The Sleeper's Blog

18.09.18

The East Coast franchise report tells us what we already knew: it was a bid set up to fail

RTM's Jack Donnelly assesses what the Transport Committee's latest report on the VTEC franchise means for the industry as a whole

“Even now, there is no concrete plan, nor timescales, for the interim operator of this franchise. From our inquiry, we cannot be sure, and cannot reassure passengers or public, that the arrangements for the East Coast Partnership will more successfully overcome the systemic difficulties presented by the current set-up.”

This was the view of Transport Select Committee chair Lilian Greenwood last week during the announcement of MPs’ scathing review of the debacle that was the Virgin Trains East Coast (VTEC) franchise.

Following news in June that the InterCity East Coast (ICEC) franchise would once again be back in public hands, MPs set out to decipher the causes behind the collapse in the joint venture between Stagecoach and Virgin, placing prime responsibility at the feet of the two transport giants.

Yet it was not just Virgin and Stagecoach’s failures that led to the implosion of the contract for the iconic London to Edinburgh route: the DfT also issued “overoptimistic” revenue targets for the bidders, MPs found. A crassly-hopeful cash target set by government, coupled with underwhelming misfires in passenger numbers on the East Coast Main Line, created a deadly concoction that no transport titan could recover from.

The consequences of the revenue shortfalls were evident: VTEC had to forego the £165m parent company guarantee committed to the DfT when the deal was signed— and, by the end of January this year, the last parent company support was drawn down and the franchise went into “technical default.”

The most infuriating aspect of the failed franchise? This is the third time a bid has been agreed to run the franchise in just over a decade, and the third time it has ended in tears. In 2007, the Great North Eastern Railway flopped after its parent company had financial difficulties. In 2009, the once-hopeful National Express East Coast, facing mounting financial pressures due to the economic downturn, ran out of cash after registering a 1% decrease in ticket sales and was forced to hand the franchise back into government hands.

So what is it that MPs have told future-bidding TOCs and the government this time to prevent heartache when the ICEC franchise is back up for tender? The report said: “If the DfT had conducted appropriate due diligence and identified weaknesses in the assumptions underpinning the bid, it may not have been in this position today.”

Over half of respondents in RTM’s newest poll outlined their lack of enthusiasm for the DfT’s management of the franchise, too: 57% of respondents said they do not feel the East Coast Partnership will be enough to salvage the franchise, whilst a third feel the partnership has potential, but a reform to the current system is needed.

Those who call for a revamped franchise system may just get their wish: with the government playing with the idea of a review of franchising in the future – perhaps even as early as this week – we could have a completely new model running the franchise altogether. Clearly, the poison chalice that is the ICEC franchise requires greater checks and balances, and a hefty cash sum behind it to stand more of a chance in providing passengers a reliable, comfortable, and, most importantly, a valuable service for rail users.

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