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

[Mike Storey]

Private company overbids for contract.

 

Private company fails to meet own targets, before any state funded upgrades are due to be completed.

 

State gets blamed for believing £multi-billion private company knew what they were doing, at the bid, and again now.

 

Network Rail are complete and utter cretins, if we ignore the 90% of schemes they have delivered on time and on budget, and the dramatic improvement in safety stats since 2010 (ORR). (Privately financed and built Channel Tunnel only came in at 80% over budget after all).

 

Chris Grayling is a politician who has little interest in the fate of railways, because he is a politician and therefore cannot either be trusted or expected to have a clue. Stop the Presses!

 

Labour's solution is to nationalise everything, and they cannot be trusted, except that it isn't, where it incurs significant penalty to the Treasury.

 

Ergo, abolish private ownership, DafT, NR and anyone else involved, and Brian Burdsall (actually John Nelson) will sort it all out, even though they have both pretty much retired.

 

Electorate are "sophisticated" enough to understand the issue, and not be hoodwinked by snake-oil salesmen. Oh, completely, as we all know.

 

 

God, how I love the "wisdom" espoused on here. More please!! This is getting better than the Bachby froth lists.

 

 

How about waiting for the PAC and NAO reports, which are promised, and, as with the GWIP issue, may actually give us some real, hard info?  No.sorry. Carry on. It is more amusing.

[phil-b259]

"Those that want a system without failure and risk are effectively arguing either for crony capitalism or, more likely, a state run operation that never takes risks or ever suffers the consequences for failure for which we need look no further than Network Rail."

 

It seems to me that crony capitalism is pretty much what we have now, given the continuing sweetheart deals enjoyed by Virgin & Stagecoach on the WCML and Stagecoach on East Midlands Trains. Personally I think they should not be allowed to bid for future franchises. Labour advocates the state control option. Franchises can work well, witness Chiltern Rail and the first GNER contract. But there is a danger in ORR putting too many eggs in the basket of one franchisee [stagecoach] such a that they become an over mighty near-monopoly operator on Anglo-Scottish routes and when they fail [lets not mention Crapbillion today] it's a big mess to clear up.

 

Dava

 

Why?

 

The ONLY thing Stagecoach / Virgin can be called to account for is the parts of the growth forecasts which lie within their control.

 

Those growth forecasts (and thus the increase in revenue) DEPENDED ON HM GOVERNMENT TO GET ITS BITS DONE.

 

You and many others still don't seem to understand that whatever private mistakes they may have made that comes on top of a much larger list of Government responsible factors.

 

First and foremost is the greed of HM Treasuary and a franchising process that lets such a ambitious / unrealistic / insert adjective of choice] bid to be the one the Government go with.

 

Ever heard the phrase 'buyer beware'? because tht still applies even if you are the DfT and are in awe of private sector 'dynamism' / 'inventiveness' / 'boldness' / 'risk taking' etc.

 

Since when has upgrades to the ECML power supply, remodelling at Kings Cross, grade separation / extra tracks at Peterborough had anything to do with Stagecoach / Virgin? On a similar theme providing extra rolling stock is dependent on Hitachi building the 80x units on the timescale originally included in the franchise bid.

 

Sorry, as much as it enrages left wing political supporters the bulk of the reasons for the 'failure' of VTEC lie squarely at the feet of Government bodies - and no amount of PR spin from Mr Grayling (who gives every impression of desperately wanting to move on to a much more 'impressive' ministerial brief given his lacklustre record thus far) will change that.

 

.

Edited February 6, 2018 by phil-b259

[Mike Storey]

Why?

 

The ONLY thing Stagecoach / Virgin can be called to account for is the parts of the growth forecasts which lie within their control.

 

Those growth forecasts (and thus the increase in revenue) DEPENDED ON HM GOVERNMENT TO GET ITS BITS DONE.

 

Since when has upgrades to the ECML power supply, remodelling at Kings Cross, grade separation / extra tracks at Peterborough had anything to do with Stagecoach / Virgin? On a similar theme providing extra rolling stock is dependent on Hitachi building the 80x units on the timescale originally included in the franchise bid.

 

Sorry, as much as it enrages left wing political supporters the bulk of the reasons for the 'failure' of VTEC lie squarely at the feet of Government bodies - and no amount of PR spin from Mr Grayling (who gives every impression of desperately wanting to move on to a much more 'impressive' ministerial brief given his lacklustre record thus far) will change that.

 

You and many others still don't seem to understand that whatever private mistakes they may have made that comes on top of a much larger list og Government resposible factors which have constrained growth, including...

 

Er, which of those were due to have been completed prior to VTEC starting to lose money hand over wallet????

 

Or am I being too enraged for you?

[Ron Ron Ron]

......The DfT must now meet its terms and conditions for its failure and truth will always out, in the end, the state will not be able to hide from their failure by attempting to scapegoat private companies because our mostly sophisticated electorate are not stupid and neither are they fodder for snake oil salesman (on all sides of the political spectrum) that would dare to treat them as if they are.

 

 

(My bold)

 

Unfortunately, a great majority of our "sophisticated electorate" will not have more than a superficial and slanted understanding of what has actually happened, or what the real issues are.

The cries for nationalisation are quite loud, even from some Tory voters.

 

The media with their propensity to deliver nothing but negative angles on almost every subject they cover and their desire to twist every story into a more convoluted political argument than is often necessary, are loving this and will milk it for all they can.

Objective analysis on the actual issue at hand, will be very rare from that quarter. They'll major on the political ramifications and damage. The ECML and passenger railway services will just be the latest convenient coat hanger on which to hang the story.

 

Popular opinion formed in this environment is fertile ground for the snake-oil salesmen as this story is manner from heaven for them.

Even the brightest and sophisticated can be stupid and easily fooled.

 

 

.

[phil-b259]

This is precisely the whole root of the problem and this particular franchise's history of failure.

 

Even if the expected infrastructure improvements had been and were to be delivered on time, as a layman, I strongly suspect that the premium payments were set far too high.

Look at the recent history.

EC under DOR were able to return approx. £1 billion to the DafT or Treasury. The equivalent of premium payments.

Not withstanding a growth in passenger traffic, an increase in services and improved yields; it just doesn't seem plausible that VTEC could increase those returns by more than three times (from £1 billion to £3.3 billion) over 7 years.

 

Had the premiums been set at a more realistic figure, say £1.5 billion, with an additional windfall provision if that figure was significantly exceeded, then this whole debacle would not have arisen.

According to last summer's financial report, VTEC were on track to bring in something like £1.5 to £2 billion for the taxpayer over the term of the franchise.

Although that flagged up that they were falling well short of their target, it was clear VTEC would be able to operate profitably, given more realistic commitments on premium payments.

 

To date they've paid around £800 million to the taxpayer, but suffered a £200 million loss to their own company in doing so.

To put it in simplistic terms, had they only been committed to pay £600 million over the same period, then VTEC would be breaking even.

 

 

 

.

 

And who went and signed up to this deal? Why it was the god old DfT / HM Treasury - who, in light of previous franchise failures, could have turned round and said "no, the figures don't stack up"

 

Sorry rather than making things look bad for Stagecoach / Virgin, all you are doing is showing just how incompetent the Government is at letting franchises.

[rockershovel]

Dear me, some people are getting excited.

 

The problem is obvious - excessive risk-taking in pursuit of unrealistic gains. Seems to me, that with a more realistic appraisal of the possible range of outcomes (and given the various issues surrounding NR’s works, that range must have been quite wide) then a more realistic form of contract could have been prepared, and we would just be flicking resignedly past the rather dull inside-page accounts of the sort of interminable wrangling over details which attend any large, complex project or contract.

 

Sorry, but Grayling should certainly go, and go soon, and not return. No one has ever claimed Ministers actually understand one-tenth of the things they sign, the whole point of their office is that they sign, in good faith, that to the best of their ability, knowledge and judgement the interests of the nation have been served. Jim Hacker wasn’t a fool, just lacking detailed background knowledge, and he genuinely trusted Sir Humphrey most of the time, and Sir Humphrey (mostly) justified that trust - and when he didn’t, it was for good reason. That seems lacking here, and the question is - why?

Edited February 6, 2018 by rockershovel

[Mike Storey]

And who went and signed up to this deal? Why it was the god old DfT / HM Treasury - who, in light of previous franchise failures, could have turned round and said "no, the figures don't stack up"

 

Sorry rather than making things look bad for Stagecoach / Virgin, all you are doing is showing just how incompetent the Government is at letting franchises.

 

Don't stack up against what? A mandarin's view of reasonable risk, or an entrepreneur's view? 

 

You are confusing the DfT with your bank manager.

[jjb1970]

I just hope DafT have put a good lawyer on this case given how sharp Virgin can be when it comes to legal matters.

[Ron Ron Ron]

Sorry rather than making things look bad for Stagecoach / Virgin, all you are doing is showing just how incompetent the Government is at letting franchises.

 

 

The Government and the civil servants at the DafT, who feed the politicians with their understanding of the world are not only incompetent, but ill equipped to run the whole show.

 

Criticism of the extensions announced for ICWC and the MML, mask the fact that the number of franchise and management contract extensions are mounting up, in a backlog that probably won't be cleared for years.

Following the aborted ICWC franchise award in 2012, the backlog has been growing.

Will the DafT be able to clear it?

 

.

[phil-b259]

Er, which of those were due to have been completed prior to VTEC starting to lose money hand over wallet????

 

Or am I being too enraged for you?

 

I believe the ECML power upgrade should have been completed by now - yet it has barely started and we hear tales on this fourm of site works started, then being abandoned for the last couple of years. There have been suggestions that this may be due to Electrification projects overrunning (which includes Scotland and the NorthWest, not just the GWML) key resources have needed to be diverted and the ECML work got put on the back burner as a result. The grade separation near Peterborough should also have been nearly finished by now on the bid timescales, while I believe there has been a slight delay with the 80x units from Hitachi.

 

That Stagecoach are losing money NOW is not disputed, but the suggestion (from Stagecoach themselves no less) is this could have been accommodated / absorbed had Stagecoach been able to launch their enhanced services this year as originally planned in the franchise bid.

 

If you cast your mind back, the original rescue plan by the DfT was to let the VTEC run for another 3 years, with Stagecoach admitting to making a loss on the franchise overall before terminating it. In effect Stagecoach, with a few changes now and an early termination in 3 years time would incur a lower level of financial loss than defaulting on the franchise now. If on the other hand the DfT were determined to see the contract through then it would be better to bail out now and take the financial hit as this would be considerably less than the loss if the franchise ran for the full term.

 

Ultimately however the whole point is that while bidders are free to suggest what they want, the DfT is the one who actually lets the franchise. The current VTEC contract was let based on a set of promised infrastructure improvements that directly influence the ability of the franchise to grow passenger numbers. That infrastructure improvements have not been delivered as promised - and moreover it looks as though it will be quite a few years more till they will. This inability to grow passenger numbers has a direct impact on revenue - and although its difficult to quantify exactly how much revenue is lost due to a lack of infrastructure capacity and how much is due to the wider economy, you cannot try and make out that the state (which includes the DfT, the Treasury, Network Rail) has a significant influence on whether VTEC can meet the growth targets it set itself.

[rockershovel]

Don't stack up against what? A mandarin's view of reasonable risk, or an entrepreneur's view?

 

You are confusing the DfT with your bank manager.

Yes, but no.

 

Virgin, Stagecoach et al have no brief to represent the interests of the country. Their definition of “valid figures” might differ considerably from the Treasury’s, which might differ considerably from DfT’s for good and sufficient reason.

 

Nor are Virgin or Stagecoach responsible for determining and defining what, exactly is sought to be achieved, in a wider sense, by the letting of the franchise, or what external factors bear upon it. Nor are the Treasury.

 

DfT’s role is surely to define these things, and produce some balance between them to define a course of action..

 

It all seems, as was remarked a long time ago in a not entirely unrelated context, “a hell of a way to run a railroad”

Edited February 6, 2018 by rockershovel

[Mike Storey]

I believe the ECML power upgrade should have been completed by now - yet it has barely started and we hear tales on this fourm of site works started, then being abandoned for the last couple of years. There have been suggestions that this may be due to Electrification projects overrunning (which includes Scotland and the NorthWest, not just the GWML) key resources have needed to be diverted and the ECML work got put on the back burner as a result. The grade separation near Peterborough should also have been nearly finished by now on the bid timescales, while I believe there has been a slight delay with the 80x units from Hitachi.

 

That Stagecoach are losing money NOW is not disputed, but the suggestion (from Stagecoach themselves no less) is this could have been accommodated / absorbed had Stagecoach been able to launch their enhanced services this year as originally planned in the franchise bid.

 

If you cast your mind back, the original rescue plan by the DfT was to let the VTEC run for another 3 years, with Stagecoach admitting to making a loss on the franchise overall before terminating it. In effect Stagecoach, with a few changes now and an early termination in 3 years time would incur a lower level of financial loss than defaulting on the franchise now. If on the other hand the DfT were determined to see the contract through then it would be better to bail out now and take the financial hit as this would be considerably less than the loss if the franchise ran for the full term.

 

Ultimately however the whole point is that while bidders are free to suggest what they want, the DfT is the one who actually lets the franchise. The current VTEC contract was let based on a set of promised infrastructure improvements that directly influence the ability of the franchise to grow passenger numbers. That infrastructure improvements have not been delivered as promised - and moreover it looks as though it will be quite a few years more till they will. This inability to grow passenger numbers has a direct impact on revenue - and although its difficult to quantify exactly how much revenue is lost due to a lack of infrastructure capacity and how much is due to the wider economy, you cannot try and make out that the state (which includes the DfT, the Treasury, Network Rail) has a significant influence on whether VTEC can meet the growth targets it set itself.

 

Yes I can!!! VTEC assumed growth rates which have not transpired. So I really. really can, honest guv'nor.

 

I cannot find any evidence (but stand to be corrected, as ever, and it has been done!) that ANY infrastructure upgrade was due for completion as of now. I do not dispute that several of these are running later than originally envisaged, but what clot of a negotiator agrees to a deal that does not recognise the significance of those dates on their contract.

 

I submit to you, M'Lud, that the infrastructure upgrades are a red herring, or any other colour that pleases you.

[phil-b259]

Don't stack up against what? A mandarin's view of reasonable risk, or an entrepreneur's view? 

 

You are confusing the DfT with your bank manager.

 

There are many respected railway industry figures, and indeed a few on hear who know a bit about running railways and they are all pretty unanimous in saying that the franchise as originally awarded to VTEC had totally unrealistic expectations of just how many extra passengers they could attract. Given the previous 2 high profile franchises (and screw ups with letting previous ones) you would have thought the DfT would have extra careful to ensure whatever deal they struck was deliverable.

[Ron Ron Ron]

.....Jim Hacker wasn’t a fool, just lacking detailed background knowledge, and he genuinely trusted Sir Humphrey most of the time, and Sir Humphrey (mostly) justified that trust - and when he didn’t, it was for good reason. That seems lacking here, and the question is - why?

 

I suspect part of the answer...it might be a large part....is not being discussed anywhere, that I can see.

 

Government finances are heavily squeezed.

Every government department is having to double down on their budgets.

The DafT will be under the same severe financial pressure as every department.

Just taking the railway element of their much wider remit, they will have to balance the books as required and where they can't cut, they'll be robbing Peter to pay Paul.

Passenger rail services are breaking even, but it needs those large premium payments from the profitable franchises to achieve this.

Then there's the subsidy to the network, which is effectively all infrastructure and capital projects. I can't remember the latest figure...is it around £5 billion still?

Where does that come from?

Major projects are late or overrunning their budgets. Knee jerk reaction becomes the latest dance craze in Whitehall.

Meanwhile the Treasury is breathing down their necks.

 

Even if half of that is the case, can we be confident that sensible policy and decision making will prevail?

 

 

.

[Bob Reid]

Brian Burdsall though Mike was surely our last MD under the old regime and the public face of ICEC during those final days and the name at the top of bid before we all ended up under GNER or should that be GNER¹ 

[rockershovel]

Re #439 above, I quite agree.

 

It’s a great mistake to consider any of these things in isolation. Look at the chaos at Carillion, and the panic currently sweeping the stock markets.

 

The whole neoliberal project is coming apart at the seams.

[Mike Storey]

There are many respected railway industry figures, and indeed a few on hear who know a bit about running railways and they are all pretty unanimous in saying that the franchise as originally awarded to VTEC had totally unrealistic expectations of just how many extra passengers they could attract. Given the previous 2 high profile franchises (and screw ups with letting previous ones) you would have thought the DfT would have extra careful to ensure whatever deal they struck was deliverable.

 

Interesting, given that the franchise terms were confidential. So your contention is just a teeny bit suspect.

 

But so what, if you and the "respected railway industry figures" (I presume I am not one, after 38 years?) were right? Basically, HMG has an extra £200m out of Brian Souter's piggy bank (and perhaps of a bit out of Beardie's) that they would not have, had they given the franchise to ReallyBoringFlatLine East Coast Operating Company ltd/spa. Nothing will change - it is the same old lags who keep the operation going at the front line, and someone might make a few bob from some new vinyls.

 

if it demotes the plausibility of the franchise process, why are there still so many outfits wanting to get into it? We all predicted that competition for franchises would reduce as the process dragged on, and yet here we are.

 

I have no affection for, nor any current salient interest in, the current system. But, having been an uber-resistante at the beginning, and full on advocate for retaining the BR system, I have been, reluctantly, drawn to the conclusion over time, that the present arrangement, howsoever flawed, has delivered far more significant benefit to railway investment, than any previous regime.That is because of contracts that HMG have to honour, and regulation that helps to enforce that. We did not have that in BR, and lost exponentially.

 

You have something that will deliver assured, better benefit, I am all ears. Lord Adonis thought he did.....but I still like him. But John MacDonald thinks his national investment bank will achieve much more. Not when hospitals, social services, energy, defence, roads, farming, and goodness knows what else, want a bigger share of one cake.

[phil-b259]

Yes I can!!! VTEC assumed growth rates which have not transpired. So I really. really can, honest guv'nor.

 

I cannot find any evidence (but stand to be corrected, as ever, and it has been done!) that ANY infrastructure upgrade was due for completion as of now. I do not dispute that several of these are running later than originally envisaged, but what clot of a negotiator agrees to a deal that does not recognise the significance of those dates on their contract.

 

I submit to you, M'Lud, that the infrastructure upgrades are a red herring, or any other colour that pleases you.

 

If that were the case then quite clearly there would be no need for any infrastructure enhancements at all! Growth cannot happen unless there is spare capacity. At present there is a finite number of trains that can be run and as such there is no capacity for growth. At several points in the franchise infrastructure improvements were due to come on steam thus providing said capacity.

 

Consider an Orchard owner, they wish to expand their output so they raise funds from the bank to plant more trees. Those trees take time to produce a product - the owner plants them and expects the trees to fruit in three years time say to payback the loan. Unfortunately a year after they are planted exceptional rains flood the extended Orchard thus delaying the fruiting of the new trees for a further two years. Three years into the business plan the bank starts wanting repayment - but the planned uplift in production cannot happen. Now you can of course say that the bank / owner of the Orchard are to blame for not anticipating the flood in their planning and setting unreasonable repayment plans - but equally its obvious that until the new trees start fruiting then there is very minimal potential ability to grow the business.

 

Thus while it might be true to say VTEC are losing money on the contract now, they stand to lose a lot more because the infrastructure improvements are not happening when the Government GUARANTEED they would be in the franchise contract. Had the Government said the infrastructure improvements were only 'aspirations' and then you may have a point.

 

So again I reiterate a significant amount of blame goes back to the DfT for awarding such a flawed contract in the first place!

Its a fundamental requirement of budgeting that you know what resources you have available to you year on year.

[Clearwater]

Re #439 above, I quite agree.

It’s a great mistake to consider any of these things in isolation. Look at the chaos at Carillion, and the panic currently sweeping the stock markets.

The whole neoliberal project is coming apart at the seams.

Sadly I don’t think you are posting in a tongue in cheek style.

 

Quite frankly, the failure of a formerly Ftse 250 company and of a rail franchise, value low hundrred millions at most, is not sufficient to send the US market down. I would wager your average US analyst has never heard of Carillion neverrmind Virign East Coast. There are other, more significant drivers of global markets than two small UK entities. To extrapolate from those to claim “the end of neoliberalism” (btw - can you explain what that is other than a pejorative term?) is simply absurd.

 

Markets move up and down - people overvalue, assets revlaue, that’s why it’s a market. To read anything from any consecutive days stock market movements is daft. To take the opposite position: would you argue that “neoliberalism” had succeeded if the global markets rose by an equivalent amount? I very much doubt it.

[andyman7]

Interesting, given that the franchise terms were confidential. So your contention is just a teeny bit suspect.

 

But so what, if you and the "respected railway industry figures" (I presume I am not one, after 38 years?) were right? Basically, HMG has an extra £200m out of Brian Souter's piggy bank (and perhaps of a bit out of Beardie's) that they would not have, had they given the franchise to ReallyBoringFlatLine East Coast Operating Company ltd/spa. Nothing will change - it is the same old lags who keep the operation going at the front line, and someone might make a few bob from some new vinyls.

 

if it demotes the plausibility of the franchise process, why are there still so many outfits wanting to get into it? We all predicted that competition for franchises would reduce as the process dragged on, and yet here we are.

 

I have no affection for, nor any current salient interest in, the current system. But, having been an uber-resistante at the beginning, and full on advocate for retaining the BR system, I have been, reluctantly, drawn to the conclusion over time, that the present arrangement, howsoever flawed, has delivered far more significant benefit to railway investment, than any previous regime.That is because of contracts that HMG have to honour, and regulation that helps to enforce that. We did not have that in BR, and lost exponentially.

 

You have something that will deliver assured, better benefit, I am all ears. Lord Adonis thought he did.....but I still like him. But John MacDonald thinks his national investment bank will achieve much more. Not when hospitals, social services, energy, defence, roads, farming, and goodness knows what else, want a bigger share of one cake.

You make a a very good point that so many ignore - that despite the manifest flaws in the privatisation structure it has managed to securitise funding from the treasury in a way that BR could never manage.

 

I have observed from my time within the industry (30 years) that BR had a very capable industry-wide management structure (certainly by the 1990s) but was chronically underfunded; whilst the breakup of the industry has created manifest gaps in synergies leading to sub-optimal network wide management, but the structure is much better funded. Anyone that thinks that renationalisation will not lead to the dead hand of the treasury gaining the whip hand is I fear hopelessly naive.

[phil-b259]

Interesting, given that the franchise terms were confidential. So your contention is just a teeny bit suspect.

 

But so what, if you and the "respected railway industry figures" (I presume I am not one, after 38 years?) were right? Basically, HMG has an extra £200m out of Brian Souter's piggy bank (and perhaps of a bit out of Beardie's) that they would not have, had they given the franchise to ReallyBoringFlatLine East Coast Operating Company ltd/spa. Nothing will change - it is the same old lags who keep the operation going at the front line, and someone might make a few bob from some new vinyls.

 

if it demotes the plausibility of the franchise process, why are there still so many outfits wanting to get into it? We all predicted that competition for franchises would reduce as the process dragged on, and yet here we are.

 

I have no affection for, nor any current salient interest in, the current system. But, having been an uber-resistante at the beginning, and full on advocate for retaining the BR system, I have been, reluctantly, drawn to the conclusion over time, that the present arrangement, howsoever flawed, has delivered far more significant benefit to railway investment, than any previous regime.That is because of contracts that HMG have to honour, and regulation that helps to enforce that. We did not have that in BR, and lost exponentially.

 

You have something that will deliver assured, better benefit, I am all ears. Lord Adonis thought he did.....but I still like him. But John MacDonald thinks his national investment bank will achieve much more. Not when hospitals, social services, energy, defence, roads, farming, and goodness knows what else, want a bigger share of one cake.

 

Re franchise agreement confidentiality - Well enough was in the public domain for the likes of Roger Ford to observe that he couldn't see how the numbers stacked up well before there was any suggestion of problems in the mainstream press.

 

Re number of bidders for franchises - If this is so why has the Transport Select Committee, and even the DfT / Treasury themselves commented that there are 'too few' bidders for rail franchises these days. I believe there is even a group of DfT Civil Servants looking into the problem such is the level of concern. We recently saw Ariva and someone else IIRC pull out of franchising competitions?

 

For what its worth a well run franchising competition with longish and sensible deals (e.g. Chiltern) or the previous FGW one can work well (though Personally I would prefer them to be concessions TfL style). However I would contend that where there is far too political interference in day to day railway matters, a Government obsessed with short term thinking and plus one that signs overly ambitious agreements (seemingly only because of the extra income it promised to the Treasury) is a long way from a 'well run' franchising system.

[Mike Storey]

Brian Burdsall though Mike was surely our last MD under the old regime and the public face of ICEC during those final days and the name at the top of bid before we all ended up under GNER or should that be GNER¹ 

 

Brain was a fantastic person to work for (as was Richard Middleton) but he was unable to obtain sufficient underwriting for the passenger growth figures we wanted to propose (against the risk we identified) for the bid we wanted to make. Financial costs were also not fully understood until near the end of the bid process (despite his thorough training, in parallel by a private company willing to co-invest our bid, and as a co-opted non-exec director with another company), due to the amount of bonds required for various matters. He would not accept the difference between capacity x price, and demand. He could run a railway, blindfold, and as my manager, again, once I was poached into Railtrack, as an Account Executive, which post managed track and station access agreements with TOCs, he was superb at letting us go to the limits of what we could negotiate out of the TOCs. Not so successful with the FOCs, the AE for whom was one Robin Gisby......

 

Hence we lost out to James Sherwood (by £100m), who had plenty of financial backing, but primarily from his property empire, not from Sealink or the Orient Express, so could put in any numbers he liked. He (and Chris Garnett) basically used almost all of our business plans during the franchise. He lucked out first time around but then became, shall we say, over optimistic (I would use a number of other descriptions) the second time around, by which time most of the old BR lags on the top table had gone.

 

Incidentally, GNER's first bid was only £1 million better than that of Stagecoach. The chances of that are improbable. I cannot comment further.

[ColinK]

I do find the whole ECML franchising rather worrying. Three times bidders have won the franchise, but then handed the keys back.

 

So why are over optimistic passengers growth figures being used?

 

Why is the DfT accepting bids which are clearly not achievable?

[Clearwater]

I do find the whole ECML franchising rather worrying. Three times bidders have won the franchise, but then handed the keys back.

So why are over optimistic passengers growth figures being used?

Why is the DfT accepting bids which are clearly not achievable?

It's a brave civil servant who doesn't accept the highest offer. YOu'd have to be super confident you were right and they were wrong. In any event, what's the downside? If the franchisee is right, you get the cash. If you're right, you get the initial cash (or as much as they can pay) and then you get the franchise back to sell again.

 

Why are optimistic figures used? Have you ever bid for a house against someone else, been to an auction, bid on eBay etc? How do those winners get themselves comfortable with paying more than anyone else.

[Mike Storey]

Re franchise agreement confidentiality - Well enough was in the public domain for the likes of Roger Ford to observe that he couldn't see how the numbers stacked up well before there was any suggestion of problems in the mainstream press.

 

Re number of bidders for franchises - If this is so why has the Transport Select Committee, and even the DfT / Treasury themselves commented that there are 'too few' bidders for rail franchises these days. I believe there is even a group of DfT Civil Servants looking into the problem such is the level of concern. We recently saw Ariva and someone else IIRC pull out of franchising competitions?

 

For what its worth a well run franchising competition with longish and sensible deals (e.g. Chiltern) or the previous FGW one can work well (though Personally I would prefer them to be concessions TfL style). However I would contend that where there is far too political interference in day to day railway matters, a Government obsessed with short term thinking and plus one that signs overly ambitious agreements (seemingly only because of the extra income it promised to the Treasury) is a long way from a 'well run' franchising system.

 

Roger uses his own spreadsheets, and has regularly acknowledged their flaws. He is a great read, and very well informed on engineering matters for sure, and I never begrudge the cover price to read his views. He challenged me a couple of times at Modern Railways lunchtime meetings, when I was the guest presenter, over matters he absolutely knew I could not reveal. He is very naughty.

 

I cannot recall a time when there was concern over the "limited" number of bidders, right from the start. Try reading up on the basic financial requirements, track record history and licensing evidence, to understand just how difficult it is to even enter the game. The barriers to entry explain why there are so many alliances that bid, rather than single companies. The calls to simplify, or reduce the barriers to entry speak volumes about naivity.

 

Fact - there are similar numbers of bidders to almost all franchise invitations as there were at the beginning. They are just not the same bidders. The Transport Select Committee's concerns surround the extent to which those bidders reach preferred bidders' status. see above.

 

Many have advocated the TfL style of concession award, instead of the franchising model, including me now and again. Look at the numbers. You will find this would be an even more expensive way of doing it, expensive to the taxpayer anyway. The results may well be better, but is that down to the model, or the fact that it is TfL (effectively the expertise of LUL) and not the DfT (effectively the expertise of old BR, lifetime civil service bods and new graduates)??? Would you be willing to bet the house on taxpayers being willing to shift the onus of risk from privateers to the DfT?

 

The Chiltern length of franchise may well be a better solution. But with only one example, so far, how do we actually know? Would you trust Stagecoach with the same?