the Franchise Directorate because they allowed for a 13 reporting period extension to March 2020.
As subsequently reported in this column in real-time, despite the optimistic noises, GWEP and the parallel Great Western Route Modernisation (GWRM) have slipped back and back, not to mention the recent high profile deferrals and minor cancellations like Cardiff to Swansea. That said, currently, Paddington to Cardiff is expected to be wired for the January 2019 timetable, followed by Wootton Bassett Junction to Chippenham in March 2019.
In its December 2016 update of the Franchise Schedule, DfT assumed that the extension in the Direct Award would be implemented. With the replacement franchise scheduled to be taking over in April 2020, the Invitation to Tender was shown as being issued in February 2019 with contract award at the end of the year.
CONTINUITY
Confirming that it will indeed be exercising the 13-period option, DfT argues that ‘continuity of operator would help to ensure that new trains and timetable changes are implemented as smoothly as possible, and that disruption to passengers during the upgrade works is reduced’. But hang on, shouldn’t the upgrade all be done and dusted by early 2019, with Class 800s humming up and down under the shiny new Overhead Line Equipment? True, Crossrail, or, rather, the Elizabeth Line, will not start serving Reading until December 2019, but that is a minor distraction compared with what has been going on.
STILL NOT SURE ABOUT GWEP ‘
Despite the considerable effort that has been put into completing construction of the line between Maidenhead and Didcot, we consider that the December 2017 milestone remains at risk.’ Office of Rail & Road, Network Rail Monitor, December 2017
Now it gets more interesting. According to DfT: ‘We originally assumed that we would run a competition for a new, long-term franchise to start in April 2020 when the current franchise expires.
However, as we began our early preparations for the franchise competition, we identified a number of reasons why this would not be in the best long-term interests of passengers and communities served by the franchise’.
DfT then expands on the number of reasons why ‘maintaining continuity of franchise operator, for a further period of approximately two years, could enable a better long-term outcome for passengers’.
For a franchise starting in April 2020, bid preparation would be taking place ‘at a time of substantial change’. Bidders ‘would have no information about how these changes will affect passenger demand’. With Stagecoach’s current Inter-city East Coast travails in mind, DfT argues that such uncertainty could result in ‘cautious’ bids. Caution could be reflected in either less ambitious proposals for service enhancements or a lower bid price and a poorer deal for the taxpayer. In a rare case of empathy, DfT adds that, assuming FirstGroup wanted to retain the franchise, bidding could distract the incumbent ‘at a time when it is imperative for it to focus on ensuring that the complex changes during 2018 and 2019 are implemented successfully, with minimum disruption to passengers’. Again, note that complex changes are expected to run throughout 2019.
UNCERTAINTY
Suggesting that the paucity of detail in the Statement of Funds Available (‘Informed Sources’, December 2017) reflects a paucity of information, DfT points out that Network Rail’s infrastructure enhancement programme for 2019 onwards ‘is not yet settled’. ‘Further development work is needed on a number of important potential projects within the Great Western franchise area before decisions to proceed with those projects can be made’. Clearly the most important of these projects is Didcot to Oxford electrification, which is scheduled for completion sometime in Control Period 6 (CP6), probably later rather than sooner. With all these known unknowns, DfT argues that the specification for a franchise starting in 2020 would have to be based on the known infrastructure capability for April 2020. However, this could mean missing opportunities to secure train service enhancements in the rival bids. Once again VTEC refers. Deferring bidding by ‘approximately’ two years could allow time for decisions to be taken on future enhancement schemes which bidders could then include in their offers. This takes the start of the new franchise to 2022 -– year three of CP6. By which time, hopefully, we may even know whether wires will ever reach Bristol Temple Meads via Bath (Steady on! Ed).
LOCAL
Yet another reason for extending the Direct Award is the ‘significant number’ of potential enhancement schemes that are important locally, but may be difficult to prioritise amongst other national schemes in the early 2020s. According to my computer’s DfT euphemism converter, ‘prioritise’ is a synonym for ‘afford’.
DfT hopes that ‘where there is an appetite to identify local funding to introduce such schemes earlier’, the two-year extension could buy time for local scheme promoters’ proposals and funding packages for infrastructure enhancements in time to inform the service specification for the replacement franchise.
IRRATIONAL
Having shown its touchy feely side by protecting Mark Hopwood and his GWR team from the distraction of supporting the FirstGroup bid team while trying to run a changing railway, DfT then returns to type. As reported in ‘News Front’, the Consultation Document includes a proposal to split up the current franchise. DfT concedes that this would involve substantial preparatory work, such as reorganising the franchise into standalone business units, with separate workforces, train fleets and contracts with suppliers. Renegotiating the IEP contract would be fun.
With typical civil service understatement, DfT then observes that restructuring would also take substantial time to complete effectively, ‘especially to ensure meaningful discussions with the existing workforce and their representatives on the implications of a split’. Continuing for a further period with the current operator would allow time for this to take place.
With even greater understatement DfT adds that procurement of the two new replacement franchises would be helped if they could have already been split into ‘separate business units with an established trading record’. This is reflected in the approach to the replacement franchise.
TWO MORE YEARS
DfT will be ‘starting discussions’ with FirstGroup with the aim of negotiating terms for a further Direct Award agreement extending the GWR franchise for a further two years from April 2020. But, note, DfT also expects to include an option to extend the deal for a further period ‘of up to two years’. This, explains DfT, ‘provides flexibility to cater for circumstances that cannot be foreseen at this stage, and to adapt the franchising schedule to maintain a steady flow of competitions.
I suspect that the two-year extension, which would take the GWR franchise up April 2024, will only be needed should the decision to split the franchise go ahead.
It would also coincide with the end of CP6 and expose bidders to the same end-of-Control-Period uncertainty, called in aid by DfT to justify the current extension. But DfT warns that it is not ‘at this stage’ ruling out the possibility of running a competition for a new franchise to start in 2020. It will preserve the option to revert to a competition if substantial benefits for passengers cannot be negotiated with FirstGroup ‘at an acceptable price for taxpayers’. Really? I can just imagine FirstGroup CEO Tim O’Toole growling ‘Are you feeling lucky, punk?’
COMEDY OF ERRORS
All this raises an interesting thought. The Wolmar Question asked ‘What is franchising for?’ Table 1 suggests that given the complexity of the 21st century railway, we should be asking ‘has franchising had its day?’ First won the Great Western franchise in April 2006 for a term of seven years plus an optional three-year extension. The premium profile was just as sporty as that of National Express on the East Coast. But DfT had made some errors in the franchise agreement and First let them off in exchange for cap & collar revenue protection being brought forward by a year.
So when economic winter came, National Express East Coast got double pneumonia while First Great Western had a government thermal blanket. However, the premium profile in the optional three-year extension to the Great Western franchise was heavily back-end loaded, so First declined to implement the extension. Instead, DfT went out to tender for the replacement franchise, got that wrong and since then we have had a series of extensions and Direct Award franchises.
Thus, assuming agreement can be reached on the extension to 2022, First will have been running the Great and then Greater Western franchise for 16 years, most recently digging DfT out of a series of holes on rolling stock. Make that 18 if the extra two years is taken. Has this lack of competition worsened the lot of passengers? Not in my view. Has it seen the taxpayer short changed? Dunno, but in the absence of a counterfactual, probably not. Has stability through continuity ameliorated the chaos of GWEP? Most certainly.
So why not turn Great Western into a long-term, say 15 years, concession or management contract and forget the split? Yes this would give the Treasury conniptions, but the Treasury would like franchise replacement every five years on the grounds that only competition will keep train operators keen.
PEAK FRANCHISE?
So we are already well past ‘peak franchise’. The Transport Secretary’s enthusiasm for alliances and vertical integration can only hasten franchising’s demise. Unfortunately, DfT’s concept of an alliance as a form of Public Private Partnership (PPP) is the wrong way round. In the classic PPP or Private Finance Initiative (PFI), the private sector provides the assets that the public sector uses.
With a Grayling Alliance, the public sector, in the form of Network Rail, provides the assets on which the private sector depends to run its business. So however you look at it, the risk is with the private company. In the classic parallel of the chicken and pig setting up a café serving ham and eggs, the private operator is committed.
HAPPY PIGS
With the invasion of the UK franchising market by the European state railway subsidiaries such as Abellio and Arriva, an alliance with Network Rail becomes more comfortable, because neither partner can go broke. Meanwhile, after two decades of franchising the UK transport groups have got the thousand-yard stare and are increasingly reluctant to go over the parapet when DfT blows the whistle for a new franchise competition.
Where once Virgin complained about management contracts stifling commercial initiatives, with ridership softening, a management contract or concession is looking increasingly attractive. DfT assumes most of the revenue risk and you run the railway for a fee, with perhaps a share of any surplus. That this waning enthusiasm is reflected within DfT is confirmed by the Department’s approach to the Inter-city East Coast franchise described in the next item.
