Greater Anglia legal Action?

[14sutton]

Article in Daily Telegraph tonight, not looking good!

Dutch rail authorities have threatened the Government with legal action if a resolution cannot be found over a row about one of Britain’s biggest train networks.

The Department for Transport (DfT) and counterparts from the Netherlands have been locked in secret talks in a bid to remove a “flawed mechanism” contained with its franchise agreement...

https://www.telegraph.co.uk/busines...e-legal-action-greater-anglia-rail-franchise/

 

[43074]

In fairness to them [Abellio] I suspect the mechanism they are referring to is to do with Central London Employment (CLE) because that figure is closely linked to ridership for most London & South East TOCs. I suspect the predicted and actual figures differ and therefore Abellio are seeking compensation as a result: how could they have possibly predicted the politics and economics of the country and the impact that would have on the CLE figure four years ago when writing the bid?

Pure speculation of course but that seems the probable scenario.

 

[ForTheLoveOf]

In fairness to them [Abellio] I suspect the mechanism they are referring to is to do with Central London Employment (CLE) because that figure is closely linked to ridership for most London & South East TOCs. I suspect the predicted and actual figures differ and therefore Abellio are seeking compensation as a result: how could they have possibly predicted the politics and economics of the country and the impact that would have on the CLE figure four years ago when writing the bid?

Pure speculation of course but that seems the probable scenario.

Perhaps, but even to me (as an advocate of exercising legal rights one has!) this seems ill-conceived. No-one forced Abellio into accepting CLE as the basis of the bid. They did so full well knowing the risks that could arise if actual performance went below predicted performance - we have seen franchises collapse several times before. That they nevertheless decided to bid under CLE is nobody's fault but their own, really. I have no sympathy.

 

[F Great Eastern]

No doubt this will now be used as a catch-all excuse to the chickens that will soon be coming home to roost that some of us have been saying about the bid from day one, in terms of not only the so called 'flawed mechanism' but also the rolling stock replacement plan which was devised by a bidding team without any kind of proper input from the operational people who are now being left to somehow make it work which is going to be a very tough job.

This smells like it is being used as a convenient way to smokescreen the fact that the bid that Abellio from day one seemed to be a very tough one to deliver with many of the margins on the rolling stock plans being very thin and already breached and might allow Abellio to potentially walk away at a later date and save a little face before the **** really hits the fan, which may well happen on 1st January 2020.

Background to a lot of this here:
https://www.railforums.co.uk/threads/greater-anglia-2019-what-could-possibly-go-wrong.174779/

 

[Class 170101]

which may well happen on 1st January 2020

You are giving them as long as that? How about March 30 first day after Brexit?

 

[samuelmorris]

You are giving them as long as that? How about March 30 first day after Brexit?

Because Brexit is one issue, but I think PRM-TSI is the most likely crisis unless a derogation is successful.

 

[47421]

Perhaps, but even to me (as an advocate of exercising legal rights one has!) this seems ill-conceived. No-one forced Abellio into accepting CLE as the basis of the bid. They did so full well knowing the risks that could arise if actual performance went below predicted performance - we have seen franchises collapse several times before. That they nevertheless decided to bid under CLE is nobody's fault but their own, really. I have no sympathy.

Exactly. They first flagged that they were not happy with the way the revenue risk sharing mechanism in the Franchise Agreement was working in the accounts to the year ended 31 March 2017, ie revenue was off virtually from day 1. Put another way they got their projections wrong. That is on them, and unlikely that a court will be sympathetic in my view. Lets wait to see accounts for year ended 31 March 2019 to see how much more of the £280m committed shareholder support has been used, was £80m up to March 2018.

 

[Bletchleyite]

Because Brexit is one issue, but I think PRM-TSI is the most likely crisis unless a derogation is successful.

I think a whole raft of derogations are likely. It's not like the rolling stock orders to comply haven't been made, there are just delays. Like with Article 50 itself, a short delay to allow due process to complete is the most pragmatic, sensible option. After all, a law has to have a specific date to come into force, but in practice the ethos isn't that, it's to get the enhancements in place as soon as is humanly possible.

 

[anme]

Perhaps, but even to me (as an advocate of exercising legal rights one has!) this seems ill-conceived. No-one forced Abellio into accepting CLE as the basis of the bid. They did so full well knowing the risks that could arise if actual performance went below predicted performance - we have seen franchises collapse several times before. That they nevertheless decided to bid under CLE is nobody's fault but their own, really. I have no sympathy.

I tend to agree, but the reality is that the system is broken and the government has a problem. There are very few companies that are prepared to bid for rail franchises. As a number of companies have found, rail franchises are high risk and low reward. If the few companies that do bid for franchises start losing money on them, they may well not bid in future, and the whole franchise system will collapse. Abellio can find other things to spend their time and money on.

A core foundation of the UK's franchising system is that there is competitive bidding for franchises. To even pretend the system is working, there must be at least two bidders for each franchise.

The government has allowed companies to walk away from franchises despite their contractual obligations to see them through. They may well choose to compromise with Abellio on this occasion.

 

[hwl]

Exactly. They first flagged that they were not happy with the way the revenue risk sharing mechanism in the Franchise Agreement was working in the accounts to the year ended 31 March 2017, ie revenue was off virtually from day 1. Put another way they got their projections wrong. That is on them, and unlikely that a court will be sympathetic in my view. Lets wait to see accounts for year ended 31 March 2019 to see how much more of the £280m committed shareholder support has been used, was £80m up to March 2018.

DfT has already changed all the CLE based assumptions in all the following franchise awards (LNWR and SWR awarded just a few motnhts afterwards) and soon SE too because it was broke and didn't work any more. Given that DfT has admitted the older CLE assumptions are broken and can't be used any more I suspect a court will be rather more sympathetic.

 

[hwl]

. No-one forced Abellio into accepting CLE as the basis of the bid.

DfT did and therein lies the issue, DfT have admitted it wasn't fit for purpose in awarding the following franchises awarded shortly after that they were already in tender when it was signed.

 

[ForTheLoveOf]

I tend to agree, but the reality is that the system is broken and the government has a problem. There are very few companies that are prepared to bid for rail franchises. As a number of companies have found, rail franchises are high risk and low reward. If the few companies that do bid for franchises start losing money on them, they may well not bid in future, and the whole franchise system will collapse. Abellio can find other things to spend their time and money on.

A core foundation of the UK's franchising system is that there is competitive bidding for franchises. To even pretend the system is working, there must be at least two bidders for each franchise.

The government has allowed companies to walk away from franchises despite their contractual obligations to see them through. They may well choose to compromise with Abellio on this occasion.

Then the model of fixed-revenue/premium franchising is broken. But that is not an excuse for letting existing franchisees away with getting out of their contracts without penalty. The DfT is letting the tail wag the dog here, because of political dogma.

DfT did and therein lies the issue, DfT have admitted it wasn't fit for purpose in awarding the following franchises awarded shortly after that they were already in tender when it was signed.

Well, even if this is the case: no-one forced Abellio to enter into the contract. They did so freely and on the basis of substantial analysis, consultation, negotiation etc.

I don't see what relevance a later franchise award has. A certain term has been agreed between the DfT and the franchisee. For non-consumer contracts, it is generally accepted that whatever terms have been agreed, will stick, and that the Courts will be unwilling to interfere with what one party may later realise was a bad deal.

No doubt the DfT will bail Abellio out just as they did for Stagecoach on VTEC.

 

[anme]

Then the model of fixed-revenue/premium franchising is broken. But that is not an excuse for letting existing franchisees away with getting out of their contracts without penalty. The DfT is letting the tail wag the dog here, because of political dogma.

I agree, but as always let's get angry at the cause (the franchising system), not the symptoms (a single court case).

 

[47421]

DfT did and therein lies the issue, DfT have admitted it wasn't fit for purpose in awarding the following franchises awarded shortly after that they were already in tender when it was signed.

I think it is a bit of a jump to say DfT have admitted it is not fit for purpose. More likely better advised / less gung-ho bidders negotiated for themselves a better deal. I agree with forthelifeof - court will attach little relevance to what has been agreed in other contracts / at other times / between different parties. Not sure I agree that DfT will bail out Abellio - time will tell but every chance Abellio will end up with a £280m loss (split 60-40 with Mitsui now) but passengers will still get benefit of full fleet replacement

 

[ScotGG]

There was loads of talk a year or two back of falling passenger numbers on the trains around London and the tube. Havn't they all recovered since then? I recall reading 3% growth on franchises on tube over the past year. Obvs Brexit could change everything again but as of this moment numbers rising aren't they?

 

[anme]

There was loads of talk a year or two back of falling passenger numbers on the trains around London and the tube. Havn't they all recovered since then? I recall reading 3% growth on franchises on tube over the past year. Obvs Brexit could change everything again but as of this moment numbers rising aren't they?

I believe so, but the lost growth will bite for the rest of the franchise.

If the calculations you use when bidding for the franchise assume 3% growth per year (for example), then one year with zero growth means you are 3% below your predictions for the rest of the franchise. That might completely wipe out your profit.

 

[hwl]

I believe so, but the lost growth will bite for the rest of the franchise.

If the calculations you use when bidding for the franchise assume 3% growth per year (for example), then one year with zero growth means you are 3% below your predictions for the rest of the franchise. That might completely wipe out your profit.

3% compounded every later year and bye bye profit.

 

[hwl]

There was loads of talk a year or two back of falling passenger numbers on the trains around London and the tube. Havn't they all recovered since then? I recall reading 3% growth on franchises on tube over the past year. Obvs Brexit could change everything again but as of this moment numbers rising aren't they?

Growth is slower as there is less 5 day a week commuting and much of the new CLE employment has been Uber (and other delivery) Drivers etc.! who don't use rail to commute!

 

[higthomas]

Growth is slower as there is less 5 day a week commuting and much of the new CLE employment has been Uber (and other delivery) Drivers etc.! who don't use rail to commute!

Do you know whether that is picked up in the stats? I'd have assumed they'd be registered as being employed at their home addresses, which I'd guess will mostly be in outer London?

 

[anme]

Growth is slower as there is less 5 day a week commuting and much of the new CLE employment has been Uber (and other delivery) Drivers etc.! who don't use rail to commute!

I agree that this sounds logical, but are there actual statistics to back up the fall in commuter numbers? My understanding was that there was a one year "blip" in 2017, but than the railways (including commuter lines) returned to growth in 2018.

 

[47421]

latest ORR stats here https://orr.gov.uk/__data/assets/pdf_file/0005/39983/passenger-rail-usage-2018-19-q2.pdf
this is for July to Sept 18 as compared with July to Sept 17

latest update to this series due 14 March 2019

This shows 3.8% passenger kilometer increase in London and South East. But season tic journeys fell to lowest level since 2010/11

ORR also published regional analysis for 2018 v 2017 https://orr.gov.uk/__data/assets/pdf_file/0011/40520/regional-rail-usage-2017-18.pdf

This shows "Passenger journeys in London, which account for more than half of all journeys within regions, decreased by 1.4%"

 

[lordbusiness]

Profit projections not helped by the neverending engineering works at weekends that have hit leisure travel virtually every weekend and the fact that the compensation paid by NWR does not cover the cost of putting on RRB.

 

[vinnym70]

This shows 3.8% passenger kilometer increase in London and South East. But season tic journeys fell to lowest level since 2010/11

Seasons really are likely to carry on falling IMHO. As more people are offered flexible working options, including working from home, there are plenty who will drop their seasons in favour of buying the tickets they need as and when they need them especially if that means being able to buy non-peak tickets.

If any business case saw season tickets as being a reasonably safe source of income, then it was deeply flawed or reasonably short-sighted at the least.

The numbers might not look massive but a drop from 157M to 143M seasons with an average estimated cost of GBP2500 (my guess) is about GBP35B. That's a lot of money in anyone's books. Obviously some of that money is now paid in daily fares. But it leaves a big hole when the revenue is on an ad-hoc basis as opposed to all being received in a lump in advance especially if the majority would be presumed to be forthcoming in late December from those seeking to avoid fare increases.

I'd assume assume GA rely heavily on seasons given large parts of their flows are commuting into London/Cambridge/Norwich/Ipswich, etc.

 

[Starmill]

I don't see what relevance a later franchise award has. A certain term has been agreed between the DfT and the franchisee. For non-consumer contracts, it is generally accepted that whatever terms have been agreed, will stick, and that the Courts will be unwilling to interfere with what one party may later realise was a bad deal.

The basis of this depends closely on how well managed the process was by the DfT. What information, exactly, was included in the tender and what data were used? What was said in the negotiations? What exactly did the DfT ask for and what exactly did Greater Anglia agree to? The DfT has a startlingly poor record at getting very important details exactly correct, or proceeding on the basis of the most accurate and up-to-date information available.

If Greater Anglia think they have found a chink, and no doubt their incredibly well paid legal team will have many ideas about what the DfT said at the time that was wrong, they will try it. What's more if there are any small breaches in the contract on the government's side, which there may well be, they will set these against what they want out of the negotiation.

Alternatively, how much does it cost to defend a judicial review these days?

Fundamentally, the problem is not that the DfT are giving in to Greater Anglia, it's that they lack the capability to manage the highly compelx and often weirdly 'inputs-based' commercial contracts they've let. Civil service cost saving measures may have hindered them. I've heard that a portion of their staff have been seconded to some sort of Brexit planning too, which probably will make it worse.

It's thought by many that the CrossCountry competition was cancelled because there was only one serious bidder. If that does not set the alarm bells ringing, nothing will.

 

[modernrail]

I think a whole raft of derogations are likely. It's not like the rolling stock orders to comply haven't been made, there are just delays. Like with Article 50 itself, a short delay to allow due process to complete is the most pragmatic, sensible option. After all, a law has to have a specific date to come into force, but in practice the ethos isn't that, it's to get the enhancements in place as soon as is humanly possible.

The problem with derogations is they will erode trust in the rule of law. We are becoming very flimsy in this regard in the UK at the moment and that is a set of floodgates we really do not want to open.

If derogations are to be used they need to be:
- strictly time limited;
- not without penalty for the party/parties that has failed to achieve the legal requirement;
- paired with a measures to provide a level of recompense and restitution to the injured party. The most logical measures might be free travel for those with a Disabled Persons Railcard plus additional personnel to help those passengers during the period of the derogation.

 

[anme]

latest ORR stats here https://orr.gov.uk/__data/assets/pdf_file/0005/39983/passenger-rail-usage-2018-19-q2.pdf
this is for July to Sept 18 as compared with July to Sept 17

latest update to this series due 14 March 2019

This shows 3.8% passenger kilometer increase in London and South East. But season tic journeys fell to lowest level since 2010/11

ORR also published regional analysis for 2018 v 2017 https://orr.gov.uk/__data/assets/pdf_file/0011/40520/regional-rail-usage-2017-18.pdf

This shows "Passenger journeys in London, which account for more than half of all journeys within regions, decreased by 1.4%"

Thanks. Does anyone know of any statistics or studies that link this to home working? Or any statistics on home working in general?

The reason I ask is that although it seems logical that increased home working will lead to lower season ticket sales, I wonder why we see it now. Home working is not a new thing. In my industry it started to become common around 15 years ago, as more staff had access to laptops and home broadband. It has certainly increased since then, but this has been happening slowly over many years. Of course, my industry might not be typical. I'm curious to see the bigger picture.

 

[whhistle]

You are giving them as long as that? How about March 30 first day after Brexit?

They'd wait until after the EMR reveal though?

 

[ForTheLoveOf]

It's thought by many that the CrossCountry competition was cancelled because there was only one serious bidder. If that does not set the alarm bells ringing, nothing will.

It'd be interesting to know who that final bidder was, then. I agree that it is clear that the current model of franchising is unsustainable. I've never understood why it wasn't simply agreed that the franchisee couldn't just be let to have all of the first £xm profit, and then the DfT a set percentage of the rest.

 

[modernrail]

The basis of this depends closely on how well managed the process was by the DfT. What information, exactly, was included in the tender and what data were used? What was said in the negotiations? What exactly did the DfT ask for and what exactly did Greater Anglia agree to? The DfT has a startlingly poor record at getting very important details exactly correct, or proceeding on the basis of the most accurate and up-to-date information available.

If Greater Anglia think they have found a chink, and no doubt their incredibly well paid legal team will have many ideas about what the DfT said at the time that was wrong, they will try it. What's more if there are any small breaches in the contract on the government's side, which there may well be, they will set these against what they want out of the negotiation.

Alternatively, how much does it cost to defend a judicial review these days?

Fundamentally, the problem is not that the DfT are giving in to Greater Anglia, it's that they lack the capability to manage the highly compelx and often weirdly 'inputs-based' commercial contracts they've let. Civil service cost saving measures may have hindered them. I've heard that a portion of their staff have been seconded to some sort of Brexit planning too, which probably will make it worse.

It's thought by many that the CrossCountry competition was cancelled because there was only one serious bidder. If that does not set the alarm bells ringing, nothing will.

I wonder if

Thanks. Does anyone know of any statistics or studies that link this to home working? Or any statistics on home working in general?

The reason I ask is that although it seems logical that increased home working will lead to lower season ticket sales, I wonder why we see it now. Home working is not a new thing. In my industry it started to become common around 15 years ago, as more staff had access to laptops and home broadband. It has certainly increased since then, but this has been happening slowly over many years. Of course, my industry might not be typical. I'm curious to see the bigger picture.

I wonder whether freelancing/gig economy are kicking in rather than home working per se. I am more of a freelancer now and my commuter use has evaporated but long distance travel has multiplied exponentially (he says sat in Newcastle having done London to Stoke to Maccelsfield to Southport to Newcastle since Friday and about to depart for Seaham then Leeds then Manchester then back to London in the next 2 days).

 

[Dr Hoo]

Profit projections not helped by the neverending engineering works at weekends that have hit leisure travel virtually every weekend and the fact that the compensation paid by NWR does not cover the cost of putting on RRB.

I thought that bus costs had been covered by Schedule 4 of the track access agreement since the start of Control Period 4 (almost ten years ago now).
I appreciate that the calculation is formulaic (rather than a negotiation or ‘emerging costs’ in most cases) but engineering works on the Great Eastern are not exactly a new thing. Presumably all bidders had a pretty fair idea of what they were likely to get?