HS2

DfT makes ‘poor progress’ on franchise management – PAC

The DfT has made relatively “poor progress” in building up its franchise management capability since the collapse of the Intercity West Coast competition in 2012, according to a group of influential MPs. 

Following the release of its ‘Reform of the rail franchising programme’ report, the Public Accounts Committee (PAC) said the department has strengthened its capability to let franchises, “but there are still gaps in its ability to then manage the contracts effectively”. 

The cross-party group of MPs also expressed concern about the competition-led approach to franchising, warning of a “real risk to value for money” if market interest in programmes continues to decline. 

Meg Hillier MP, chair of the PAC, said: “It was clear from the events of 2012 that radical change was needed in the way the DfT managed rail franchising. 

“It failed to apply basic processes properly and its attempts to save money by cutting corners resulted in significant extra costs. Plain common sense was forgotten. 

“While we welcome steps taken by the department since then, it is vital more work is done to ensure the franchising system delivers promised service improvements to passengers, and value for money to taxpayers. 

“We are particularly concerned about the effects of declining competition within the programme. Our report states that by its own measure, the department requires at least three bids per competition to increase the likelihood of receiving high-quality bids. Yet last week it was announced that only two companies will compete to run the South Western franchise from June next year.” 

As RTM reported, First Group and Stagecoach have only been shortlisted to run the next South Western franchise, meaning a new company could be brought in to operate the network for the first time in two decades. 

The MPs noted that the DfT is committed to strengthening its franchise management, but around 7% of positions in franchise management teams remain vacant. 

The department has been recommended to fill its remaining vacancies with appropriately qualified individuals “as soon as possible”. The committee also wants an update on this progress by June 2016. 

PAC added that the number of bids the DfT receives for franchise competitions has reduced, on average from four to three since the restart of the franchising programme in 2013. And while the department acknowledges the risk that some of the nine transport companies that currently run rail franchises may drop out of the market, it was unclear about how it plans to retain their interest. 

PAC has recommended the DfT should develop alternatives to its current commercial approach so it is well placed to deliver value for money if market interest falls to a level where intense competition cannot be guaranteed. 

During an evidence session in December, the DfT admitted that rail franchising contracts in the past have been “overly rigid”, but added that this is now changing. 

In particular, Peter Wilkinson, managing director for passenger services at the DfT’s Rail Executive, said the department’s entire franchising agreement process has been put into a review to address concerns. 

“That will enable them to show us the areas in which they feel rigidity is preventing them from innovating in franchise life, and that is the process we are going through now,” said Wilkinson. 

But the committee said more must be done “to develop partnerships with operators that facilitate innovation and improve services for passengers”. In particular, the department should set out the specific steps it is taking to encourage innovation both during the franchise letting process and during the life of the franchise to secure greater passenger service benefits from operators, and better returns to the taxpayer.   

The MPs added that the scale and uncertainty of planned infrastructure improvements is delaying franchise competitions, and will result in contractual changes, which will come at a cost. The scale and uncertainty of planned infrastructure improvements is delaying franchise competitions, and will result in contractual changes, which will come at a cost. 

The DfT should set out clearly and transparently by autumn 2016 what benefits it expects passengers to see from each franchise and by when. 

More broadly, PAC concludes the DfT lacks a coherent strategic vision for the rail system – presenting “a risk that it will make decisions now that prove costly in the future”.

(Image: c. Philip Toscano)