Franchising and structure bound to be questioned

The chaos over the West Coast bids is a direct result of the process and is bound to raise much wider questions over franchising and indeed the structure of the governance of the railways. The problem with the process arose because the civil servants concerned are, necessarily, separated from the rest of the Department while they undertake assessment of bids. That means their decision making process does not really come under scrutiny until, as is clear, it is too late. Ministers get presented with anonymised bids and select from them – tho one suspects they may guess which company each one represents.

The extent of this catastrophe though is breathtaking. The whole rail industry is now apparently put on hold while a review of the process takes place. This is bound to lead to much external – if not internal – questioning of the franchise process and searches for the answer to the Wolmar question, ‘what is franchising for?’ Given this debacle has cost at least £40m as the bid costs will be reimbursed, and that now another similar sum will have to be spent and that the operation on not only the West Coast but many other lines will be disrupted by the delays and uncertainty, it would be unthinkable that there will not be wider questions about the operation of the railways.

It will also highlight the need for a body separate from the Department to run the railways. The abolition of the Strategic Rail Authority always seemed a strange decision given that it made the Department into the ministry for railways, giving unprecedented power to civil servants to run and make strategic decisions over them. The folly of that has now been exposed. Civil servants come and go, and are deliberately trained to be generalists, while the railways need specialists. They also need stability rather than ministers who come and go at the whim of the Prime Minister. It is all too obvious that the way that the Department has been treated as a dumping ground for ministers on the way up or down is also part of the problem.

There is a lot more to this than simply a one off debacle. It is a result of the structural mistakes made over years and therefore the review needs to be comprehensive. And one last point. This has clearly been known about for quite a few days – one suspects a bit of news management in releasing it to try to move attention away from Milliband’s performance at party conference. Dirty business politics.

 

  • RapidAssistant

    How many “comprehensive” reviews though do we need? We’ve had McNulty – which was a damp squib, and these reports always seems to arrive at the same thing – all full of generalistic hocus pocus about costs needing to be reduced, for train and infrastructure operators to work together better and so it goes on. The obvious solution – abandoning franchising and going back to full re-integration (note that I haven’t said either “renationalisation” or “British Rail”) will no doubt get dismissed due to the continued infatuation with the free market and competition. Which is simply unworkable in the context of a public service like the railways as we all know. Wake up and smell the coffee, ministers!!
    Now that the WCML franchising process is now back in the stocks again, the next question is what happens after December 9th?? It’s a different scenario this time around – previous franchise collapses came about because either the government pulled the plug, or the operator walked away, hence there was no option but a temporary publicly run franchise. Here it’s different, as Virgin still wants to run the line – and from a political standpoint, Patrick McLoughlin’s rants a few weeks ago about setting up another public TOC because of Virgin “sour grapes” look irrelevant now that DFT has a copious amount of egg on its face.
    On the whole though, regardless of what the final outcome is – it’s one very sorry and expensive mess.
    Opinions anyone?

  • The inability of successive governments to make sensible decisions about our national transport infrastructure (for all transport modes) is quite breathtaking. It’s not rocket science, and other countries have managed to build useful and sustainable transport systems. The UK used to lead the world in transport matters, but in the last decades we’ve completely lost the plot.

  • ironhorse

    Let’s hope that this leads to the abandonment of the very flawed, wasteful and inefficient system of providing our rail services via franchising which has been a shambles from the beginning and replace it with re-integration of the various functions. Stand back and make way for another fudge!

  • ironhorse

    Amen to all that, Christian, except your last point. Rather than managing to deflect attention from Miliband’s speech this story magnificently reinforces what he said yesterday when describing the government as an “incompetent, out-of-touch, U-turning, make-it-up-as-you-go-along, miserable shower”.

  • yokels

    I noted it was announced at midnight which seems a strange time for government ministers to be up.

    Yep, the McNulty review i didn’t think addressed the structural issues with the railway, it was a ‘lets dig a deeper hole and tinker around the edges’ response. I read some of it and to be honest he gave the impression he didnt really understand the railways that well. It was not really incisive.

    I appreciate that bids have to be reviewed independently and rigorously but a glance at Firsts growth and revenue figures just said “fishy”. Due diligence? I am not an accountant and I thought their growth figure were, er, pish. Roger Fords graphs this month were instructive.

    Christian is spot on, management of the railways should be moved as far away as possible from the DofT. Rolling stock acquisition- disaster.
    White papers- Biofuels are the future. Er actually electrification might be a good idea after all.
    Oh dear, I despair.

  • The choice of structure is essentially political, but I don’t buy the ‘isolated’ bureaucracy beavering away in isolation. With accountants and lawyers crawling all over – not to mention senior (well-paid at least) directors, and even economists to advise on assumptions, and model – this didn’t screw up in telecoms, though there were market failures. And the thrust of the blame as being a political one is laughable – unless of course you followed Christian’s punditry in sound-bite at noon on Radio 4 News – which actually contradicted his post here.

    Failed
    Rail Franchising – the late results in full:

    GNER, National Express
    Northeast, Connex Southeastern makes a good 3 Failures down to Labour!
    An Omni-offtrack Shambles?

    West Coast Main Line (new franchise stopped)
    – 1 down to the bureaucrats so far.

    and from nearly 7 years ago

    Watchdog probes Connex franchise failings

    By Craig Hoy – 2nd December 2005

    Lessons must be learned from the failed Connex South Eastern rail franchise, parliament’s spending watchdog has said.

    In a report published on Friday, the National Audit Office warns that
    the early termination of the franchise operating over East Sussex and
    South East London illustrated deeper flaws in the process of awarding
    contracts.

    http://www.epolitix.com/latestnews/article-detail/newsarticle/watchdog-probes-connex-franchise-failings/

  • James in Derbyshire

    Is it plausible that the Tories will, by stealth, effectively re-introduce nationalisation via the gradual rolling out of the Direct Operated Railway and one after another franchise failing? Can they be so craven that they will do that whilst continuing to act as if all was fine with the original corrupt privatisation, which handed massive profits to the banks for their, er, leasing (in reality – moving money around) “operations” and the corrupt managers of the former companies? Er, yes, appears to be the answer.

    And where were New Labour in this process? Lurching from one crap decision to the next, with the two Eds fully on board throughout.

    Doubtless even as we speak there is a frantic analysis going on at DfT, First, Virgin, etc, etc about how the taxpayer and fare payer can continue to be milked in future for our hugely over-priced railway, with environmental, national and strategic considerations as usual filed at the bottom of the consideration list.

  • Matthew Durbin

    Three of points

    Firstly I think the case was due up in front of the beak tomorrow – I think that dictated the timing rather than anything else.

    Secondly, what does this mean for the CP5 review? All the investment plans are based on the money available in the Statement of Funds available, which in turn is dependent on the revenues coming in. This debacle will surely mean that more realistic bids will now be the order of the day for this and other franchises, meaning less money from the fare paying passenger going into the railway. This will either mean more money from the taxpayer, or less investment.

    Thirdly, given the pressure on the government’s budgets, and the strategic objective of making the railways more dependent on the fare paying passenger (moving from a Passenger: Taxpayer 50:50 split to a 75:25 split), how much pressure was put on the Civil Service to slavishly choose the biggest bidder? The mistake made seems to be so relatively simple, leads to one of two conclusions. That either the guilty Civil Servants was so thick as to actually make it, and so what were they doing there in the first place? Or that they saw the mistake and were told to ignore it, for reasons related to item 2 above (i.e. to bump up the available funds to boost the SOFA which underwrites the politically important railway investment programme)

    Remind, where was it, and on what subject that Nick Clegg and David Cameron did a joint press conference to relaunch the coalition a few months back? It wasn’t Derby and the Raiilway investment programme was it?

    I am firm believer in cock up rather than conspiracy. But this episode is questionning my faith!

  • Derekl

    What can one say? On announcement of the winning franchise, it had ECML disaster Mk 2 written all over it, and the extensive analysis by Roger Ford in “Modern Railways” rather supports that view. Interesting that it seems that the very objections that Virgin raised are those that caused the u-turn, but that could merely be because that was the issue to go before the courts (very, very basically, the size of the bond guarantee compared to the level of risk).
    It seems the DfT briefed lawyers to deal with the Virgin application, and got the advice that they were up the proverbial without a paddle, so that will be on the flaws identified by Virgin (one, I think, being that the First bid does not take account of the effect on Euston traffic of the disruption that will be caused by HS2 construction.
    On the political front, I doubt they got the advice the day before the hearing, so they may have decided to sit on it until the Milliband conference speech to distract attention. The intention may, of course, have been to hope that Milliband would hide this announcement, to some extent. In either case, I don’t think it has really worked (assuming that the “black arts” are involved, which is a fair bet).

  • WestLoch

    Patrick McLoughlin surely won’t last long – being interviewed on BBC Breakfast this morning he referred to “passengers” & not “customers”.

  • linkyjohn

    Now what was that you were saying in your earlier article Christian

  • Bill Sandorz

    To repeat the drift of a comment I made elsewhere-
    It is one thing to say franchising has problems as opposed to locating the problems in a particular franchising situation. It is the latter which Virgin appears to have managed to stunning effect. As far as I can see no commentators saw this end result. Interestingly the Government Ministers were shuffled a few weeks ago. In foilowing their own interests Virgin has also made a contribution to the wider issues. And personally I can only be glad about anything that stops having First Group inflicted on me. ( My only connection to Virgin is as a passenger who had suffer a decline of service when Virgin ceased running Cross Country. BS)

  • Richie

    Christian – how does the structure in Germany work ? Looking at their web-site, DB looks like a regular (private) German company with a Supervisory Board (half are employee representatives) & main Board. As the Federal Government as largest shareholder and with 3 board seats. Seems to be a long way from the UK system !

  • Greg Tingey

    Civil servants have been suspended
    Is USUALLY code for …
    “We think we’ve caught someone’s hand in the till”
    There was a LOT of money at stake, after all, wasn’t there?

  • christianwolmar

    I must say Dominic, I agree with you on the point about ‘isolated’ civil servants. Although, as I stressed yesterday on the media, they are cut off from the rest of the Department, they must have access to the lawyers, consultants etc on which so much taxpayers money is spent. As one of the other commenters suggests, it is either an error that was known about and ignored, or possibly that they were so anxious to take the big bucks, they ‘fitted’ it into their model. Oh for a fly on the wall….

  • “or possibly that they were so anxious to take the big bucks”

    I don’t think one can disregard the possibility of Treasury influence. After all, that’s where the whole privatisation fiasco started.

  • Ricolas

    If Virgin want to carry on running it, pay them an agreed fee to do so. And that is an end to the matter, not only of West Coast, but of the whole franchising debacle.

  • Chiltern User

    Christian Wolmar has given a link by his twitter to a financial
    on-line radio service Edelman Editions, on which he has today (4 October 2012) discussed the
    WCML franchise affair and its likely
    consequences. 14 mins long – worth listening to – thanks SW. Link:

    http://edelmaneditions.com/2012/10/the-west-coast-main-line-debacle/

  • RapidAssistant

    That McLoughlin was talking about a review of franchising was welcome, but it will end with more rearranging of the deck chairs on the Titanic as always I suspect.

  • RapidAssistant

    At the moment though, the root cause of this particular mess is beginning to look rather more simplistic – merely politically motivated civil servants that had it in for Richard Branson (maybe they are friends of Tom Bower…). You don’t lose four franchise competitions whilst your opposition is winning others on the back of equally patchy track records. The circumstantial evidence was right under our noses.

  • RapidAssistant

    I’d add to that also, that the public should have had a greater say. The amount of backing the petition had, says to me the users of the line wanted Virgin to stay – so that has to count for something. Whether or not this is due to the “Branson-effect” is another debate, but it shows that politicians knew to ignore the result of that petition at their peril. It seems every time there is a major botch-up of anything, it can be traced to the same thing – dogged adherence to ideology and an arrogant “we know better than you, so eff-off” attitude towards the public that pay their salaries.

  • RapidAssistant

    Think that’s the point CW has been making for a while. If and when reintegration/renationalisation finally happens, it is important to remember it won’t be British Rail back from the dead, but something still fundamentally state owned, but with its independence from government, which behaves in an entrepreneural way, kind of like how BR ran itself in the final years.

  • Keith

    It was frustrating how the public’s support for Branson was based on the myth that the operators have a lot more control than in reality. No-one from the Government or operators seems prepared to expose this, so we seem to be stuck with the franchising model.
    Does anyone know if Virgin is up for trying some kind of vertically integrated system? At least on an experimental basis. Are they interested in running stations, branch lines, even freight? It’s hard to imagine a better opportunity to try it.

  • RapidAssistant

    Doubt that will happen. Sir Humphrey will make sure the status quo prevails. Only a major financial meltdown will trigger a rethink to the system in its present form I think.

  • RealLifeRailywayman

    Yes, it’s actually perfectly simple – the Treasury was breathing fire on them to reduce the forward burden of government subsidy. They applied simplistic logic – find the contractor willing to stump up the most cash. First Group know how to play the game and were very happy to play it with pretend figures and secure in the knowledge (like any of the happy too-big-to-fails with which we are nowadays so familiar!) that the taxpayer will bail out any future disasters.

    Quite why Virgin were unwilling the game is to be discovered, but a cynical interpretation is that they knew this would happen, they expected a positive PR feedback and a new chance to climb on to the lucrative franchise with even smaller forward investment! After all, these “franchises” aren’t to do with running real railways – they are primarily a pretense at risk redistribution with built-in secure profits and contractors playing “muggins turn” for their free handouts.
    The civil servants in the DfT played the game too – once Branson kicked up, the incoming Tory minister had to ameliorate an unexpected lashback in public opinion. What better than to blame it on the civil servants?? And now everyone’s happy in the media and we can all return soon to business as usual, with more bloated handouts to Virgin for doing precious little.

    Oh and Christian, can you please stop saying in public that Virgin did this and Virgin did that? As you well know, they did not pay for Pendolino, the taxpayer and the fare payer did. The franchisees do little more than run an HR function, a marketing function and some catering.

  • Chris Jones

    The Guardian today (Oct 5) says: “The most senior of the suspended civil servants has been identified as a former
    Goldman Sachs executive director, Kate Mingay, the corporate finance director at
    the DfT.” I don’t know enough about the civil service to form my own opinion so how senior is this person? And does this fit either the Wolmar ‘officials in purdah’ or the O’Donnell ‘brain-drained ministry’ narrative?

  • James in Derbyshire

    Agree, when you read that stuff about the email conversations in the DfT slagging off Branson, it does make you wonder if they had some solid grounds for their animus – apparently the opinion in the DfT is that Virgin fleeced the taxpayer in their last big renegotiation and broke a lot of promises.

    They aren’t the only people who have had dealings with him who have no great liking for the Bearded One.

  • Tonight Researcher

    The train franchise system is in crisis and fares are
    expected to rise again in January.

    Can you still afford your train fare or season ticket? Or are
    you being forced to consider taking the bus, bike or car?

    ITV1 are making a programme about train travel and want to
    speak to anyone who has strong views about the railways. Please get in contact –
    tonight.researcher@itn.co.uk

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