Rail Franchises to be Replaced with Fixed Fee Contracts

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From this mornings Telegraph - an announcement on the formal ending of the Franchising system due this week, with The Williams Review by the sounds of it rendered pointless - with its recommendations BLOCKED, by the Gov pre COVID.


Ministers are ready to seize control of the railways after more than a quarter of a century of private ownership.

Franchises launched under John Major in the mid-Nineties will be ripped up and replaced by fixed-fee contracts from April, Whitehall proposals seen by The Sunday Telegraph reveal.

Under emergency measures, train operators such as South Western Railway and c2c serving commuters in the South East have been supported with more than £3.5bn in taxpayer funding since the pandemic struck and triggered a collapse in passenger numbers of as much as 95pc.

The arrangement, implemented in March and due to expire next Sunday, guarantees the franchises a fixed profit but is deemed “unsustainable going forwards given the economic position and significant pressure on public finances”, official documents say.

Grant Shapps, the Transport Secretary, is now expected to make an announcement in the coming days on a long-term solution that will permanently abandon franchises.

They will be replaced with “concession” agreements that are similar to outsourcing contracts widely used by the NHS and schools.

It means the Government will bear ultimate responsibility for operations. Fares will be collected by the Exchequer, which will pay train firms a fee.

Between Sept 20 and next April, new “conditional” agreements, called ERMAs, will create a “bridge” to the permanent changes, according to the plans.

They will be confirmed by Dec 13, with operators forced to sign up to a “built in franchise termination” clause – marking a permanent end to private control of the railways from April 2021.

If operators refuse to accept new terms, the Government’s own operator, which already runs the east coast and Northern lines, is primed to step in.

Whitehall officials and train bosses have been locked in confidential talks most of the summer to hammer out a deal for the future of the railways.

Operators have estimated that passenger numbers will only return to 90pc of pre-Covid levels in five years’ time, rendering previous franchise agreements economically unviable.

Ministers are desperate to limit the cost to the taxpayer of keeping services running and not prop up otherwise failing franchisees. Industry sources said that this has led to unappealing offers, some of which could lead to operators racking up fresh losses, sparking anger from train bosses and putting weeks into increasingly fraught negotiations.

Keith Williams, chairman of Royal Mail and ex-BA boss, was hired two years ago to conduct the biggest review of the railways since privatisation. Draft conclusions, reported by The Telegraph in February, proposed a cap on profits and an end to franchising. These are understood to have been blocked by the Treasury prior to the pandemic.

One senior industry source said: “They are using the current situation to bring in what they wanted all along.”

A spokesman for the Government declined to comment.
 
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LNW-GW Joint

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The Telegraph is usually Cummings' mouthpiece, so probably close to what is going on.
Converting franchises to concessions is one thing, but changing the shape of the railway for the Covid economy is quite another.
State control won't automatically reduce subsidy and cost to the exchequer.
The Telegraph gives the impression £3.5 billion is being "wasted" on SWR and c2c - I'd like to see how they will reduce it in DfT hands.

DfT has also published a spreadsheet of transport usage figures, daily since the start of Covid in February.
They show that the railway was down to 4-5% of normal during lockdown, and is now stuck at the 30% level.
Tube levels are no better, bus is up to about 50% while car use is pretty much back to normal.
 

alistairlees

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In the telegraph article it states " marking a permanent end to private control of the railways from April 2021".

The railways are not privately-controlled. They never have been (at least not in the last 75 years), really.

The suggestion that money will be saved by nationalising them is largely false - at least at the amounts of savings that the treasury might want. This can only be achieved by vast service cuts, and how railways are delivered doesn't really matter in that context. Obviously I don't want this to happen.

This article does sound like it originates from a mouthpiece of political spin, rather than rational policy-making.
 

Tetchytyke

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Interesting spin from the Telegraph, that somehow DfT control and fixed fees is wildly different from what we have now, even pre-Covid. It'd be more of a game-changer going back to DOR-era EastCoast (as opposed to the current "slap a new vinyl on it, but keep the same failed management and wonder why it's still a failure").

As for saving money: how? Concessions are the same as franchises: the net income is revenue less costs less the middleman's cut. The issue remains how much the middleman takes as a cut, but this cut will inevitably always be more than directly employing management on government contracts, because that's how you make profit.

Fiddling with deckchairs sold as radical reform. Sounds like Cummings to me.

So it sounds like they are implementing the Williams review, without admitting that that was what it said? :D
Ooh, I thought I was cynical :lol:
 

Martin222002

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As for saving money: how? Concessions are the same as franchises: the net income is revenue less costs less the middleman's cut. The issue remains how much the middleman takes as a cut, but this cut will inevitably always be more than directly employing management on government contracts, because that's how you make profit.
Well if EMA have been anything to go by, and that it looks like it the Treasury is firmly in charge of this, the 'cuts' as you put it will be very slim indeed, and for some owning groups not worth the bother.
 

thedbdiboy

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From this mornings Telegraph - an announcement on the formal ending of the Franchising system due this week, with The Williams Review by the sounds of it rendered pointless - with its recommendations BLOCKED, by the Gov pre COVID.

So it sounds like they are implementing the Williams review, without admitting that that was what it said? :D
The Williams review contained recommendations that the Treasury didn't like, because it meant DfT absorbing much more commercial risk. Covid essentially forced government into that position anyway, and because the existing contracts and contracting system is essentially now void, there is indeed little need to formally publish a review, consider reactions etc, even though a fair bit of the Williams template looks to be on the table for the way forward. There is still the issue of resolving who exactly is in charge - Williams was in favour of an 'arms length body' and there is still the issue of trying to create some space between the politics and high level political outputs and the actual running of the railway. People point to Network Rail but they would need to absorb/create the commercial functions to do this - as an infrastructure organisation it's not there right now.
 

snookertam

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Interesting to find out if Scotland and Wales specific services will be under the control of the devolved governments, although the general political winds suggests not (UK markets bill, if it passes).
 

Starmill

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Interesting to find out if Scotland and Wales specific services will be under the control of the devolved governments, although the general political winds suggests not (UK markets bill, if it passes).
They're currently under their control. Transport for Wales and Transport Scotland control three contracts already, and fund them independently, the same applies with Translink who are in control of Northern Ireland Railways and are funded by the Northern Ireland Executive. There is Merseytravel who probably cannot afford to fund Mersyrail without Department support, and Transport for London who clearly cannot afford to fund TfL Rail or London Overground without ongoing Department support. Eurostar, Grand Central and Hull Trains of course will survive or not on their own terms. It seems to me that only the 14 contracts managed by DfT are in scope for this change.

Well if EMA have been anything to go by, and that it looks like it the Treasury is firmly in charge of this, the 'cuts' as you put it will be very slim indeed, and for some owning groups not worth the bother.
There wasn't time to discuss EMA terms, the Department had to offer something that either all or almost all of its contractors would accept. There was no choice, if it didn't, there was a risk that more firms would shut down than the Department could take over with its Operators of Last Resort. This time there is plenty of choice for them about what to do.
 

P Binnersley

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This will also have a knock on effect on the rolling stock market. Leasing trains becomes a different ball game if you only have one potential customer.
 

w1bbl3

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DfT has also published a spreadsheet of transport usage figures, daily since the start of Covid in February.
They show that the railway was down to 4-5% of normal during lockdown, and is now stuck at the 30% level.
Tube levels are no better, bus is up to about 50% while car use is pretty much back to normal.
One of the more complex aspects of the DfT/ONS Covid transport usage figures is understanding the nature of journey and means of transport used prior to March for a same journey.
Saying that car usage is back to normal effectively assumes that journey's made in February by car are now back to being made by car. What I'd suggest has happened based on anecdotal conversations with colleague and associates at work is somewhat different many journeys that used to be made by public transport either are not happening or have shifted back to car, in terms of car journeys again many that used to happen are now due to WFH not happening. Longer term the problem is how to reverse the modal shift to private cars away from public transport, Covid-19 has in mear fortnight in March managed to undo 20 years of public transport shift. The economics of this are fundamental to the long term viability of public transport, yet the classical approach of increasing levies on private car usage may no longer have the desired effect due to WfH having proven to be viable for many businesses. Yet the optics of increasing the tax burdon on factory, retail and health workers where WfH isn't an option doesn't play well. How to solve this problem will certainly be interesting to watch.

This will also have a knock on effect on the rolling stock market. Leasing trains becomes a different ball game if you only have one potential customer.
Yes procurement and specification becomes a centralised function, the logical consequence of concessions is that a central body will have to be created to manage the concessions process akin I suspect the London Bus Services Ltd business of TFL.
 

Tetchytyke

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for some owning groups not worth the bother.
I think the opposite. Concessions are a guaranteed revenue stream. Profits won't be high but they will be consistent and, without any revenue risk or private investment required, it really would be free money.

This will also have a knock on effect on the rolling stock market. Leasing trains becomes a different ball game if you only have one potential customer.
Leasing agreements are already underwritten by DfT, and require the DfT's approval, so precisely nothing will change there.

There is still the issue of resolving who exactly is in charge - Williams was in favour of an 'arms length body' and there is still the issue of trying to create some space between the politics and high level political outputs and the actual running of the railway.
If you have "space" between the government and the operations then you have nobody with actual accountability. You have that space now, and what happens is the politicians claim the credit when it goes well and the TOCs cop the flack when it doesn't. Both sides blame each other and nobody actually gets held accountable.

This is the issue with all ALMO arrangements, you can't nail anyone down as responsible. Ultimately, this lack of accountability leads to something like Grenfell Tower or the Croydon tram crash.

I think there needs to be more politics on the railway, not less. There are down sides to this, of course there are, but nobody gets to duck accountability.
 

LNW-GW Joint

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One of the more complex aspects of the DfT/ONS Covid transport usage figures is understanding the nature of journey and means of transport used prior to March for a same journey.
Saying that car usage is back to normal effectively assumes that journey's made in February by car are now back to being made by car. What I'd suggest has happened based on anecdotal conversations with colleague and associates at work is somewhat different many journeys that used to be made by public transport either are not happening or have shifted back to car, in terms of car journeys again many that used to happen are now due to WFH not happening. Longer term the problem is how to reverse the modal shift to private cars away from public transport, Covid-19 has in mear fortnight in March managed to undo 20 years of public transport shift. The economics of this are fundamental to the long term viability of public transport, yet the classical approach of increasing levies on private car usage may no longer have the desired effect due to WfH having proven to be viable for many businesses. Yet the optics of increasing the tax burdon on factory, retail and health workers where WfH isn't an option doesn't play well. How to solve this problem will certainly be interesting to watch.
I'd agree with your analysis.
The glaring impact on rail is shown by the almost 10% per day drop in usage in mid-March, as lockdown approached and became inevitable.
I had the impression that the tube, and London generally, was doing relatively well in usage, but the numbers surprisingly keep in close step with main line rail.
While rail numbers have recovered somewhat, the growth levelled off in August at about 33% and now shows signs of reducing again as restrictions are reimposed.
 

Taunton

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Saying that car usage is back to normal effectively assumes that journey's made in February by car are now back to being made by car. What I'd suggest has happened based on anecdotal conversations with colleague and associates at work is somewhat different many journeys that used to be made by public transport either are not happening or have shifted back to car, in terms of car journeys again many that used to happen are now due to WFH not happening. Longer term the problem is how to reverse the modal shift to private cars away from public transport, Covid-19 has in a fortnight in March managed to undo 20 years of public transport shift. The economics of this are fundamental to the long term viability of public transport, yet the classical approach of increasing levies on private car usage may no longer have the desired effect.
You are correct. Many people realise that if they had not had their car to take the place of any public transport journeys or go to the grocery shop, they would have been screwed. Any political attempt to shut this down just to suit rail operators just won't happen.

The rail industry has actually got it good, although there will be reductions to suit demand to come. Airlines, city restaurants, etc, have all mostly lost their jobs.
 

ChiefPlanner

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Speaking for local trends ,I would say that car usage has increased - people not going to London for all sorts of reasons seem to be making more use of local facilities - and driving to them. The message of "do not use trains unless you are a key worker" (resulting in totally empty trains for a good number of weeks) , has probably made some serious damage. Off peak flows have indeed bounced back , my 3 young adults continue to use trains to London for sensible purposes and report that even late evening services are carrying decent numbers. Peak services (and I run one of them to the station every morning , still , overall quiet - say 40% on trains that were not so long ago 150%+) -
 

The Ham

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Speaking for local trends ,I would say that car usage has increased - people not going to London for all sorts of reasons seem to be making more use of local facilities - and driving to them. The message of "do not use trains unless you are a key worker" (resulting in totally empty trains for a good number of weeks) , has probably made some serious damage. Off peak flows have indeed bounced back , my 3 young adults continue to use trains to London for sensible purposes and report that even late evening services are carrying decent numbers. Peak services (and I run one of them to the station every morning , still , overall quiet - say 40% on trains that were not so long ago 150%+) -
Whilst car use is up locally from compared to lockdown, it's still down quite a bit from before.

As an example crossing at a nearby roundabout, before lockdown it could take 2+ minutes before I could cross it, now I can generally be across within a minute every time and fairly often there's almost no delay

The main road leading to the centre from it it would see queues of over 100m at the next junction whist now traffic just drivers up and sails through with next to no delay.

That includes last week when all the local schools where back in (with the exception of year R who only start back fully on Monday, but I doubt 120* children being out of school is likely to make that much difference to road traffic).

Yes, before you check it is one hundred and twenty, as the local infant school has 4 form entry.
 

Ianno87

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I think the opposite. Concessions are a guaranteed revenue stream. Profits won't be high but they will be consistent and, without any revenue risk or private investment required, it really would be free money.
Depends how much it becomes a "race to the bottom" as to which bidder can strip away the most cost to maximise the margin made on the concession.

Hopefully the contracts will have strong quality requirements stipulated in them (as Overground does) to stop, say, reliability being jeopardised to save cost.
 

matt_world2004

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I think the opposite. Concessions are a guaranteed revenue stream. Profits won't be high but they will be consistent and, without any revenue risk or private investment required, it really would be free money.
Concessions are by no means a guaranteed revenue stream. If the operator performs lower than their bid costs modelled for they could lose a load of money.

They only get paid for the services they run and recieve potentially unlimited fines for service failingsm even when those service failings are not the operators fault.

Think how much money MTR are losing because of the crossrail delays, the signalling problems at Heathrow and the poor reliability of the class 345s. . It's something like £10 000-£55 000 per cancellation and £150 per minute per delay.

TfL contracted Bus companies get fined £50 per ticketless travel incident encountered by a RPI that has not been reported to centrecomm. A spike in anti social behaviour can lead to a bus company paying more money to TfL than TfL pays them to run the route
 

Class 170101

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I'd say where I am road use has increased since Lockdown began but not its not back to normal. If it was, rush hours are very slow moving and its not like that, its still relatively free flowing.
 

popeter45

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i wonder if this will be a more businesses as usual move (e.g. still keeping franchise names like avanti and GWR) or be made a more visible move (e.g. DfT provided name like Intercity West Coast or even shared name like but not exclusively BR)
 

Meerkat

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i wonder if this will be a more businesses as usual move (e.g. still keeping franchise names like avanti and GWR) or be made a more visible move (e.g. DfT provided name like Intercity West Coast or even shared name like but not exclusively BR)
Keeping it looking private helps the DfT duck the blame for their decisions.....
 

BeHereNow

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Let's not forget how massively lucrative rail franchising was for a long time, which is what led to companies wanting to run franchises and bid big to win them. From 2017:

"Private train operators have creamed off £3.5billion from running our railways over the past 10 years.

These gigantic profits come despite passengers having to deal with overcrowding, delays, cancellations, strikes and among the highest ticket prices in Europe."
 
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StephenHunter

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By 2017, there was a real lack of people actually bidding for franchises. Also, those profits were for firms that also operated buses and other things as well.
 

RailWonderer

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So the least lucrative ToCs will claim the most and the most proftable ones will claim the least, if anything. So if someone buys an Avanti advance, the exchequer collects the fare and sends it to Northern and LNER, the biggest lossmakers, to prop up their operating costs. Could this mean a reduction in new rolling stock procurement and other ways to scrimp on costs, like cutting catering and shortforming to reduce mileage penalties on leased trains? I think that is for a seperate thread.
 

DavidB

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This will also have a knock on effect on the rolling stock market. Leasing trains becomes a different ball game if you only have one potential customer.
But it does mean that a sensible cascade plan could be put together more easily (theoretically - no guarantee that it will happen of course!)
 

LNW-GW Joint

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Let's not forget how massively lucrative rail franchising was for a long time, which is what led to companies wanting to run franchises and bid big to win them. From 2017:
I wouldn't rely on those massive figures.
They were part of a concerted union-led campaign for renationalisation at that election, which the public did not buy.

Profits were pretty good in the first round of franchising, but the terms got harder each time (along with SRA/DfT micro-management) to the extent that shirts were lost in the last round.
National Express, Stagecoach and Virgin have left the industry after significant losses.
First Group may have got decent returns out of GWR but they are in dire straits with TPE and SWR.
Recent franchise competitions have not drawn much interest.
5% returns were typical early on, but that has reduced to 2% in the current EMAs.
Most businesses would not get out of bed for 2%, unless there were good long-term prospects.
The DfT has prospered hugely from the deals made to reduce subsidy/increase premiums.

Meanwhile, across the Channel, the French government has called for bids for 3 Regional concessions in the north, as part of the opening up of SNCF to competition.
 

Clarence Yard

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So the least lucrative ToCs will claim the most and the most proftable ones will claim the least, if anything. So if someone buys an Avanti advance, the exchequer collects the fare and sends it to Northern and LNER, the biggest lossmakers, to prop up their operating costs. Could this mean a reduction in new rolling stock procurement and other ways to scrimp on costs, like cutting catering and shortforming to reduce mileage penalties on leased trains? I think that is for a seperate thread.
That’s effectively how the DfT have operated the franchise system up to now, using the premium from one to pay for the subsidy for another.
 

Ianno87

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Profits were pretty good in the first round of franchising,
It was a mix. The original South West Trains and Thameslink franchises didn't really innovate much, but reaped rewards from the late 90s boom and resultant passenger increases.

Meanwhile operators that did develop and invest in services, such as Midland Main Line, saw lower profits as a result.
 

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