Lack of Interest in running franchises

[theironroad]

It seems the announcement that only two bidders are shortlisted for the next SWT franchise is concerning MPs.

The system is a mess that's for sure.

http://www.bbc.co.uk/news/uk-35556870

Taxpayers could end up out of pocket because not enough private firms want to bid to run rail franchises in England and Wales, MPs have warned.

A lack of competition between companies bidding to operate routes could mean the government struggles to get value for money, a report by the Public Accounts Committee said.

MPs said it was "not clear" when rail users will see higher quality services.The Department for Transport said it was "working to actively seek" bidders.
MPs noted that the DfT - which is responsible for awarding rail franchises in England and Wales to private sector companies - requires at least three bids per franchise to "create competitive tension".

However, the committee said there are signs that interest is "dwindling" among companies willing to make an offer.

 

[455driver]

As it costs about £1million to sort out a bid and only one company can win maybe they are getting a bit more fussy about which franchises they go for, I mean you dont want to try for 10 franchises (costing £10million) if you are only likely to win one of them do you.

 

[HarleyDavidson]

So what happens if there are no bidders and the incumbent doesn't want to know due to losses?

 

[fowler9]

Surely as we all move towards homogenisation this will happen more often. We get told that privatisation will give us more choice but now we can travel across Europe and at various times get transported by the same company. In the near future my bus or train to tow will effectively be run by the same company and if I go and get a train in Germany it will probably be a DB company as well. I feel like I had more choice when it was MPTE, Ribble, Crossville and BR. At least I had a choice on some routes.

Take if you get a flight with an Airline that is an Alliance member, many people who aren't plane buffs won't have a clue what airline the plane belongs to or where the money goes.

 

[jon0844]

Time for more management contracts where the DfT pretty much sets out everything, making the bidding process a lot easier and cheaper? Obviously then more expensive for the DfT, but at least there can be more joined up thinking.

 

[Bletchleyite]

Time for more management contracts where the DfT pretty much sets out everything, making the bidding process a lot easier and cheaper? Obviously then more expensive for the DfT, but at least there can be more joined up thinking.

Time for microfranchises which are effectively more accessible? Germany seems to do well out of this concept for regional services.

 

[fowler9]

Time for microfranchises which are effectively more accessible? Germany seems to do well out of this concept for regional services.

How do they do it? In leyman's terms? Ha ha.

 

[455driver]

So what happens if there are no bidders and the incumbent doesn't want to know due to losses?

They let you run it!

 

[HMS Ark Royal]

So what happens if there are no bidders and the incumbent doesn't want to know due to losses?

Surely Directly Operated Railways would come into play and take over

 

[The Ham]

Surely Directly Operated Railways would come into play and take over

I think that DOR should put in a bid on the SWT's franchise (or any franchise where there are 2 or fewer bidders). That would at least guarantee that MP's can be sure that they are getting good value for money.
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Anyway, the fact that on one franchise there has only been interest from 2 bidders doesn't mean that all will be like that.

 

[Robertj21a]

I think the SWT franchise my prove to be a one-off with only 2 bids. It's a very challenging franchise, with some uncertainties attached, and anybody following Stagecoach probably understands that they have a hard act to follow.

In any event, at this time, some of the others may well enough on their plates.

 

[DarloRich]

As it costs about £1million to sort out a bid and only one company can win maybe they are getting a bit more fussy about which franchises they go for, I mean you dont want to try for 10 franchises (costing £10million) if you are only likely to win one of them do you.

do DfT not indemnify the franchise bidding costs? Have I dreamt that up?

 

[sidmouth]

do DfT not indemnify the franchise bidding costs? Have I dreamt that up?

No, the bidders pay their own costs. The only time the bidders have a potential claim to have their costs paid is if the franchise bidding process aborted, although the ITT documents will tend to have a get out clause (though would be interested to see this challenged in a court of law). Nevertheless, someone has to pay the bidders costs - nothing is for free - and this will be eventually reflected in the bidders tender prices. Eg if their cost is £1m per bid on average and they have a 1 in 10 chance of success then expect the successful tenders' costs to be inflated by £10m.

 

[DarloRich]

No, the bidders pay their own costs. The only time the bidders have a potential claim to have their costs paid is if the franchise bidding process aborted, although the ITT documents will tend to have a get out clause (though would be interested to see this challenged in a court of law). Nevertheless, someone has to pay the bidders costs - nothing is for free - and this will be eventually reflected in the bidders tender prices. Eg if their cost is £1m per bid on average and they have a 1 in 10 chance of success then expect the successful tenders' costs to be inflated by £10m.

thanks - I assumed tenderers must bear their own costs but had a niggle at the back of my mind.

 

[Simon11]

No, the bidders pay their own costs. The only time the bidders have a potential claim to have their costs paid is if the franchise bidding process aborted, although the ITT documents will tend to have a get out clause (though would be interested to see this challenged in a court of law). Nevertheless, someone has to pay the bidders costs - nothing is for free - and this will be eventually reflected in the bidders tender prices. Eg if their cost is £1m per bid on average and they have a 1 in 10 chance of success then expect the successful tenders' costs to be inflated by £10m.

I wish to add that bids cost more than £1m each! Looking more between £3-4m to £10m as there will be over 100 staff involved during the peak of the bid! I'm currently working on a tram bid and the ITN with their list of requirements & information is over 1,000 pages.

If they wish to have more bidders, they need to:
-Ensure a steady supply of franchises onto the market- there is only so many a company can bid for with one bid team.
-Reduce the cost of franchise bids- reduce the output required in the bid and make efficiency savings. Passport is a good first step
-The biggest challenge for new entrants is resourcing good quality and experienced staff, not easy when you need a minimal of 20 just to lead a bid. Using agency staff will be very expensive.

 

[Bletchleyite]

How do they do it? In leyman's terms? Ha ha.

They are just much smaller franchises which are thus by definition open to smaller organisations. Though most are bidded for by the same big ones.

 

[Camden]

We get told that privatisation will give us more choice.

That was never the objective of privatisation. Competition was only ever going to be between companies bidding to run the services, thus driving down (haha) the cost to government of running the services.

 

[AndrewP]

I work in procurement a lot of the time and having just two bidders is not ideal but can still result in great competition - its certainly not a disaster as many procurement processes which start out with multiple suppliers end up as a competition between two bidders anyway - it all depends how much they want the contract.

Where the risk lies is if one company pulls out of the process and you lose competition.

You can even get good value with a single supplier but to achieve this you need:

• An exceptional negotiating team
• Something to benchmark the service and financial offers against so you can demonstrate value

 

[LNW-GW Joint]

This is the PAC report: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmpubacc/600/600.pdf
It's more about DfT capability than the franchise structure.
Given they made hay last time over the ICWC fiasco and rolling stock procurement it's all rather mild.

 

[andrewkeith5]

I think that DOR should put in a bid on the SWT's franchise (or any franchise where there are 2 or fewer bidders). That would at least guarantee that MP's can be sure that they are getting good value for money.
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Anyway, the fact that on one franchise there has only been interest from 2 bidders doesn't mean that all will be like that.

Strictly speaking, DOR are bidding for the South West franchise, given that they were bought by Stagecoach (and Virgin) when they took over the East Coast.

 

[swt_passenger]

I think that DOR should put in a bid on the SWT's franchise (or any franchise where there are 2 or fewer bidders).

DOR are not staffed or funded to put in bids. Despite the number of times it is suggested, they just cannot do what you want...

(BTW, you keep adding an unnecessary apostrophe and s to SWT, where T = Trains.)

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Strictly speaking, DOR are bidding for the South West franchise, given that they were bought by Stagecoach (and Virgin) when they took over the East Coast.

They didn't buy DOR, they bought its subsidiary ECML operating company.

 

[cjmillsnun]

So what happens if there are no bidders and the incumbent doesn't want to know due to losses?

DOR would have to step in

 

[43074]

IIRC the West Coast bids cost each of the bidders somewhere in the region of £15m each at 2012 prices, the DfT had to pay £60m to the bidders in total for messing up the process.

 

[3141]

DOR would have to step in

I work in procurement a lot of the time and having just two bidders is not ideal but can still result in great competition /QUOTE]

In effect the ICWC franchise bidding in 2012 boiled down to two: First and Virgin offered much larger sums than the other two bidders.

Perhaps motivation is an important element in getting the largest value out of the process. Virgin really wanted to keep West Coast, and it seems that First really wanted to win it. The others obviously wanted it as well, but not at any price.
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DOR would have to step in

Perhaps it's more accurate to say that DfT might ask DOR to run the service while they decided what to do.

 

[Elecman]

I thought DOR had now been split into different consultants do wouldn't be able to run anything without a contractural franchise between the consultants and a train operator?

 

[swt_passenger]

I thought DOR had now been split into different consultants do wouldn't be able to run anything without a contractural franchise between the consultants and a train operator?

That is just the normal 'dormant' situation with DOR. Prior to being involved with the ECML it was just a few retained consultants. It was increased in manpower to act as the supervisory authority for the TOC.

That's why it cannot bid for anything, it doesn't really exist in between activations. Their archived website suggested that it is usually about 5 men and a PA, and their final report up to March 2015 suggests that they were retiring and DfT would then transfer the 'operator of last resort function' to new consultants, which they apparently have now done.

 

[furnessvale]

That is just the normal 'dormant' situation with DOR. Prior to being involved with the ECML it was just a few retained consultants. It was increased in manpower to act as the supervisory authority for the TOC.

That's why it cannot bid for anything, it doesn't really exist in between activations. Their archived website suggested that it is usually about 5 men and a PA, and their final report up to March 2015 suggests that they were retiring and DfT would then transfer the 'operator of last resort function' to new consultants, which they apparently have now done.

As I have posted in another place, it would be well worth DfTs while, to set up DOR so that it was able to enter proper "shadow" bids, even if they were not actually used.

At the cost of a few £millions per franchise let, it would really give DfT a handle as to whether they were being screwed.

 

[pdeaves]

As I have posted in another place, it would be well worth DfTs while, to set up DOR so that it was able to enter proper "shadow" bids, even if they were not actually used.

At the cost of a few £millions per franchise let, it would really give DfT a handle as to whether they were being screwed.

But weigh that money up against buying a hospital or school or something. There's ever enough money for everything and I suspect the appropriate government people think it's better not to apparently 'waste' money when it could be spent elsewhere.

Additionally, any organisation putting bids together that would not be used could just put stupid numbers in. Hey, fleet of new trains. Put £10 for that...

 

[Moonshot]

As I have posted in another place, it would be well worth DfTs while, to set up DOR so that it was able to enter proper "shadow" bids, even if they were not actually used.

At the cost of a few £millions per franchise let, it would really give DfT a handle as to whether they were being screwed.

Or maybe something a bit more radical.... ASLEF and RMT put in bids as co operatives.....

 

[deltic]

As I have posted in another place, it would be well worth DfTs while, to set up DOR so that it was able to enter proper "shadow" bids, even if they were not actually used.

At the cost of a few £millions per franchise let, it would really give DfT a handle as to whether they were being screwed.

Effectively shadow bids are already produced for all franchises by the DfT at great expense. Its consultants produce comparator models that set out the cost of providing the required/expected level of service on the franchise in great detail. These are then used to both see whether the bids that come in are realistic and to test the cost and benefits of bidders' ideas for service enhancement.