Rail Franchises to be Replaced with Fixed Fee Contracts

[thedbdiboy]

Bingo. ALMO arrangements exist purely so that no politician can ever be held accountable for their failures. See Grenfell Tower for more details.

It isn't "cheaper" or more "flexible", it's hiring in a scapegoat.

It's ironic that this fragmentation actually increased costs because TOCs could be played off against each other when negotiating wage rises.

You're assuming a very specfic type of arms length contracting and tarring every other kind with the same accusation. British Rail was an arms length model. It's not about deflecting accounatbility, it's about recognising that here-today-gone-tomorrow elected politicans on 4 and 5 years cycles cannot possible have the depth of experience and knowledge to manage the adequate long term interests of sustainable businesses.

The DfTs capabilties as a contracting entity have been pretty woeful. TfL's is generally better - not perfect but at least people know who is accountable. With the franchises, the DfT have effectively created the very scapegoats you decry - this forum is full of laments about TOC policies where the operators are effectively just a patsies for DfT policies.

 

[Tetchytyke]

Bus driver turnover is high - surely there is an incentive to keep good bus drivers ?

If there was an incentive, bus operators would do so. The closest you get are contract clauses making drivers who leave pay back the cost of their training.

The fact they don't, the fact that bus drivers get barely nine quid an hour normal, suggests that bus companies see them as easily replaceable.

The DfTs capabilties as a contracting entity have been pretty woeful. TfL's is generally better - not perfect but at least people know who is accountable. With the franchises, the DfT have effectively created the very scapegoats you decry - this forum is full of laments about TOC policies where the operators are effectively just a patsies for DfT policies.

Absolutely, I agree with all of that. With the level of DfT micromanaging in recent years, many of the franchises are ALMOs in all but name anyway. DOO, as an extreme example of this.

You're assuming a very specfic type of arms length contracting and tarring every other kind with the same accusation. British Rail was an arms length model. It's not about deflecting accounatbility, it's about recognising that here-today-gone-tomorrow elected politicans on 4 and 5 years cycles cannot possible have the depth of experience and knowledge to manage the adequate long term interests of sustainable businesses.

It's a tough one. Make it too political and you do get short-termism, but make it too arms-length (and that includes hidden micromanagement) and nobody is ever to blame for anything.

I think BRB got the balance pretty much right tbh. Everybody knew where everybody stood. There was enough political responsibility to keep everything mostly in check. Not like now, where DfT politicians (and highly political mandarins like Wilkinson) get to prat around every six months free from any sort of consequence.

The issue with franchises/concessions is that everyone gets to hide. It's not the TOC's fault, it's the DfT who are crap. It's not the DfT's fault, it's the TOC who are crap. Nobody is responsible.

TfL are better at this but it's harder for TfL and the London Mayor to hide. But where they can they will, as with the Croydon tram crash, TfL couldn't move quickly enough to blame First and vice versa.

 

[Starmill]

You can’t have no political control over the spending of large sums of taxpayer cash!

Er, why? NHS England has very little political control. Sir Simon Stevens has enormous autonomy from the Department of Health and Social Care, enough that the Train Operating Companies could only dream of! And this is for a service with a budget of well over £100 billion - many times over what's spent on English railways. Notice how there's one organisation that has one person in charge of it too, despite it being much greater than the railway in both scale and scope. And that person can say 'no' to the Secretary of State.

Of course, this is all under attack now by Matt Hancock, but still. The BBC and the Bank of England also generate expert, quality output (when they're not being undermined by Ministers) and spend taxpayers money without political control.

 

[Roast Veg]

LO and Merseyrail have done good things with their concessions - MR has had great reliability and LO has historically been pretty adept at growth while they still had big money. Directly Operated Railways and the Operator of Last Resort are also good litmus tests for how well the model fares, and it seems to have turned fortunes around for the ECML twice, Northern once, and Southeastern once with relative success.

The concession model offers one more big bonus, and that's that management companies will now be paid for managerial work, instead of being backpaid for the incredibly expensive franchise bidding process. Concession bidding is a much more stable game.

All in all, it's the only sensible option right now. I look forward to speculation on the pros and cons as it unfolds throughout the next decade.

 

[Meerkat]

Er, why? NHS England has very little political control. Sir Simon Stevens has enormous autonomy from the Department of Health and Social Care, enough that the Train Operating Companies could only dream of! And this is for a service with a budget of well over £100 billion - many times over what's spent on English railways. Notice how there's one organisation that has one person in charge of it too, despite it being much greater than the railway in both scale and scope. And that person can say 'no' to the Secretary of State.

Of course, this is all under attack now by Matt Hancock, but still. The BBC and the Bank of England also generate expert, quality output (when they're not being undermined by Ministers) and spend taxpayers money without political control.

The NHS is under political control - Stevens doesn’t get to set Up the NHS organisational structure how he would like. Even the BBC has to take account of political pressure.
Its why I don’t like nationalised control - the politicians decide on the outputs of everything, based largely on their noisiest voters. This is fair enough for local metro concessions where most of the bill is being picked up by the taxpayer, but means the passengers aren’t more important than politicians on the routes that can make money.

Directly Operated Railways and the Operator of Last Resort are also good litmus tests for how well the model fares, and it seems to have turned fortunes around for the ECML twice, Northern once

What’s changed on Northern yet?
And what did they turn round on ECML, in fact what was wrong with ECML other than not making enough profit to pay the DFT the agreed amounts?

 

[Bletchleyite]

Its why I don’t like nationalised control - the politicians decide on the outputs of everything, based largely on their noisiest voters. This is fair enough for local metro concessions where most of the bill is being picked up by the taxpayer, but means the passengers aren’t more important than politicians on the routes that can make money.

True. That's why something "arms length" like BR (or DOR) works a bit better - the Government sets the general aims and the funding package, but then the railway professionals get on with doing it.

But that I suppose can happen with concessions, too, it's just a slightly more formal structure.

One thing Merseyrail might teach them about revenue, though, is that it is worth some form of revenue risk in the contract because otherwise the concessionaire just doesn't bother with revenue protection at all because it's not their problem. The current Merseyrail concession does include some level of revenue risk to the TOC. Though there are other ways of doing that, e.g. base certain payments on levels of ticketless travel.

 

[RT4038]

The NHS is under political control - Stevens doesn’t get to set Up the NHS organisational structure how he would like. Even the BBC has to take account of political pressure.
Its why I don’t like nationalised control - the politicians decide on the outputs of everything, based largely on their noisiest voters. This is fair enough for local metro concessions where most of the bill is being picked up by the taxpayer, but means the passengers aren’t more important than politicians on the routes that can make money.

Quite. Exactly this.
Also Sir Simon Stevens may have 'enormous autonomy', until he does (or doesn't do) something to upset the Government, when he gets replaced.

Directly Operated Railways and the Operator of Last Resort are also good litmus tests for how well the model fares, and it seems to have turned fortunes around for the ECML twice, Northern once, and Southeastern once with relative success.

I am not sure that it is true to say that DOR has 'turned the fortunes round' of these franchises? Are DOR paying more premium to the DfT than VTEC were?

 

[Meerkat]

True. That's why something "arms length" like BR (or DOR) works a bit better - the Government sets the general aims and the funding package, but then the railway professionals get on with doing it.

I don’t see how arms lengths agencies are going to escape the deathly grip of the DfT when even the profit making franchises couldnt (ie GWR/LNER getting IEP foisted on them)
I really don’t see why the railways have to have a one size fits all model. Concessions make sense for highly specced and subsidised metro operations, but let the Intercity operations have a much freer private model where the providers react to what the passengers want (ie what they will pay for)

 

[Bletchleyite]

I really don’t see why the railways have to have a one size fits all model. Concessions make sense for highly specced and subsidised metro operations, but let the Intercity operations have a much freer private model where the providers react to what the passengers want (ie what they will pay for)

The problem is that in the UK we don't, with the odd exception, really have distinct IC and regional operations, there is considerable overlap. On the German structure our entire system would be RB/RE/IRE, no IC/ICE at all even though we have vaguely comparable speeds on e.g. the WCML and ECML.

What we could do is to spend the money to ensure a minimum of say an hourly local service by a concession-based regional TOC serving every station (and closing those where it's not workable) then make IC a fully commercial free-for-all, but the cost of that would be quite high. And then you get onto operators like TPE which are really regional expresses but have bits that are "a bit IC" like the Scottish services.

 

[Meerkat]

The problem is that in the UK we don't, with the odd exception, really have distinct IC and regional operations, there is considerable overlap. On the German structure our entire system would be RB/RE/IRE, no IC/ICE at all even though we have vaguely comparable speeds on e.g. the WCML and ECML.

What we could do is to spend the money to ensure a minimum of say an hourly local service by a concession-based regional TOC serving every station (and closing those where it's not workable) then make IC a fully commercial free-for-all, but the cost of that would be quite high. And then you get onto operators like TPE which are really regional expresses but have bits that are "a bit IC" like the Scottish services.

TPE I think would be a basic minimum service spec then let the franchisee work it out.
WCML/ECML/GWML I am pondering flogging off (auctions for fixed fees or profit shares) packages of paths. Possibly have one ‘headline’ package that got the best slots but also covered the minimum service spec desired by government (less commercial stops, earlier/later trains etc).
Anyway we are wondering off so To get back on topic I will be disappointed if a flat concession system is put across the board, sucking the innovation and passenger responsiveness out of the commercially successful lines.

 

[JonathanH]

The problem is that in the UK we don't, with the odd exception, really have distinct IC and regional operations, there is considerable overlap. On the German structure our entire system would be RB/RE/IRE, no IC/ICE at all even though we have vaguely comparable speeds on e.g. the WCML and ECML.

What we could do is to spend the money to ensure a minimum of say an hourly local service by a concession-based regional TOC serving every station (and closing those where it's not workable) then make IC a fully commercial free-for-all, but the cost of that would be quite high. And then you get onto operators like TPE which are really regional expresses but have bits that are "a bit IC" like the Scottish services.

There would still be lines where the IC operator was the only one. We have a mixed traffic set up because that is what works. You will get your wish for a IC / RB / RE set up when HS2 is built.

 

[Clarence Yard]

The railway operates a clearing-house method of dealing with revenue, so it is less relevant than in other types of contracting. But it is irrelevant in terms of contracting when you don't take the revenue risk.

It really doesn't in the way you are thinking. Revenue is not collected and dispersed centrally so you need to deal with the revenue aspects yourself.

To run your business you need cash and that cash requirement has to be funded and then the contracting entity usually requires some kind of financial bond in case you go bust and they have to step in at short notice. That bond also has to be funded.

This lack of understanding has been at the heart of discussions between owning groups and the DfT because the management fee initially being offered under the proposed new arrangements was so pitiful that no one could make any money out of it. In the private sector you don't usually satisfy your shareholders by losing them their money.

A point about DOR. They are contractors just the same as anyone else - they are just more expedient to use in times of crisis, thus saving contracting costs. They get management fees for running the TOC.

The key to private sector involvement is the ability to reduce or maintain unit costs in the business being offered under contract. Cost and scope creep is a problem for public sector direct control so making sure it becomes too difficult to do is one factor in deciding to contract out. But if you want to keep interfering, don't contract out because Change in contracts costs you real money.

BR wasn't immune to political interference and it wasn't unknown for the heavy hand of the Treasury to come down at very short notice. The public just weren't so aware of what was going on in those far off days.

 

[CBlue]

Completely agree with this. Greater Anglia another example, deciding to replace its entire fleet for the sake of it. Or south west binning the brand new 707 fleet.

I think there's a difference here.

I don't think the arthritic 317s, shonky Sprinters and worn out LHCS were being replaced "for the sake of it".

Running life-expired stock is a false economy, as can the "trigger's broom" approach as the Class 769's are happily showing....replacing those with newer and cheaper to operate units is a no-brainer.

The 707 debacle however is pretty nuts and does raise questions about the efficiency of leasing stock in the way operators do here.

 

[DynamicSpirit]

The NHS is under political control - Stevens doesn’t get to set Up the NHS organisational structure how he would like. Even the BBC has to take account of political pressure.
Its why I don’t like nationalised control - the politicians decide on the outputs of everything, based largely on their noisiest voters.

I agree with you that in many ways that's bad. But is it any worse than privatised control if privatised control means that the company directors decide on outputs based largely on which customers will pay the most?

 

[BeHereNow]

True. That's why something "arms length" like BR (or DOR) works a bit better - the Government sets the general aims and the funding package, but then the railway professionals get on with doing it.

What makes you think DOR is arms length?

Do you know how a DOR contract works?

The only thing it is arms length from is an owning group.

 

[JonathanH]

The 707 debacle however is pretty nuts and does raise questions about the efficiency of leasing stock in the way operators do here.

If there had been an organised cascade of the 707s away from the SWR route, I don't think anyone would have had a problem - the fleet is finding its way to the South Eastern network.

Did people lament about 508s going from Waterloo services to Merseyside? Did they raise concerns when the 317s operated three different routes in the first ten years of their operation? What about 170s coming off the Midland route after only a few years? Sometimes units only last a short time on their initial routes.

It isn't just a function of the leasing arrangements we have now.

 

[LNW-GW Joint]

BR wasn't immune to political interference and it wasn't unknown for the heavy hand of the Treasury to come down at very short notice. The public just weren't so aware of what was going on in those far off days.

Like the 10% service cuts imposed on BR by DfT in the early 90s recession.
Detractors of the franchise system forget that the 7-10 year franchise terms are usually upbeat in terms of renewal and service development, whatever happens to the wider economy.
As a result the railway sailed through the 2008-10 recession almost unscathed, while public sector operations generally were severely cut right up to recently.
Meanwhile the TOCs (and NR with its 5-year HLOS/CP deals) carried on regardless.

Just now and again, franchise renewal hit the low point of SRA/DfT budget planning and TOCs ended up with "no growth" deals (eg Northern, XC).
We could very easily be back in that position with concessions.

 

[Starmill]

What makes you think DOR is arms length?

Do you know how a DOR contract works?

The only thing it is arms length from is an owning group.

Do you mean OLR?

 

[BeHereNow]

Yes, apologies, DOR being the first OLR type contract. And now obsolete.

 

[Bletchleyite]

To get back on topic I will be disappointed if a flat concession system is put across the board, sucking the innovation and passenger responsiveness out of the commercially successful lines.

Isn't that more about the management, though? Avanti, I will agree, is rubbish - its one redeeming feature is that it's not XC (and it's frustrating as there is so much they could have done by playing on the Italian thing). But LNER is a form of concession and that seems to be innovative.

Just now and again, franchise renewal hit the low point of SRA/DfT budget planning and TOCs ended up with "no growth" deals (eg Northern, XC).
We could very easily be back in that position with concessions.

We're going to be going for shrinkage on the London commuter operations, are we not? Possibly growth on IC to counter it, though. London commuting just isn't going to come back.

 

[BeHereNow]

LNER is OLR, financed by the Department for Transport.

 

[Bletchleyite]

LNER is OLR, financed by the Department for Transport.

It is, but it's to all intents and purposes a concession, I believe. OLR is a consortium of private companies if I recall, not actually a nationalised organisation.

 

[LNW-GW Joint]

Yes, apologies, DOR being the first OLR type contract. And now obsolete.

Both of these are/were branches of the DfT, staffed by consultants or by contract (OLR is actually staffed mainly by consultancy firm SNC Lavelin of Canada).
The DfT TOCs have "service agreements" rather than "franchise contracts".
Theoretically they are temporary, before re-franchising to the private sector as required by the Railways Act 1993.

DfT will have a commercial contract with the OLR consortium: SNC Lavelin, Ernst & Young and Arup.

 

[swt_passenger]

If there had been an organised cascade of the 707s away from the SWR route, I don't think anyone would have had a problem - the fleet is finding its way to the South Eastern network.

The 707s were driven off the franchise by DfT anyway, by specifying in the ITT that they were unsuitable stock for the route. So presumably a concession would have been told the same. I wish people would get this point, that sending the 707 offlease was not a unilateral decision by FMTR...

 

[Clarence Yard]

Both of these are/were branches of the DfT, staffed by consultants or by contract (OLR is actually staffed mainly by consultancy firm SNC Lavelin of Canada).
The DfT TOCs have "service agreements" rather than "franchise contracts".
Theoretically they are temporary, before re-franchising to the private sector as required by the Railways Act 1993.

DfT will have a commercial contract with the OLR consortium: SNC Lavelin, Ernst & Young and Arup.

They are effectively carrying out a management contract for which a fee is payable. The company vehicle for the TOC is DfT owned.

 

[pdeaves]

They are effectively carrying out a management contract for which a fee is payable. The company vehicle for the TOC is DfT owned.

Simplistically, the TOC is run by DfT but the top people are 'agency staff' supplied by the contractor (SNC-Lavalin, et al).

 

[ainsworth74]

I am not sure that it is true to say that DOR has 'turned the fortunes round' of these franchises? Are DOR paying more premium to the DfT than VTEC were?

I'm not sure that would be a fair test though? The premiums VTEC were contracted to pay were clearly wholly unsustainable which is why the franchise failed once it had burned through its parent company support. So expecting LNER to meet or even exceed them seems somewhat unfair. Surely the question should be is LNER paying the DfT a sustainable premium that maximises return to the taxpayer without bankrupting the company or preventing inward investment in the operation?

 

[BeHereNow]

And yet LNER seems to be doing ok despite the DfT "micro-managing".

The over-riding feeling on this forum seems to be that owning groups are all experts and it's the Department who are responsible for everything that goes wrong. It will be interesting to see what level of performance and stability is achieved in the new world, much like when DOR took over the East Coast franchise.

Either way it's largely the same people involved in running the railway, it's the financing of it and the associated cost pressures that are changing.

 

[ainsworth74]

And yet LNER seems to be doing ok despite the DfT "micro-managing".

It's an interesting one I think actually! Are the DfT actually micromanaging LNER? The sense I've had is that they're actually taking a much more arms length approach with LNER than they do with other franchises!!

 

[BeHereNow]

People seem to hate micro-management, right until the lack of it means a change to the number of calls at their station.