To what extent must rolling stock orders be made on the basis of competitive tender?

Are TOCs required to have a competitive tender process for their rolling stock orders, or are they just doing it to save themselves money? What about PTEs? (I know that when TfGM needed more trams, they went straight back to Bombardier because they already had a very reliable, proven design that passengers were satisfied with).

Hypothetical example: A TOC has a fleet of trains built by Company X. They think that to order more of the same will save them money (not having to retrain staff, fewer delays due to teething problems with new stock, more flexible operations, and none of the administrative costs of running a competitive tender). Could they go straight to Company X, seeking to negotiate a contract to build more identical units?

I suspect not, but you could write a tender document that makes it essential that cab design, door controls and multiple working are all compatible with the class you want. Options for follow ons are in the original tender, so don't need re-tendering. The catch is that the original supplier sees this as a tender no one else will be interested in and sees no need to price competitively. The real problem might be simply saying we don't want tenders from X because their quality is so poor.

py_megapixel said:

Are TOCs required to have a competitive tender process for their rolling stock orders, or are they just doing it to save themselves money? What about PTEs? (I know that when TfGM needed more trams, they went straight back to Bombardier because they already had a very reliable, proven design that passengers were satisfied with).

Hypothetical example: A TOC has a fleet of trains built by Company X. They think that to order more of the same will save them money (not having to retrain staff, fewer delays due to teething problems with new stock, more flexible operations, and none of the administrative costs of running a competitive tender). Could they go straight to Company X, seeking to negotiate a contract to build more identical units?

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No.
..but even competitive tenders are sometimes written so only one company can win unless the quote a silly price.
Don't forget the ROSCOs are also involved as they actually own the stock.
Even TfL lease the LO stock.

Public sector companies.....DfT, anything owned by DfT, Local Authorities and anything owned by them are more or less obliged by legislation to seek competitive bids. This applies above certain value thresholds, but new trains will always be above those thresholds. There are exceptions, for example, the regulations recognise that it's not right to demand competition if the cost of competition is likely to exceed to cost of sole source. One such example is that of compatibility. For example, if you have a fleet of 100 4-car EMUs all of which can couple to each other and the couplings and electrical systems are proprietary to the original supplier, and you want 10 more units to integrate with the existing fleet, then it would make sense to buy the extraction the original supplier. No one else would be able to supply a compatible electrical system. Of course a competitive situation can be set up, but no one else can comply with the requirement.

py_megapixel said:

Are TOCs required to have a competitive tender process for their rolling stock orders, or are they just doing it to save themselves money? What about PTEs? (I know that when TfGM needed more trams, they went straight back to Bombardier because they already had a very reliable, proven design that passengers were satisfied with).

Hypothetical example: A TOC has a fleet of trains built by Company X. They think that to order more of the same will save them money (not having to retrain staff, fewer delays due to teething problems with new stock, more flexible operations, and none of the administrative costs of running a competitive tender). Could they go straight to Company X, seeking to negotiate a contract to build more identical units?

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It would seem that you are assuming that the TOCs own the rolling stock they use. They don't, they lease the stock from the various ROSCOs - so your question really applies to the ROSCOs which actually buy the trains.

The EU-mandated competitive tender process, to which I think you are referring, applies to state-owned organisations. The ROSCOs are private companies and so are not bound by these rules.

Of course if a TOC is in the market for new stock, and if it has any sense, it will run a competitive tender process, but pitting one ROSCO against another. It would however write into the tender documents the requirement for compatibility if it deems this to be important.

coppercapped said:

Of course if a TOC is in the market for new stock, and if it has any sense, it will run a competitive tender process, but pitting one ROSCO against another. It would however write into the tender documents the requirement for compatibility if it deems this to be important.

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What can also happen is to run two competitions successively: the first to buy the trains (so a competition between manufacturers) and the second to finance them (competition between leasing companies).

It is far to complicated a question to come down to a yes or no answer!

The London Underground PPP included Bombardier in the consortium as the supplier of new trains for the sub-surface and Victoria lines. In that case the competition for the PPP itself satisfied the requirement for competitive procurement. Something similar happened in the procurement of tramways for Manchester (Phases 1 and 2), Croydon (original in late 1990s, not the more recent Stadler trams), Midland Metro (original), and Nottingham (original and extensions) and I think Sheffield too. I guess the same applies if the TOC has signed provisional contracts with a ROSCO prior to submitting its franchise bid.

Private companies aren't required to put out a tender for the supply of new trains, but it's not uncommon for it to happen anyway. Trains are expensive machines, so 'shopping around' can save quite a lot of money.

When looking for a new car many people won't directly go to their preferred builder's showroom either, they compare the makes on offer and compare options and prices.

It is good business practice to put it out to tender, most private companies of a scale will require a tender to be run for corporate governance. Even if one provider is the most suited choice, you don't want to pay an inflated price. In our business you have to tender anything over 150k but at that level of spend the tender can be pretty simple.

I haven't been in the business of procuring trains for many years, but unless the last issue of the procurement rules changed the situation dramatically, TOCs are required to go through a competitive tendering process as if they were state owned; this is because they operate under special/exclusive rights granted by the state. However, ROSCOs aren't required by law to undertake competitive tendering exercises.

It's difficult to generalise, because a tendering exercise for trains can be undertaken in many ways. For example, a TOC could just say it wanted to lease some MUs for a particular period, or it could - having gone through a tendering exercise with financiers - issue an invitation to tender to purchase trains in which title in the trains and the obligation to pay for them would lie with the financier, or a TOC could issue an invitation to tender to procure trains, then go through a financing tendering exercise, and then novate parts of the procurement contract to the successful financier. Simple !!!

It's also necessary to know details of procurement contracts, and with whom certain benefits rest; for example, although a TOC wouldn't be interested in owning a design for an EMU, it might want a license to use parts of the design so that it can procure EMUs from someone else to work in multiple with those it is initially purchasing - say EMUs from CAF or Siemens or Stadler to work in multiple with an existing fleet of Electrostars. Alternatively, it might have stated what type of coupling was required on its initial fleet, so that it wouldn't have any problems in then procuring more trains to work with them (think how Turbostars can work in multiple with Pacers/Sprinters/158s, and I believe this requirement was laid down by Porterbrook before they were prepared to finance the initial 168s for Chiltern)

TOCs have two ways of evaluating tenders; either on the basis of the lowest price tendered, or by determining which is the most economical advantageous offer. For the latter, the evaluation criteria has to be made known to bidders, and it is legitimate to consider costs associated with staff training.

When someone like Arriva was procuring trains for northern, it would have been sensible to include options in the contracts it entered into with CAF; it should also have included a provision to novate the options to a successor franchise (although this isn't essential - options could be transferred using a transfer scheme made under Major's Railways Act if the DfT so desired).

Note that procurement rules apply to all procurement exercises where there is financial consideration; therefore they apply to leases/hires as well as purchases. Moreover, if one TOC wants to hire in trains for a short period - such as how XC used to hire in HSTs for summer Saturdays - these are also covered by procurement rules if the financial threshold is exceeded.