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DfT to introduce new risk transfer mechanism on selected franchises

The government has claimed that plans to introduce a new risk transfer mechanism, the Forecast Revenue Mechanism (FRM), on selected franchises will help ensure that franchising remains attractive to bidders while securing a good deal for taxpayers.

Responding to the transport select committee’s report into rail franchising that was released at the start of February, the DfT has stated that the FRM will offer protection against shortfalls in revenue relative to the winning bidder’s bid revenue line, whist also ensuring that operators share revenue with the government when its franchises outperform forecasts.

The report states: “By applying FRM on franchises where traditional risk transfer mechanisms would otherwise generate unsustainably large PCS requirements, the government can ensure that healthy competition is maintained for its franchises.

“More broadly the government is committed to ensuring that passenger services are delivered in a way that is commercially sustainable and meets the needs of passengers and taxpayers and will set out its longer-term strategic approach to franchising in the forthcoming Rail Strategy.”

In addition, the government also said that though there were no plans to strip GTR of the TSGN franchise due to the uncertainty that it would cause, it was “closely monitoring” the franchise, and reiterated that the department were unlikely to let a contract of its size again.  

It added that it also fully agrees with the committee, and the Competition and Markets Authority (CMA), that there need to be important reforms to create a fair, level playing field between open access and franchised operators.

DfT also defended its franchising model which the committee had previously criticised, saying that it had been successful in implementing a number of fundamental reforms that had supported the successful award of 13 franchises in a little over three years.

The government stated: “While the government rejects the committee’s premise that franchising is no longer fit for purpose, we do welcome a number of the report’s recommendations, several of which reflect workstreams already underway at the DfT.  

“This illustrates the government’s ongoing commitment to continuous improvement in the franchising process, with particular focus on efficiency, accountability, innovation and driving value for money for passenger and taxpayer alike.”

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Andrew Gwilt   27/04/2017 at 08:18

And this is why foreign rail companies such as-Abellio, Trenitalia, MTR Hong Kong and DB (Deutsche Bahn-DB Arriva & DB Schenker) and other foreign rail companies have taken over the railways in the UK. Please bring back British Rail.

The Truth   06/05/2017 at 10:14


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