21 January 2010

Rail franchises extended

The duration of all rail franchises is specified by the Department for Transport (DfT) before invitations to tender are offered. These vary significantly, though not massively, from as little as two years to 19. Generally, though, most fall at around the 8 year period, with extensions granted provided minimum targets on operational performance and other efficiencies are met.

Chiltern Trains is one of only two train operating companies (TOC) to have been awarded a lengthy franchise in recent times: 19 years, from 3 March 2002 to 31 December 2021; by contrast the shortest has been awarded, by default, to the government's in-house TOC, Directly Operated Railways: East Coast, lasting around 2 years - though crucially this TOC chooses its end date!!

Yesterday, the DfT announced that in future it plans to award rail franchises for a minimum period of 10 years, with possible extensions for a further 12 years, assuming satisfactory operation and meeting pre-determined targets. TOCs will also face tougher performance criteria than at present and much larger financial penalties will be applied to any TOC who 'does a NX' and walks away from a particular franchise. Prospective TOCs would need to put up much larger initial deposits, which will be regarded as performance bonds.

The Association of TOCs (ATOC) has long called for increases in franchise length, and so too have industry watchers. The main frustration felt by the TOCs is that the time they're guaranteed isn't long enough for them to invest properly for an equally proper return. Save Chiltern, who has been afforded a 19 year franchise, virtually all other TOCs have reported that they would very much like to make major improvements to their infrastructure, not least the stations they control, which would in turn enable them to operate in a more efficient and passenger-pleasing manner, which would in turn increase their standing in the punctuality and passenger satisfaction tables.

Chiltern is investing in its network with the renovation of various stations along its franchise route and last year Network Rail conceded that TOCs would, in many cases, be better placed to undertake their own low-level maintenance as they were likely to do so more efficiently than the government's own rail infraco.

"Ten year franchises, with the possibility of longer contracts should bidders make sensible and affordable proposals, will allow operators to invest and suggest new innovations," said Transport Secretary, Andrew Adonis. He continued: "However, having longer franchises means that we will need to introduce tougher performance measures and more potential contract break points to ensure bad operators can be removed."

The most significant change, so far as we've spotted, is the likelihood for there to be a link between new franchises and the economy. Presently, the DfT offers financial assistance to TOCs after a qualifying period, which sees their falling revenues topped up in economic downturns and the profits made by TOCs above a pre-agreed level shared with the DfT in the times of plenty. These are known as 'cap and collar payments'. This will cease with franchises directly linked to the state of the economy: franchise payments from TOCs to the DfT will be higher when the economy is 'up' and reduce when it's 'down'.

The unions feel that the increase in franchise length is unleashing 'profiteering multi-nationals' to 'do what they've done in the bus industry and only consider their shareholders'. Clearly, the benefits for TOCs are plenty with increased franchises, though this comes with Adonis-inflicted catches: tougher minimum standards and increased fines shoud a TOC default.

Forgetting the TOCs and unions though, it is the downtrodden passenger that needs considering. Chiltern is usually at the top of the performance tables (though its relatively insular operation sees delays minimised as interaction with other routes and TOCs is vastly reduced), though by 2019 it will be interesting to see if this is the case; we suspect it will. Long term investment - still closely scrutinised and examined by the DfT - is just what the rail industry needs. It is an excellent piece of legislation, no doubt thrust to the fore by Lord Adonis himself.

TOC Franchise End Dates (duration in parenthesis)

2011 NX c2c (15)
2011 NX East Anglia (7)
2012 First Transpennine Express (8)
2012 Virgin Trains (15)
2013 Northern Rail (9)
2014 First ScotRail (10)
2014 London Overground (7)
2014 Southeastern (8)
2015 CrossCountry (8)
2015 East Midlands Trains (8)
2015 First Capital Connect (9)
2015 London Midland (8)
2015 Southern (6)
2016 First Great Western (10)
2017 South West Trains (10)
2018 Arriva Trains Wales (15)
2019 Chiltern Trains (19)
2023 Merseyrail (25)

Only Virgin Trains still operates its franchise as awarded at privatisation. GoVia's Southern TOC was awarded the shortest franchise last year (ending in 2015). Merseyrail and London Overground are concessions, rather than franchises.

No comments: