Comment

26.06.18

Franchising: Time for change?

Source: RTM June/July 2018

The recent timetabling chaos up and down the country has underlined that the current rail franchising model is broken – and passengers are paying the price, argues Meg Hillier, chair of the Commons Public Accounts Committee.

The recent delays and cancellations on Northern and Govia Thameslink have rightly caused outrage. The question is what the government needs to do to fix our rail system.

The Public Accounts Committee, and our sister committee the Transport Committee, have long highlighted the problems with the franchising model. The lengths of contracts are often too short, meaning that franchisees are not incentivised to invest in the future of the network.

Instead, rail operators often look to the short term and are risk-averse, limiting the potential to embed innovation.

Partly as a result, rolling stock is commissioned by government rather than the operator – a further separation of responsibility.

One of the key policy objectives of franchising was to use competition to improve quality of service and reduce costs. However, there is still a relatively small pool of bidders competing for contracts.

Although some new operating companies have entered the UK market (Italian operator Nuovo Trasporto Viaggiatori SpA and Spanish transport group Renfe Viajeros Sociedad Mercantil Estatal SA), there are still too few bidders for contracts. Without robust competition, franchising is a bust model.

Overly complex

The DfT needs to be more realistic in the design of its contracts. The problems with the GTR franchise stem from the over-complexity of the expected outcomes. The DfT added in complexity. It included supporting delivery of a large infrastructure project alongside modernising the operation of the service, introducing a new fleet of trains and rolling four existing routes into one. It also took on the unions by pushing through driver-only operated trains, which the department knew would be controversial. The contract was about as complicated as it could make it.

Delays on GTR have been partly due to the poor condition of the network, run by Network Rail. The infrastructure owner told the Public Accounts Committee that, until recently, it has been ‘virtually impossible’ to find the time to do the required volume of maintenance work, as GTR must run trains throughout the night on parts of the network as part of its franchise agreement.

Ultimately, the burden of the failure was borne by passengers – resulting in unprecedented cancellations and delays. Unbelievably, 146,000 trains were cancelled in less than two years between 2015 and 2017, and more trains have been delayed on this franchise than any other.

In designing and negotiating future contracts, the DfT must ensure that its priorities are aligned with those of its franchisees, and most importantly that both put the needs of passengers first.

Poor forecasting

Another issue is the DfT’s inability to accurately forecast demand for services. Its demand modelling has been poor and they still do not properly understand why passengers choose to travel by rail. Too often, there is a mismatch in expectation and an acceptance of over-optimistic bids from operators.

The recent demise of the East Coast franchise – the third time in 13 years –  highlights this. The operator’s passenger growth forecasts were spectacularly wrong and created a significant gap between predicted revenue and reality. As a result of Stagecoach’s poor forecasting, it will lose around £200m from the East Coast franchise, roughly 20% of the company’s current value.

Ultimately, it is government which picks up the pieces and the taxpayer who bears the cost. The government chose to take the East Coast franchise temporarily back into public control, but it plans to establish a new partnership between Network Rail and a private operator to run services.

My committee will continue to press the government on a more coherent approach. If it is wedded to franchising, it must make it work. At the moment, it’s simply not delivering.

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