Should franchises be awarded earlier

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Andyh82

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We've seen the new Northern and Transpennine Express franchise start with the promise of new trains but cynicism as its announced it'll be a couple of years before they appear. Similar occurred when VTEC took over East Coast where it's business as usual timetable and stock wise.

Therefore should franchises be awarded much earlier before they start, so new trains and improvements like timetable changes can start closer to the start of the franchise? What would be standing in the way of this?

It always seems odd that once all the improvements are in place the franchise is half over, and they only have a couple of years before they invariably lose the franchise again.
 
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me123

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I personally don't think that awarding a franchise earlier will improve things.

I believe that franchises should be awarded for longer terms than they are, but even under the current system I think that TOCs should be investing in their franchises over the long term. This means that they should be implementing changes throughout the length of the franchise.

If we gave them a few years to prepare (which is what would be required for timetable changes and new rolling stock), I think you'd risk a situation where the franchises deliver the vast majority of changes over the first year or so, then sit complacent until it's time for the franchise renewal. You'd probably also see a flurry of activity in the year before the bid goes in. Furthermore, for the time between the franchise award and the start of the franchise, the incumbent TOC has absolutely no incentive to continue investment unless they have been awarded the franchise again (as is the case with TPE). I think therefore that this time should actually be as short as possible, as nothing positive is likely to come from management in that time.

We should be encouraging a situation where the franchise owner delivers improvements over the length of the franchise. I don't think we're great at this currently, but I think your suggestion would be a step in the wrong direction.
 

edwin_m

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Agreed, the time from announcement to handover should be as short as is necessary for both parties to make all the arrangements. Service improvements may all happen on one day due to timetable changeover dates being fixed, but the new stock needed to deliver them will appear more gradually over the preceding months as they arrive from the factory, staff are trained and everybody gets the experience necessary to run them reliably. All this activity needs to be under the management of the new franchisee who proposed them in their bid.
 

MrB

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The problem with short franchises is that the franchise holder won't to invest if they won't see any gains from it within the franchise period, meaning that only longer franchises (e.g. Chiltern) receive real improvements.
 

ComUtoR

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During this newly created handover period. Who is responsible for the franchise. Who will receive the revenue and who will take the costs ? The incumbent or the new holders. ?
 

edwin_m

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During this newly created handover period. Who is responsible for the franchise. Who will receive the revenue and who will take the costs ? The incumbent or the new holders. ?

The winner of the new franchise has always been announced well before the planned end date of the old one, as seen for example with Northern and TPE where we have known for some time who was going to take over last Friday.

I may have been misleading when I described it as a handover period - essentially the existing franchise runs for the rest of its term as originally planned, but the new franchisee makes all the arrangements so they can take over the service, trains and staff on the appropriate date. A lot of this is probably legal stuff such as the signing of leases and track access agreements, which normally expire on the end date of the franchise. But also manufacture of stickers to obliterate the previous franchisee's name!
 

gsnedders

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The problem with short franchises is that the franchise holder won't to invest if they won't see any gains from it within the franchise period, meaning that only longer franchises (e.g. Chiltern) receive real improvements.

But you practically have the same issue with longer franchises, as they have no motivation to invest near the end. The ROI is always going to be better for changes made earlier on in the franchise, and better the longer the franchise is.
 

mark-h

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Awarding a franchise early would increase the length of time the outgoing franchisee will operate knowing that the are not continuing.
 

DarloRich

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The winner of the new franchise has always been announced well before the planned end date of the old one, as seen for example with Northern and TPE where we have known for some time who was going to take over last Friday.

I may have been misleading when I described it as a handover period - essentially the existing franchise runs for the rest of its term as originally planned, but the new franchisee makes all the arrangements so they can take over the service, trains and staff on the appropriate date. A lot of this is probably legal stuff such as the signing of leases and track access agreements, which normally expire on the end date of the franchise. But also manufacture of stickers to obliterate the previous franchisee's name!

do you not think this already happens? This will all take place as of course on any franchise change over.
 

edwin_m

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But you practically have the same issue with longer franchises, as they have no motivation to invest near the end.

That's true, but the longer the franchise the less of an issue that is. For example if a TOC needs 2 years remaining in the franchise to get a decent return on some investment, that's 25% of an 8-year franchise during which they won't bother, but only 10% of a 20-year franchise.
 

ComUtoR

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I may have been misleading when I described it as a handover period - essentially the existing franchise runs for the rest of its term as originally planned, but the new franchisee makes all the arrangements so they can take over the service, trains and staff on the appropriate date.

Sorry if I'm confused but if the new franchisee is making staffing arrangements then essentially isn't that a situation where two companies are trying to run the franchise. If the new franchisee needs to make amendments to staff contracts or increase/decrease staff. The couldn't be allowed to do that whilst they are not officially in charge.

I understand that it should be part of the handover process and that the outgoing company should work together with the new incumbents but I thought this was already part of the franchise process. A few franchise agreements I've read account for a changeover period and that the new incumbents agree to accept current practices and whatever procurement agreements are already in place. Stock, timetables, diagrams etc are all long term plans and are on ongoing process some agreements may be months, if not years, in the planning.

I have seen recruitment clauses in a franchise agreement but you couldn't expect the existing owners to recruit and pay for new staff. Having a franchise change announced earlier serves as a disincentive for any real change.

I understand the need for quicker change when a new franchisee may have won their bid on the back of a raft of improvements but after seeing a few franchise changes I have learned that the entire process is more fluid than old company/new company changing over on a single date.
 

plcd1

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We've seen the new Northern and Transpennine Express franchise start with the promise of new trains but cynicism as its announced it'll be a couple of years before they appear. Similar occurred when VTEC took over East Coast where it's business as usual timetable and stock wise.

Therefore should franchises be awarded much earlier before they start, so new trains and improvements like timetable changes can start closer to the start of the franchise? What would be standing in the way of this?

It always seems odd that once all the improvements are in place the franchise is half over, and they only have a couple of years before they invariably lose the franchise again.

You can only have one company operating a franchise at any time. The issue is not about transfer dates, mobilisation periods or such like. The issue is the DfT's requirements and risk transfer. The DfT clearly pays for the key investment in new or improved assets even if the actual procurement / introduction / operation is handled by the TOC. By seeking to transfer the risk around revenues, costs and performance this forces TOCs to spend heavy at the start and to have nothing planned at the end. The impetus is always to get costs under control quickly and get more bums on seats / shove prices up as soon as is allowed by the timing of fare changes. No one is going to put themselves at risk of spending large sums of money in advance of taking on a business - no one would finance that type of deal anyway. You might secure agreement from funders in advance but no money will move until the new company has their hands on the business.

The only way round this "up front" spending and change is to adopt the TfL concession model where the revenue risk sits with the organisation that procures the service. TfL also now control all large scale investment decisions so they can take place at any point in the concession term because the risk doesn't sit with the operator. Clearly in the TfL model the TOC has no incentive to do anything clever with pricing - they just do what TfL says.

The DfT is loathe to move away from risk bearing franchises regardless of whether the nature of specific franchises is such that it would make vastly more sense to do so. If you have burgeoning demand on urban rail networks - be they in London or Manchester or Glasgow or Cardiff - then to my mind it's far more sensible to have a defined programme of investment in capacity and service quality that is divorced from franchise terms. The TOC can be responsible for implementing the work but they wouldn't act as a proxy funder. The funding should come from the DfT or national / regional government directly at a time when it makes most sense even if the works straddle a franchise change. We're seeing that with the Overground right now - station works on West Anglia, new rolling stock on order across a change of operator and major electrification works on Barking - Gospel Oak. Regardless of who had won the new contract their preparations and takeover would have to pick up the reigns of all of these works and their impacts.

I think having a mobilisation period of around 6-7 months is about as fast as anyone can expect for NR franchises. The need to appoint senior staff, prepare all the legal and procurement stuff, effect staff transfers and ensure all the requisite safety and regulatory compliance is in place is no small task and clearly involves some expenditure by the incoming business but it's relatively low risk once there are signatures on the new contract. I suspect the big groups who own the TOCs would be very reluctant to see long lead in times - it costs enough to bid anyway and having to fund a 1 year mobilisation period for no great gain doesn't make sense. If you want to keep funding, cost and revenue risk with the TOCs then I fear you're lumbered with front ended investment.
 

edwin_m

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Sorry if I'm confused but if the new franchisee is making staffing arrangements then essentially isn't that a situation where two companies are trying to run the franchise. If the new franchisee needs to make amendments to staff contracts or increase/decrease staff. The couldn't be allowed to do that whilst they are not officially in charge.

I understand that it should be part of the handover process and that the outgoing company should work together with the new incumbents but I thought this was already part of the franchise process. A few franchise agreements I've read account for a changeover period and that the new incumbents agree to accept current practices and whatever procurement agreements are already in place. Stock, timetables, diagrams etc are all long term plans and are on ongoing process some agreements may be months, if not years, in the planning.

I have seen recruitment clauses in a franchise agreement but you couldn't expect the existing owners to recruit and pay for new staff. Having a franchise change announced earlier serves as a disincentive for any real change.

I understand the need for quicker change when a new franchisee may have won their bid on the back of a raft of improvements but after seeing a few franchise changes I have learned that the entire process is more fluid than old company/new company changing over on a single date.

I said or intended to say that the new franchise would make arrangement to transfer the staff, not actually do so. The TUPE regulation means they have to transfer on their existing terms and conditions, and it is then up to the new company to make any changes after that.

The only employees of the new franchisee before the handover will be a small team managing the transition including any new staff they have appointed or brought in from elsewhere in their own organisations (typically senior managers). I imagine some of these people will be from the team that prepared the bid, given that they are the most familiar with what the new franchise plans to do. I don't know if the new franchisee can take on any of the existing operator's staff unless they agree to release them.
 
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HH

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But you practically have the same issue with longer franchises, as they have no motivation to invest near the end. The ROI is always going to be better for changes made earlier on in the franchise, and better the longer the franchise is.

It's within the DfT's hands. All they have to do is agree that the assets are "franchise" assets, or some other method of transferring value at the end of the franchise. It has been done and can be done at any time.

The main issue is actually that TOCs prefer to keep some plans up their sleeves for the next franchise bid and the DfT does too...
 

edwin_m

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It's within the DfT's hands. All they have to do is agree that the assets are "franchise" assets, or some other method of transferring value at the end of the franchise. It has been done and can be done at any time.

The main issue is actually that TOCs prefer to keep some plans up their sleeves for the next franchise bid and the DfT does too...

Also I think they'd prefer to give the franchise bidders the maximum flexibility to innovate and offer measures that will improve the service and/or reduce the costs. Every time they specify that certain assets must be used and paid for, they limit this flexibility.
 
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