South Western Railway want to renegotiate franchise - potential legal action

[StaffsWCML]

It looks like South Western Railway (First/MTR) now want to renegotiate their contract:

https://www.getsurrey.co.uk/news/surrey-news/south-western-railway-owners-consider-16402446

One of South Western Railway's (SWR) owners has suggested it could sue the government over the struggling rail franchise.
FirstGroup took over the franchise in August 2017 in a joint venture with Hong Kong-based MTR expecting passenger numbers to grow by around 7% per year, but strikes, infrastructure problems and 2018's timetable crisis meant SWR missed its targets.
In an interview published on Sunday (June 9), FirstGroup CEO Matthew Gregory told The Times that, while he wanted to reach a consensual deal with the Department for Transport, he was willing to pursue "other means" if attempts at renegotiation failed.
He said SWR was not seeing a benefit from rising employment numbers in central London, suggesting commuters are unwilling to use SWR's services to travel to and from work.
Mr Gregory, who previously admitted the franchise might never make a profit, told The Times: "This is a difficult one for us. Some of the protection mechanisms haven't worked as we had expected them to, or believe they should have worked.
"The central London employment metric suggests there is more employment in central London than we see coming on our trains. We don't see that working properly."
The protection mechanisms he referred to were included in the contract and intended to insulate the company from falls in GDP or central London employment, but they have not yet been triggered.
Mr Gregory added: "We prefer to work with our customer to find resolution through discussion and negotiation. If there's a contractual issue that we are unable to deal with through negotiation, we would have to turn to other means."
If those "other means" do involve legal action, FirstGroup would join Stagecoach and German-owned Arriva, which are also suing the government over unsuccessful bids for the East Midlands rail contract.
Other operators are struggling with rail franchise secured from the Department for Transport, helmed by Epsom and Ewell MP Chris Grayling, on overly optimistic terms, with Dutch-owned Abellio also reported to be considering legal action over the Greater Anglia route.

I wonder when the government will admit the franchising system isn't fit for purpose. We now have VTEC taken back in house, Northern struggling, Greater Anglia wanting to renegotiate, West Midlands Trains incapable of running a service on top of the pensions issues.

 

[Carlisle]

All this combined will surely just increase popular support for Labours nationalisation agenda as the most straightforward & best value ultimate answer for passangers, and if undertaken sensibly & professionally, probably rightly so in my opinion.

 

[matt_world2004]

One by one the franchise dominoes are falling

 

[ScotGG]

Well if Boris become PM maybe he'll be an advocate of devolution to cities given his previous job as London Mayor and support for it in that role. There's no doubt the current system is on life support.

 

[47421]

Abellio made similar noises last year about GA and how the risk sharing mechanism was not working as commuting levels have not risen alongside increases in Central London Employment per the stats used in the formula in the Franchise Agreement. AFAIK DfT has not agreed to change how the formula works and Abellio has not taken legal action, we will know for sure when they publish their accounts for the year ended 31 March 2019. I think this is probably because the legal case is weak. The courts are generally reluctant to re-write contracts entered into between major commercial operators who had the best legal advice money can buy before signing up - there is a strong presumption that the parties to the contract meant what they agreed to per the actual words of the contract and they will not look behind the words unless the way the contract works is obviously perverse. Just because contract is not working how one party hoped does not mean they can ask a court to re-interpret what they agreed to. So I doubt they will actually pursue legal action, they are likely to lose and have costs awarded against them.

There is of course a wider issue about how the franchising system works. All the major recent franchise awards have turned out badly for the 'winner' - TPE/Northern/SouthWestern/Greater Anglia. If franchises become uneconomical across the piece DfT will end up with no bidders.

 

[swt_passenger]

Well if Boris become PM maybe he'll be an advocate of devolution to cities given his previous job as London Mayor and support for it in that role. There's no doubt the current system is on life support.

Which city would you devolve SWR to then?

 

[option]

Which city would you devolve SWR to then?

Nowhere...
the only way to devolve rail services is by re-drawing the franchises & devolving some of the services, eg. if some of the SWR, Southern & Southeastern services went to London Overground/TfL, then you may as well merge whats left into 1 franchise.

 

[WelshBluebird]

Isn't this just that First / MTR got their calculations wrong when trying to work out how much profit there would be in the franchise? How is that the governments fault?

 

[StaffsWCML]

Isn't this just that First / MTR got their calculations wrong when trying to work out how much profit there would be in the franchise? How is that the governments fault?

Because the governments invitation to tender documents normally encourage overbidding. Mainly because the whole franchising and bidding process is not fit for purpose and is no delivering for the rail users.

 

[sleeper fan]

Not being political but SWR have not delivered theire promises to us Weymouth passengers trains still always late and only one service is 14mins faster the rest are still slow is not slower.

 

[WelshBluebird]

Because the governments invitation to tender documents normally encourage overbidding. Mainly because the whole franchising and bidding process is not fit for purpose and is no delivering for the rail users.

But nothing forced First / MTR to bid, and they must have done their own calculations to work out if they could make a profit or not.
Regardless of what the tender and bidding process said, at some where along the line someone at First / MTR got something wrong.
I agree that the system is broken and we need to do something different, but suing the government because you got your figures wrong is just stupid.

 

[47421]

Isn't this just that First / MTR got their calculations wrong when trying to work out how much profit there would be in the franchise? How is that the governments fault?

Basically yes. There is a bit more to it. I think the South Western Franchise Agreement includes the same clause as in the Greater Anglia one. Below is what the GA accounts say about it. Seems that the formula reduces the amount payable by the Franchisee if revenue falls due to lower than expected levels of employment in London. What seems to have happened is that the stats used show employment growing but this is not what the Franchisees have seen re number of commuters. No one really knows why - perhaps more of the employment growth is from people who live in London working in London rather than people commuting from outside London.

Sort of goes to the heart of the difference between a Franchise and a Management Contract or Concession - point of a Franchise is that Franchisee takes revenue risk, within limits, such as set by the formula. Management Contract or Concession - operator gets a flat fee or % of fares in which case this issue does not arise.

It is not the governments fault, unless for example they have fiddled the CLE figures. More like First made a bad deal because they did not appreciate how the formula could work against them if the CLE stats did not track commuting levels. First have a weak legal cast I think. Put another way, if the same thing had happened but the other way round and First were making excess profits above what they projected I cant imagine them agreeing if DfT asked them to pay more than was originally agreed. Classic case of buyers remorse.

"The Greater Anglia franchise agreement includes a mechanism for the sharing of revenue risk with the DfT. The franchise agreement states that the “Annual Population Survey (APS) – Workplace Analysis” published by the Office of National Statistics (ONS) should be used for the purposes of the mechanism with Central London Employment (CLE) defined as 10 London boroughs. A significant and unexpected upward revision to CLE reported actuals was seen for 2015/16, 2016/17 and 2017/18, which was not in line with commuter travel growth trends actually experienced."

 

[StaffsWCML]

But nothing forced First / MTR to bid, and they must have done their own calculations to work out if they could make a profit or not.
Regardless of what the tender and bidding process said, at some where along the line someone at First / MTR got something wrong.
I agree that the system is broken and we need to do something different, but suing the government because you got your figures wrong is just stupid.

Too many companies are doing it though for it to be a coincidence in my opinion First/MTR, Arriva, Abellio, Virgin/Stagecoach. This is because of the government, I would say these companies are being encouraged to bid for something on false information in many cases. I think they have a case.

The government are handing out franchises that are 'compliant' to people making woolly bids without proper stress testing, they are negligent. Just because a company say they can do something doesn't mean they actually can or will. Of course the ones who lose are the rail users.

Maybe some of these franchises have less customer because the operators that received the contracts are rubbish and unreliable? who knows. Either way the government is responsible for handing out these franchises, perhaps they should use a company with a proven track record of delivering a semi decent service in future......except they have driven all of those out of the market with their nonsense!

 

[swt_passenger]

Not being political but SWR have not delivered theire promises to us Weymouth passengers trains still always late and only one service is 14mins faster the rest are still slow is not slower.

The original fast single hourly Weymouth service was proposed by DfT, but was opposed by passengers following franchise award, as they’d been unaware of the downsides. So a compromise had to be renegotiated. AFAICS that’s clearly the fault of DfT for not getting the side effects of their ITT timetable across correctly. Network Rail pulled the Dec 2018 timetable changes, not SWR. (Even though SWR probably wouldn’t have had the stock to run it...)

 

[southern442]

Nowhere...
the only way to devolve rail services is by re-drawing the franchises & devolving some of the services, eg. if some of the SWR, Southern & Southeastern services went to London Overground/TfL, then you may as well merge whats left into 1 franchise.

More monopoly power and even less competition and consumer choice - exactly what we need.

/sarcasm

 

[WelshBluebird]

Too many companies are doing it though for it to be a coincidence in my opinion First/MTR, Arriva, Abellio, Virgin/Stagecoach. This is because of the government, I would say these companies are being encouraged to bid for something on false information in many cases. I think they have a case.

The government are handing out franchises that are 'compliant' to people making woolly bids without proper stress testing, they are negligent. Just because a company say they can do something doesn't mean they actually can or will. Of course the ones who lose are the rail users.

Maybe some of these franchises have less customer because the operators that received the contracts are rubbish and unreliable? who knows. Either way the government is responsible for handing out these franchises, perhaps they should use a company with a proven track record of delivering a semi decent service in future......except they have driven all of those out of the market with their nonsense!

I think there are two things here.

1. The issue of the current franchising system not working, and roughly I agree with you.
2. The issue of First / MTR potentially suing the government. This is the main topic of the thread. As you said, if First / MT didn't properly conduct stress testing etc as part of their bit, then they are negligent. For them to then go and blame the government for that is beyond belief!

 

[sleeper fan]

The original fast single hourly Weymouth service was proposed by DfT, but was opposed by passengers following franchise award, as they’d been unaware of the downsides. So a compromise had to be renegotiated. AFAICS that’s clearly the fault of DfT for not getting the side effects of their ITT timetable across correctly. Network Rail pulled the Dec 2018 timetable changes, not SWR. (Even though SWR probably wouldn’t have had the stock to run it...)

I'm aware the DfT pulled the December timetable change but in SWR's current state they wouldn't have had the stock.

Even on the revised plan, they promised that services would speed up, but instead they have given Poole a new fast service to apparently 'relieve' the Weymouth service on a Sunday... surely Weymouth could have had that?

It takes just over three hours on a good day, normally more like 3.5 when disruptions occur, which from where I'm travelling from seems to be almost daily.

14 mins faster has become 14 mins slower, because SWR and DfT have put more trains on but at the expense of Weymouth.

All last week my trains on Mon, Tue, Wed, Fri were 30mins late into Weymouth.

I know it's not all SWR's fault, but we have really been put on the rubbish dump in my honest opinion. The once hourly service was daft; essentially replacing it with a Portsmouth service.

 

[F Great Eastern]

Abellio made similar noises last year about GA and how the risk sharing mechanism was not working as commuting levels have not risen alongside increases in Central London Employment per the stats used in the formula in the Franchise Agreement. AFAIK DfT has not agreed to change how the formula works and Abellio has not taken legal action, we will know for sure when they publish their accounts for the year ended 31 March 2019. I think this is probably because the legal case is weak.

Personally I think that GA are talking about legal action to use it as leverage. SWR may well be playing the very same gam, having see Abellio do it.

The GA case is probably more about the fact that Abellio got both their sums wrong and promised the world on the back of some bid managers theory without letting the operational side of the business tell them the realities of how it would work in practice as they were not properly consulted on the bid from what has been reported from several well respected sources.

Since the franchise has started approx half the original senior management team have left their posts, including the projects director, the finance director and the person who was responsible for the rolling stock strategy. In addition the Engineering director has also left and a fair few middle managers have also gone from what I have heard and the debacle about new trains not fitting in certain platforms at a sufficient length is embarrassing.

Abellio made a lot of bold claims at the start of the franchise and whilst they've watered some down, it's likely that they are merely trying to use some leverage about risk sharing as a smokescreen to get the terms of the franchise changed in a way that will help them address some of the issues in their original bid other than the aforementioned risk sharing.

 

[Adsy125]

I'm aware the DfT pulled the December timetable change but in SWR's current state they wouldn't have had the stock.

Even on the revised plan, they promised that services would speed up, but instead they have given Poole a new fast service to apparently 'relieve' the Weymouth service on a Sunday... surely Weymouth could have had that?

It takes just over three hours on a good day, normally more like 3.5 when disruptions occur, which from where I'm travelling from seems to be almost daily.

14 mins faster has become 14 mins slower, because SWR and DfT have put more trains on but at the expense of Weymouth.

All last week my trains on Mon, Tue, Wed, Fri were 30mins late into Weymouth.

I know it's not all SWR's fault, but we have really been put on the rubbish dump in my honest opinion. The once hourly service was daft; essentially replacing it with a Portsmouth service.

The current scheduled timings for Weymouth-Waterloo are 2h46 for the XX03 and 3h00 for the XX30. So not 3 hours in a good day. Also, the one fast Poole-Waterloo train on a Sunday evening is 2x442s so can't go to Weymouth anyway, and it's only a single service. And the timetable hasn't changed significantly from SWT, so I'm not sure SWR have anything against Weymouth. Considering Weymouth's size and location its 5tp2h service isn't bad.

Also, the final new timetable hasn't been released, so we don't know what the result will be for Weymouth.

 

[bobbyrail]

It looks like South Western Railway (First/MTR) now want to renegotiate their contract:

https://www.getsurrey.co.uk/news/surrey-news/south-western-railway-owners-consider-16402446

1) Maybe they are not seeing the increased turnover on their trains because they are providing a **** service !!
2) They also seem to think that more people working in London will mean more passengers (refer to point 1 on this), and also the public image of rail travel in general.
3) Maybe they bid too much just too secure the franchise
4) Maybe poor business decisions were made
5) This is the most important point, remove the sense of entitlement to actually have any customers and serve the ones they have to the highest standard, more happy customers will then follow.

 

[Goldfish62]

More monopoly power and even less competition and consumer choice - exactly what we need.

/sarcasm

Given that competition and consumer choice are practically non existent at the moment I can't see it would make much difference.

 

[Goldfish62]

1) Maybe they are not seeing the increased turnover on their trains because they are providing a **** service !!
2) They also seem to think that more people working in London will mean more passengers (refer to point 1 on this), and also the public image of rail travel in general.
3) Maybe they bid too much just too secure the franchise
4) Maybe poor business decisions were made
5) This is the most important point, remove the sense of entitlement to actually have any customers and serve the ones they have to the highest standard, more happy customers will then follow.

All potentially valid reasons. However, TfL is also having problems with tube and rail passenger growth lower than projections and bus patronage in free fall. There is the same conundrum that this is happening while central London employment is growing.

 

[Bald Rick]

The conundrum, if there is one, is why 3 of the big 4 London commuter operators are seeing good growth in passenger km year on year to Q3 (GTR 6.9%, GA 3.6%, SE 3.4%), but SWR are not (0.6%).

In a remarkable coincidence, only one of the big 4 London commuter operators has seen significant industrial action in the last year.

The 2018/19 Q4 and full year numbers are published on Thursday, so we will have some fresh data to compare.

 

[sleeper fan]

The current scheduled timings for Weymouth-Waterloo are 2h46 for the XX03 and 3h00 for the XX30. So not 3 hours in a good day. Also, the one fast Poole-Waterloo train on a Sunday evening is 2x442s so can't go to Weymouth anyway, and it's only a single service. And the timetable hasn't changed significantly from SWT, so I'm not sure SWR have anything against Weymouth. Considering Weymouth's size and location its 5tp2h service isn't bad.

Also, the final new timetable hasn't been released, so we don't know what the result will be for Weymouth.

Oh has the final one not been released yet? Thought it had...that's news for me thank you. Fingers crossed. Maybe when I travel I just hit the unlucky train as most times it's late into london.

 

[MotCO]

Presumably if the actual passenger numbers exceeded the projections and SWR made bumper profits, they would be arguing that they should give some money back to the DfT?

 

[Goldfish62]

The conundrum, if there is one, is why 3 of the big 4 London commuter operators are seeing good growth in passenger km year on year to Q3 (GTR 6.9%, GA 3.6%, SE 3.4%), but SWR are not (0.6%).

In a remarkable coincidence, only one of the big 4 London commuter operators has seen significant industrial action in the last year.

The 2018/19 Q4 and full year numbers are published on Thursday, so we will have some fresh data to compare.

But GTR passengers have suffered appalling reliability in the year to Q3, far worse than anything that SWR chucks at us so I'm really not convinced that quality of service is that closely linked to passenger numbers.

 

[StaffsWCML]

1. The issue of First / MTR potentially suing the government. This is the main topic of the thread. As you said, if First / MT didn't properly conduct stress testing etc as part of their bit, then they are negligent. For them to then go and blame the government for that is beyond belief!

Surely the government should be performing due diligence here and making sure that the bids for franchises are capable with dealing with potential stress factors? The are the ones running this godforsaken system.

Companies will bid what the competition allows, it they can weasel out of it and make threats on renegotiation they will. The ORR have said the Invitation to Tender documents encourage overbidding. So many failures and potential failures suggest the problem is that companies are being expected to bid for something with unrealistic expectations, especially when infrastructure promises etc are then not delivered upon. Like now Abellio trying to renegotiate the Greater Anglia franchise, if this is allowed it is not fair on other bidders. Abellio have done the same on other franchise to, promised the Earth and delivered very little.

 

[ForTheLoveOf]

I have no sympathy for SWR here. It is utterly unacceptable to me that, entirely of their free will, they signed a contract that included clauses for the variation of franchise premiums dependant on a specific statistic - and are now complaining when that clause kicks in. Did they not read the contract?! Well, of course they will have done, but I suspect the issue is simply that they did not expect the clause to come into action without accompanying passenger and hence revenue growth.

At the moment, TOCs can effectively negotiate their way out of contractual commitments and obligations (I mean ones like this, not ones that they are prevented from doing by Network Rail or other parties). Their negotiating 'leeway' is that if the DfT does not agree to waive the obligation that is contested, they will either sue the DfT (causing further bad PR, and lots of costs), or drop the franchise (incurring the DfT several millions of costs to appoint an OLR). This leads to an utter farce of a situation, where the contracts that TOCs sign have almost no real meaning, since they can and will always be renegotiated when it no longer suits the TOC, but will never be renegotiated when it suits the TOC and they're 'making bank' off it (a la old Northern/ATW).

I think the only way to completely stop this situation is to force parent companies to underwrite the entire liabilities of the franchise, and not just an amount up to a cap, and also to introduce stricter requirements and restrictions for Court claims against the DfT in respect of franchises, to reduce the ridiculous and seemingly frivolous claims currently happening. How can the TOCs walk away paying just some of their liabilities when the franchises fail (a la VTEC and possibly now SWR and GA), when on the other hand the DfT is held liable for all the potential profits of rejected bidders? A radical rethink is needed.

If requiring parent companies to underwrite liability in full means that bids are more expensive/less favourable for the DfT, or even means that no-one at all bids, so be it. At least then we will all know exactly what the limitations of the current franchising system are, rather than loads of promises with no delivery.

 

[Bald Rick]

But GTR passengers have suffered appalling reliability in the year to Q3, far worse than anything that SWR chucks at us so I'm really not convinced that quality of service is that closely linked to passenger numbers.

Except they haven’t. GTR passengers had better performance in the year to Q3 than the year before, and the year to Q4 continues that trend. Indeed the Q4 performance was the best for 7 years.

 

[hwl]

Except they haven’t. GTR passengers had better performance in the year to Q3 than the year before, and the year to Q4 continues that trend. Indeed the Q4 performance was the best for 7 years.

Exactly most people seem to forget that 67% of GTR is Southern and Southern has been performing better than it has done in decades since the May 2018 timetable change....