ECML franchise fails .... again....

[Chris116]

GNER didn’t work

National Express didn’t work

Virgin Trains/Stagecoach didn’t work

When do you think it’ll dawn on someone that the model doesn’t work?

When we get politicians who live in the real world. Neither side seems to have any at the moment.

[Mike Storey]

Fuller article here:

 

https://www.theguardian.com/business/2018/feb/05/east-coast-could-return-to-public-sector-chris-grayling-admits

[Bon Accord]

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Edited February 5, 2018 by Bon Accord

[Zomboid]

GNER didn’t work

National Express didn’t work

Virgin Trains/Stagecoach didn’t work

 

When do you think it’ll dawn on someone that the model doesn’t work?

It's odd that is the ECML which seems to be afflicted by this, and the rest of the country hasn't had this happen. Though the first GNER franchise was a success, everything since then has collapsed under excessive optimism.

[Ron Ron Ron]

Fuller article here:

 

https://www.theguardian.com/business/2018/feb/05/east-coast-could-return-to-public-sector-chris-grayling-admits

 

 

I think the Grauniad will have a heart attack when they find out that "returning to the public sector",  actually means that a private partnership consisting of Arup Group, Ernst & Young and SNC-Lavalin Rail & Transit, will actually be taking over the running of the franchise.

 

 

.

[Ron Ron Ron]

GNER didn’t work

National Express didn’t work

Virgin Trains/Stagecoach didn’t work

 

When do you think it’ll dawn on someone that the model doesn’t work?

 

 

Virgin Train/Stagecoach hasn't worked purely because of the overbidding and excessively high and unrealistic premium payment commitments.

 

VTEC have met all their payment commitments to date.

It was last reported that £525 million had already been paid to the DfT/Treasury by the end of the last financial year in April 2017.

That's after only 2 years of operation.

By now the total should be much higher. [Edit: we are now being told it has reached £800 million]

However, in order to achieve this, VTEC has ended up going into the red to the tune of £200 million.

 

Clearly it was not sustainable to continue, even at the current lower level of premium payments, never mind the expected higher payments required to be paid in the final years of the franchise term.

 

If the franchise had been let on realistic terms, which required achievable premiums to be paid, VTEC and the DafT wouldn't be in this mess and the franchise would have run smoothly, paying back to the taxpayers through the premiums and making a reasonable profit for the operator.

 

Note that VTEC were paying premiums back to the government at a significantly higher level than when DOR operator East Coast ran a caretaker service.

 

 

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Edited February 5, 2018 by Ron Ron Ron

[Covkid]

Virgin Train/Stagecoach hasn't worked purely because of the overbidding and excessively high and unrealistic premium payment commitments.

 

VTEC have met all their payment commitments to date.

It was last reported that £525 million had already been paid to the DfT/Treasury by the end of the last financial year in April 2017.

That's after only 2 years of operation.

By now the total should be much higher.

However, in order to do this, VTEC has gone into the red to the tune of £200 million.

 

Clearly it was not sustainable to continue, even at the current lower level of premium payments, never mind the expected higher payments required to be paid in the final years of the franchise term.

 

If the franchise had been let on realistic terms, which required achievable premiums to be paid, VTEC and the DafT wouldn't be in this mess and the franchise would have run smoothly, paying back to the taxpayers through the premiums and making a reasonable profit for the operator.

 

Note that VTEC were paying premiums back to the government at a significantly higher level than when DOR operator East Coast ran a caretaker service.

 

 

.

 

The concern I have is that DfT are supposed to invidulate the bids for a franchise in considerable depth and with substantial secrecy. I am told that the DfT staff are only set to view certain bids so that very few in the DfT see the complete bidding picture. Even so, the DfT should be checking compliance of each bid and whether or not it is reaiistic.  I think it is debatable whether this was

 

a) done at all

b) done with any degree of care

c) done but still failing to see the wood for the trees in that the VTEC bid was unrealistic. 

 

Did the DfT franchise team have any kind of financial projection frameworks to match the bids to, or did they think "oh yeah Harry, this one is the cheapest" !!!!  

 

Clearly the DfT led by Chris Grayling have decided to write off the VTEC franchise and the bunce it should have brought into the government, and face the wrath of the media in once again trying another way of making the ECML company work.

 

Waiting with interest. 

[Ken.W]

VTEC have met all their payment commitments to date

 

Note that VTEC were paying premiums back to the government at a significantly higher level than when DOR operator East Coast ran a caretaker service.

 

.

Apparently not now, according to the article linked above;

The East Coast rail franchise could be returned to the public sector after the government announced Virgin Trains had breached its £3.3bn contract

Maybe paying more than DOR, but only by doing so at a level that was untenable and widely predicted to fail

 

Edit to correct auto-incorrect

Edited February 5, 2018 by Ken.W

[great central]

I'm sure there's a lot more to this, as I understand it Network Rail haven't exactly over performed and who holds their purse strings?

There's been quite a lot of infrastructure failures, possibly due to deferred maintenance, which is going to impact on performance figures, the passengers anger being directed at the TOC as that's the face they see every day.

Most maintenance now seems to be reactive, only my opinion of course

[Ron Ron Ron]

Apparently not now, according to the article linked above;

 

Well no. They can't afford to, having already gone into the red by £200m and paying a reported £175m out of their own pockets to make up the amount owing on the last set of premium payments.

 

The VTEC CEO has said that the amount of money they've paid to the DfT in premiums, has reached £800m.

 

The franchise has clearly been very, very profitable under VTEC, until the chickens came home.

 

.

Edited February 5, 2018 by Ron Ron Ron

[Bob Reid]

Ron - Surely it was VTEC's choice to place that value on the bid they made - Whether the DfT thought it excessive / unachievable is neither here nor there when the plain fact is VTEC won't be able to pay what they said they would.  If they had to fork out their own money to keep it going hell mend them, perhaps next time they'll be realistic as to its value.

Edited February 5, 2018 by Bob Reid

[Ron Ron Ron]

Ron - Surely it was VTEC's choice to place that value on the bid they made - Whether the DfT thought it excessive / unachievable is neither here nor there when the plain fact is VTEC won't be able to pay what they said they would.  If they had to fork out their own money to keep it going hell mend them, perhaps next time they'll be realistic as to its value.

 

 

You are right Bob, but the competing bids for the franchise would have all been in the same ballpark, all dancing to the same DfT and Treasury looney tune.

Non of the participants can escape blame here.

If either of the other two final bidders, First Group or Keolis/Eurostar had won the ICEC franchise, I've no doubt the outcome would have been pretty much the same.

 

 

 

 

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[Ron Ron Ron]

Here is a video statement by Martin Griffiths, CEO Stagecoach Group.

 

 

https://players.brightcove.net/1555966121001/default_default/index.html?videoId=5726503939001

 

 

 

./

Edited February 5, 2018 by Ron Ron Ron

[david.hill64]

I suspect that this will not be the last franchise to fail on the basis of over-optimistic revenue forecasts. The Times had a story two days ago that the Dutch politicians are now upset about the potential liabilities that Abellio has with its UK franchises.

 

Remember that under previous DafT evaluation criteria you could only win a franchise if you promised to pay more money than anybody else. This encouraged heroic bids. Now we find that DafT is encouraging new trains, so all of the lease companies' residual risk assessments are no longer valid, so the financing of new stock will become more expensive.

 

We are entering some truly interesting times.

[jjb1970]

Never fear, DafT is running the show, what could possibly go wrong? I must admit to a sneaking admiration for the way that allowing a government department to create mayhem through its own ineptitude then becomes evidence that the industry said department is wrecking needs to be nationalised.

 

In this case, Virgin East Coast bid, they should be held to their contract subject to any liabilities of NR for not delivering track upgrades. As somebody else has pointed out, in this case nobody comes out of it looking good.

Edited February 6, 2018 by jjb1970

[Steadfast]

Wasn't the VTEC bid based on increased revenues as a result of promised improvement work by Network Rail that hasn't happened? Whilst the ECML does seem to always struggle money wise, you can only plan based on the information you are given

 

Jo

[Steadfast]

The press release from Stagecoach makes interesting reading. Both the delays to upgrades and delays due to infrastructure are highlighted along with poorer than expected growth

http://otp.investis.com/generic/regulatory-story.aspx?cid=273&newsid=974581

 

Jo

[rockershovel]

All interesting stuff.

 

The principal conclusion which suggests itself from all of the above, is that the “franchise bidding” model is fundamentally unworkable under certain circumstances.

 

It seems long past time for some sort of “open-book”, cost-plus system in which investors offer their management expertise and defined levels of investment, in return for a long-term plan which all successful bidders or contractors be required to follow. This, of course, means government recognising two things - that there is only “so much” return that can be extracted from any given thing, and that it is essential that a minimum level of expertise be maintained in-house.

[jamie92208]

You would have thought that the DaFT would have learned from the WCML debacle where Virgin did very well out of holding, I think it was Railtrack, to their promised upgrades that didn't happen and again when they successfully took them to court over the bidding process for the new franchise.   I suspect that the Virgin Stagecoach team will actually come out of this looking better than some people expect due to the way they have supported the franchise with their own money.   What annoys me is that no one seems to be pointing the finger at the real villains of the piece, namely the DaFT and their political masters.

 

Jamie

[MarkC]

The press release from Stagecoach makes interesting reading. Both the delays to upgrades and delays due to infrastructure are highlighted along with poorer than expected growth

http://otp.investis.com/generic/regulatory-story.aspx?cid=273&newsid=974581

 

Jo

Jacking up fares and cutting back on the number of pre-booked good value tickets had nothing to do with driving down growth then? And sadly, Grand Central appear to have followed suit with tickets & pricing

[4630]

I wonder if one of the repercussions from this debacle/cock-up/farce/DaFT mis-management (all are appropriate, but delete as necessary) will be an enforced change at the very top of Network Rail?

 

For all of DaFT's many failings in this saga, Network Rail hasn't delivered the infrastructure improvements which under-pinned the Virgin/Stagecoach bid (and those of the probably now very grateful unsuccessful bidders).  

 

The debits on Mark Carne's scorecard are building up at a greater rate than the credits.  Perhaps time for him to fall on his sword, unless Graylng does the deed?

 

 

 

Edited to add:

 

Since my post at 10:03, Mark Carne has this morning announced his retirement;

 

https://www.networkrail.co.uk/feeds/mark-carne-to-retire-from-network-rail/

Edited February 6, 2018 by 4630

[scouser]

After all this surely it is clear that anything involving government involvement ends up stuffed.

Just ask anybody in the NHS, all of the good people in there deserve better.

[Arun Sharma]

You would have thought that the DaFT would have learned from the WCML debacle where Virgin did very well out of holding, I think it was Railtrack, to their promised upgrades that didn't happen and again when they successfully took them to court over the bidding process for the new franchise.   I suspect that the Virgin Stagecoach team will actually come out of this looking better than some people expect due to the way they have supported the franchise with their own money.   What annoys me is that no one seems to be pointing the finger at the real villains of the piece, namely the DaFT and their political masters.

 

Jamie

Interestingly Jamie, the most recent edition of the "Railway Magazine" in its editorial places the blame firmly at the feet of DofT and NR in that the promised line upgrades were not produced on schedule.

VTEC appear to have paid out more than they strictly needed to and have been let down by the Govt.

[rockershovel]

I don’t think that there can be any doubt, that NR and DfT either lack sufficient expertise to manage what they undertake, or to define what can be achieved, OR they are over-ridden for political reasons, or some combination of the two. It’s a common pattern; look at the vastly expensive NHS IT debacle, which had similar root causes.

 

There’s no doubt at all at this point, that both mainstream parties have lost the ability to define and execute major projects, principally because real-world expertise has been excluded from the selection procedure over quite a long period of time.

 

Rail privatisation was rushed through by the John Major administration for reasons which were never properly explained, although they aren’t hard to guess at.

 

Back to the present... yes, I strongly suspect that the Bearded One will probably do quite well in the courts, it’s not as though he doesn’t have “previous” for this sort of thing.

[rockershovel]

I wonder if one of the repercussions from this debacle/cock-up/farce/DaFT mis-management (all are appropriate, but delete as necessary) will be an enforced change at the very top of Network Rail?

 

For all of DaFT's many failings in this saga, Network Rail hasn't delivered the infrastructure improvements which under-pinned the Virgin/Stagecoach bid (and those of the probably now very grateful unsuccessful bidders).  

 

The debits on Mark Carne's scorecard are building up at a greater rate than the credits.  Perhaps time for him to fall on his sword, unless Graylng does the deed?

... I don’t doubt that Grayling will be quite content to lay the blame wherever it can be laid, to keep it off his own doorstep, but that only begs further questions. What is the value (outside the Westminster bubble, that is) of of either replacing one failure with another, or putting a successor in an equally untenable position? If NR’s goals were not achievable, either because they were unrealistic or because funding was with-held, why was this?