Rail 716: the myths of the franchise system

Franchising is like a one way cul de sac. It’s going nowhere but it seems to be impossible to find a way out. The latest announcement which jump started the franchising process with a pair of dodgy battery leads after the West Coast omnishambles, attracted remarkably little attention since the national media seems to have got bored with the story but demonstrated that there is still a massive intellectual flaw in the process and a lack of consistent behaviour on the part of the Department for Transport.

Take the Great Western. Patrick McLoughlin had decided to cancel the bidding process and start all over again. In the meantime, FirstGroup has been given a 28 week extension, which the Department is able to do according to the contract, and then it is going to negotiate a further two year deal until the full contract is let. Since the Department must be seen to retain the option of having a competitor, Mr McLoughlin said that Directly Operated Railways would be on standby to take over the franchise if a new two year deal cannot be established.

It is clear, though, that FirstGroup must be the odds on favourite to retain the franchise for the two year deal since the hassle of moving the contract twice in that period would be problematic. And we all saw the shabby treatment of DOR which spent a lot of money preparing to take on the West Coast, only to be stood down prematurely allowing Virgin a free rein.

But hold on a sec – is that not the same FirstGroup which, euh, decided in May 2011 that it did not want to retain the potential three year franchise extensions it had negotiated beyond March 2013 because it did not want to pay the £826m that this entailed. Tim O’Toole, the boss of FirstGroup, claimed at the time that the company was not taking up the extension because it wanted to negotiate a longer term deal and that it was in a strong position to win a new franchise.

In fact, revenues had not met expectations, and FirstGroup’s costs were higher than expected, following the fiasco over overcrowding in the Bristol area which resulted in an expensive ‘Remedial Plan’ announced by Ruth Kelly (remember her) in 2008. The extra trains and compensation cost £29m but First Great Western spent a lot more than that in ensuring that there would not be a repeat of the debacle. That greatly reduced the franchise profitability and it has struggled to make money ever since, so inevitably there was no way that FGW would take up the extremely expensive extension.

Indeed, how could anyone at the Department think that such an onerous deal would ever be taken up? Of course, given what we now know about the way the Department’s number crunchers assessed franchises, it is highly likely that First only won the franchise in the first place on the basis that it was going to pay over that money.

Now, though, effectively, First will be able to retain the franchise on a much cheaper arrangement than the extension it had originally negotiated. You could not make it up. Moreover, in a move that has infuriated the bidders, the Department has refused to compensate any of the bidders for the collapsed deal. National Express, in particular, has expressed fury and the others are privately seething, too, with possibly the exception of a gleeful FirstGroup which is secretly laughing all the way to the bank.

There is a big irony in all this. The whole mess would not have happened if the Association of Train Operating Companies and its members had not lobbied so hard for a change in the franchising arrangements. They wanted longer term deals and the Tories, particularly Theresa Villiers, backed them with the result that we all now know – the West Coast omnishambles and its aftermath.

There is, too, another major inconsistency in the McLoughlin announcement. For the First Capital Connect/Thameslink/Southern etc franchise which will be the biggest on the network and the lynchpin of the southern commuter network, the Department has decided to go for a concession rather than a franchise. In other words, there will be no attempt to pass on the revenue risk for the seven year deal. This is eminently sensible and the reasons given are quite correct. Mr McLoughlin said the reason was that this was ‘consistent with Mr [Richard] Brown’s recommendation, given the fact that the upgrade of the Thameslink line and the introduction of new rolling stock means that revenue predictions will be very difficult.

However, the same goes for Great Western, which is, as mentioned before in this column,  the franchise from hell with Crossrail, electrification, the Reading remodelling and the introduction of the new IEP trains all happening between now and the end of the decade. When I pointed this inconsistency to a senior source in the Department, I was told that the decision to go with a franchise had been the result of advice from the civil servants who warned European rules would prevent granting a concession. Well, yes FGW could not have been given a new deal on that basis but there was nothing to stop the Department changing the basis of the contract for the longer term. A new concession would have been easier to let than a franchise, and could have been done within the current extension. Again, the fear of Europe seems to be dictating Department policy or, more likely, being used as an excuse for inaction. In fact, trying to let the Great Western franchise on a conventional basis will undoubtedly be an expensive option since all the bidders will ask for huge amounts for contingency risk.

As for Essex Thameside, the idea is to go ahead with a 15 year franchise, despite the fact that this has proved unworkable elsewhere. The reason is that this franchise, basically the old LTS or C2C, is relatively simple and straightforward, but nevertheless predicting revenue over that period is a mug’s game.

Franchising, therefore, splutters on but the bidders and the franchisees are still left somewhat in the dark about the rules of the game which seem to change by the day. With Labour preparing its policy and due to announce it before its annual conference in the autumn, uncertainty is the order of the day. It’s great fun for us commentators but not for the people who have a major industry to run safely and efficiently. There is, too, the great concern that since the predicted savings from the franchising programme cannot be made before any of them are let, the industry will be left with a shortfall which will impact on investment. There is, as yet, no sign of any way out of the cul de sac.

 

Announcements mad and inconsistent

 

This is the tale of two journeys. The other evening I had to go to Ashford (Kent) to give a talk and took the high speed domestic service. The journey should have been spent happily reading  – I am deep into one of the greatest ever railway books, La Bête Humaine by Émile Zola – but there was no chance. Because the train was slightly late, there was a constant stream of apologies from the automatic announcements. The guard, too, chipped in adding to the constant interference.

There is, quite reasonably, an announcement at every station. But, each time, it added a whole lot of rubbish about taking all your bags with you and that the train is covered by CCTV and that it might be raining outside (or something about inclement weather). Whenever there was a moment’s silence, the automatic announcement would go on about ‘if you see anything suspicious, tell a member of staff…etc ‘ Therefore, within the first 15 minutes, there were no fewer than 13 announcements. It was really mayhem and worse, the whole exercise was repeated when I waited on the return at Ashford International (which is another ludicrous aspect – calling all these stations International which lengthens the announcements and has no relevance especially at Stratford where there are no international trains). Again, the train was late but clearly the computer is set to make a new announcement every time the predicted arrival time changes. So there were around 15 announcements in 20 minutes, either repeating that it was 15 minutes late, or giving slight variants – stretching from 11 to 18. Insane!

Then a trip from London to Swansea on First Great Western and back, still with my Zola. Bliss – barely an announcement, and all of them necessary. ‘The next station stop…’ etc – though they could cut out the ‘stop’ bit, if I were to quibble. Absolutely sensible use of the PA system and made the journey pleasant and let me focus on my book.

When I blogged about the ridiculous announcements on my website which elicited an enormous response on Twitter, I received an interesting response from a reader, stimarco, who said:

‘There is plenty of research in cognition that points towards overuse of announcements, warnings, etc. as being not just pointless, but even counterproductive!’ That makes sense as we all simply try to block out the noise – in other words, this plethora of announcements is actually counterproductive and no only affects the quality of the journey, but increases the safety risk. I know I have written about this before, but the SouthEastern domestic services have now got far worse. So come on ATOC – why not set up a committee with the Department, the RSSB and Network Rail to set some clear rules which balance the need for information with the quality of the journey? And indeed, what is best for safety? Moreover, get a proper write to sub-edit the messages so that they are short and succinct, just to show that you really do care about customer service, your oft stressed mantra.

 

  • Paul Holt

    p10: should “…European rules would granting…” be “…European rules would prevent granting…”?

  • M Bartoli

    After reading the news the DfT want to restart francise processes for West Coast AND East Coast, this e-petition seems fairly relevant. “Abandon rail franchising and hand all existing franchises to state-owned Directly Operated Railways as they expire”: http://epetitions.direct.gov.uk/petitions/39666

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