Rail 708: how to sort out franchising omnishambles

Dear Richard Brown,

You have the unenviable task of trying to sort out the franchising issue and make sense of system that simply is not sensible. Your remit is pretty limited, though apparently it may change when the first review, into the specifics of the West Coast omnishambles by Sam Laidlaw is completed but I suspect – nay I know – that the thorough root and branch reform of the system it needs will not be on the agenda.

So let’s try to help you with addressing the specifics of your remit, as set out on the Department website. OK, so moving away from my refrain of ‘what is franchising for?’ – although would be nice if you tried to answer that question – I will try to suggest what you do in terms of tinkering around with the system.

Let me say first, though, that since I wrote my previous column, the franchising patient has taken a turn for the worst and would, if we were living in a rational world, have been carted off to the hospice rather than the operating theatre. Patrick McLoughlin’s decision to temporarily leave the franchise with Virgin for up to 13 months but without having negotiated a deal with the company, then to let an interim franchise, and then finally do a longer term deal suggests the whole department has as much coherence as a gang of gaggling geese.

Virgin, again, has the department over a barrel. To announce that a temporary franchise is being ‘negotiated’ is rather like laying one’s cards at poker on the table while one’s opponents get to keep theirs face down.

The other daft decision is the length of the ‘temporary’ franchise. Clearly, the reason why it had to be limited to 13 months is the fear of transgressing EU rules but surely no one really believes that the franchise will be let twice in the space of a year or so in 2014/5. And if that really does need to be the case, then surely it should have been given to Directly Operated Railways now rather than later. In any case, DOR remain on standby until the negotiation with Virgin has been completed because there has to be a Plan B – especially as Virgin has refused to have anything to do with DOR on the basis that it is their franchise for the moment – because otherwise, to continue the poker analogy, it would be like simply throwing in one’s hand and giving one’s pile of chips to the other players. The trouble is that the plan B gets more and more difficult to implement by the day as DOR would have to create a top management team.

All this is a result of the fact that trust between ministers and civil servants has broken down completely. This makes restarting the franchise process all the more difficult. So, Richard, given this background, you have an unenviable job. The first part of your remit says you ‘should consider the implications for the remainder of the rail franchising programme of the position reached on the InterCity West Coast competition’. Weird wording but basically let’s sort out a few implications.

First, pace the special case of Chiltern, the implication of this debacle is that trying to pass on long term risk of revenue is impossible and clearly should be abandoned. Just in case you try to avoid that conclusion, remember that the lesson of this episode is that it is even worse trying to mitigate the effects of passing on that risk since that is what got the Department into that mess in the first place (see my last column). And that is why, too, the franchises have got ever more complicated, costing bidders – and us taxpayers – more and more. So either long term franchising is dead, or passing revenue risk is dead. Attempting to retain both will lead to trouble.

Secondly, it is clear there will have to be a reassessment of the franchising procurement process. Here there are awful pitfalls. One of your advisers, David Begg, has apparently mooted the idea of creating a procurement division that would operate across government departments. Whatever you do, don’t go there. That would be disastrous and merely replicate all the disasters promulgated by the Ministry of Defence whose procurement skills are akin to George Osborne’s ability to buy the right train ticket.

However, merely advocating ‘carry on as you are’ a la Captain Mainwaring is clearly a no-no as well. No good saying ‘don’t panic’ either because the Department already has panicked. The best option is the creation of a rail agency at arms length from the government, like British Rail, OPRAF (the Office of Passenger Rail Franchising) or the Strategic Rail Authority and, crucially, staffed by experienced railway managers, not civil servants.. However, given all these were killed off by politicians, it will take a bit of courage on McLoughlin’s behalf to recreate one. But that is the only sensible answer.

You are also being asked ‘how to structure risk transfer between the Department and rail franchisees in order to create optimum incentives in the long-term interests of passengers and taxpayers, and the ability to adapt to changing circumstances’. Well gosh if after 15 years of this system they don’t know the answer to that one, then you are not going to find it out in the next 8 weeks or so. The key point is that the private sector is no better at assessing how passenger numbers will fluctuate over the next year, let alone five or 15, than the public sector. So there is no point trying to pass on that risk. In the London Overground concession, the franchisee takes a 10 per cent share of extra revenue and has an incentive to reduce ticketless travel, but Transport for London retains the fares and sets staffing levels. That is a far more limited risk transfer but has worked astonishingly well. But even without those incentives, I am sure that Jeremy Long, the chairman of London Overground, and his team would still do a good job.

Then they want you to look at the bidding process. Well here, the obvious thing to do is to simplify it. As has been mentioned widely before, the original franchising process was much more straightforward and quicker – OPRAF let all the 25 franchises of the time in just 13 months, although crucially its boss, Roger Salmon, had spent a year making preparations and had come under fire for being too slow. You could, Richard, put in a call to Salmon but I suspect I know what his answer would be.

As for being asked to set out a timetable for the remainder of the franchising programme, that entirely depends on what decisions the Department takes over the other questions such as simplifying the process and on whether it is prepared to staff up a new agency with experienced and well paid people quickly.

One aside – it is quite wrong for my esteemed editor Nigel Harris and reader Alan Wilson to suggest that renationalisation would lead to the railway being run by civil servants. Quite the opposite. It is being run by civil servants now, in a way that is unprecedented as effectively we have a ministry of railways and renationalisation would require the creation of an arms-length BR type organisation. That must be the one clear outcome of this fiasco.

As an extra thought, it is interesting that one thing they have not asked you to do is to try to reduce the costs of the whole process. Given the McNulty strictures and the huge cost of the present bidding process as illustrated by the £40m wasted by the scrapped bids, that seems to be an odd omission. So do add in a bit about how to save money.

All this is due in by the end of the year and I suggest that rather than busting a gut and wrecking your Xmas, you should send back a clear and simple message. Just tell them cut the cr*p, go for a largely risk-free franchise system based on straightforward contracts for relatively short periods let by an independent rail agency. Or otherwise recommend scrapping the whole system, although unsurprisingly that is not in your remit…


Best of British



Christian Wolmar



Electrification causes complications


It is, of course, fabulous news that more of the railway is getting electrified. It is long overdue and widely welcomed, but inevitably there are potential losers. Until, like Switzerland, we get an all-electric railway, as more main lines are electrified, the branches will suffer. One such is the Windermere branch, a key gateway to the Lake District, encouraged by the local authorities and by the Department for Transport which has put in £5m towards a scheme to encourage greater rail use to reach the area.

In 2014, however, TransPennineExpress is due to introduce electric trains on their anglo-scottish services and one side effect will be a greatly reduced service for trains to Windermere and Barrow. Indeed, as currently envisaged, only one of Windermere’s current four daily trains to Manchester Airport will survive, and that will only arrive at 22 30, when there are no planes. Both lines have experienced considerable growth in recent years and local rail supporters are convinced there is, too, much suppressed demand.

The problem is that the Department is reluctant for non-electric trains to run ‘under the wires’ and that the electric rolling stock will not be used to couple up with diesel trains to save train paths on the main lines. TransPennineExpress is obviously keen to improve services on the more lucrative longer distance routes along main lines.

This highlights a wider issue which will feature prominently in the discussions over the future of the railways if HS2 is built. As money and services are focussed on the high speed line, will others suffer. I chaired a conference recently in Coventry where most people are opposed to HS2 as a result of fears that their three per hour service to London will disappear. All the lines affected in these reorganisations require subsidy and extra trains may well cost have a net cost, even if they generate good patronage.. Nevertheless, they are very important for the areas they serve, especially the Lake District which is being wrecked by excess traffic.

A campaign is being mounted by local interest groups but they face an uphill task given the conflicting demands on the railway. However, as one campaigner put it, ‘A government-funded multi-million-pound transport initiative to promote public transport in the Lake District risks being undermined by the increased difficulty of travel to the area by rail.

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