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

[stovepipe]

A lot of recent posts seem to be re-hashing the original arguments about the network upgrades not happening and therefore the last four years of franchise payments being untenable. However what happened earlier in the week was the assertion by Grayling that VTEC wouldn't last more than a few months. Roger Ford quotes that the ECML upgrades were due to be completed by May 2019, after which VTECs payments ramp up significantly, as we know. If this is true then we have to say that evidently VTEC did get their forecasts quite seriously wrong, as the payments in the first four years are not dependent on infrastructure upgrades.

 

In my view much of the political posturing now is about winning the argument as to who the fault will be pinned on. If Grayling can get VTEC to pull the plug before May 2019, then he and his department might get off the hook, despite their quite evident failings.

 

 

As a reasonably regular leisure user of the ECML my experience in the last 6 months or so is of fewer bargain fares and noticeably more frequent revenue protection checks, which I take as a sign that things are far from rosy NOW.

[Bob Reid]

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.

 

He successfully underwrote my evening meal a few times - so he was always a welcome face.  We were too busy counting just how much fuel etc. could be passed over to the incoming franchise holder whilst screwing on legal ownership plates to every building we technically "owned" with the other hand.  Sadly aside from the vast improvements since the BR days and unheard of investment, the biggest winners in all of this would appear to be the legal entities, the photocopying companies, and the suppliers of garish vinyl's for the liveries.  I left just before the second round began.

 

​p.s. I'm sure Mike, you presented the financial aspects of the successful GNER bid to us Engineers in the early weeks along with dire warnings of the outcome should as a result of our actions, Jim Sherwood fail to get his money to work the overnight markets...!

Edited February 6, 2018 by Bob Reid

[rockershovel]

The thing I find deeply worrying about all this, is the frequency and diversity of major projects which fail completely.

 

Leaving the ECML aside (and what concerns me, is that it appears to be a serial offender), we see such episodes as the NHS IT project, which was aborted after spending billions. We see the wind farm sector, in which the Dutch, Danes, Germans and to some extent, Italians have raked in many hundreds of millions of Euros in construction contracts, and own much of the productive infrastructure, while we actually own very little.

 

Why DO the Spanish find it profitable to own our airports, the French our utilities, the Germans our parcel delivery network? Why DOES 20-odd percent of our fishing stocks, belong to a single Dutch factory ship, while we have nothing comparable?

 

There’s something profoundly wrong, ECML is just a symptom.

[Ken.W]

What exactly were the promised route upgrades that Network Rail has failed to carry out, and why has this failure occurred ? Was there a guaranteed timescale within which these improvements were to be completed ? The only issue I can recall is the grade-separated junction north of Peterborough, which AFAIK has been delayed by planning issues.

 

Given that Virgin East Coast does not at present have enough stock for its current service, having to regularly hire an HST from East Midlands Trains, when and how would it be able to introduce the enhanced service that would apparently transform its financial performance ?

 

Dates for the service ramp-ups were publically announced by the government as May 2019 and May 2020

http://maps.dft.gov.uk/east-coast/

 

As well as Werrington, there's also four tracking south of Peterborough, six tracking on the approach to Kings Cross (and platform mods to match), plus power supply upgrades to handle more trains, fewer of which are diesel and which are likely to be 'thirstier' than the 80s electrics currently in use.

 

Quantity of trains is not an issue as VEC should have received new trains by then, the initial plan was to then retain and refurb some of the 225 sets to expand the fleet size to use the extra paths.

 

 

Of the major upgrades required to provide capacity for the planned increased service;

Werrington dive-under; not started

Connington - Huntingdon quadrupling; not started

Kings X approach; not started

Overhead power supply upgrades; Welwyn - Hitchin just recently resumed after being stalled approx 3 years (the deadline for running the new Thameslink trains is fast approaching here - elsewhere, particularly north of Newcastle; not started

I'm sure there's other works planned too, guess what? Yes, no sign of them!

 

As far as stock provision for the extra services is concerned, the new IEP sets are due to start appearing on the route late this year (about 3 months late).

VTEC currently has 45 sets for the current service levels, 30 Mk4 sets and 15 HST including the pair on loan from EMT.

They're due to receive 65 new IEP sets.

Plus it's said that some of the present fleet will  also be retained. Six of the 91/Mk4 sets is the most quoted, though this still seems undecided.

So no shortage of stock then.

 

On the point of power supply upgrades, it's been discussed previously whether the overhead supplies are sufficient for the IEPs, besides the planned increase in services, it should be noted from the above though that a third of the current fleet are diesel, whereas with electrics and bi-modes all the new fleet will be expected to be running from the overheads, plus TPE and Hull Trains also have bi-modes on order, so even more trains wanting to use the overheads.

[jjb1970]

One of the key principles of business and economics is risk and reward and the inter relationship between the two. Freedom to succeed in business must be accompanied by freedom to fail and there are profound moral hazards in efforts to try and remove the concept of risk as it alters human behaviours. A company failing says nothing about the merits or otherwise of a market economy, it may indicate something about the decisions made by that company or market trends but in itself a company failing is just as much a part of a market economy as a company succeeding. If a company bids too high because they made some poor assumptions or used flawed data then c'est la vie. If they made oor assumptions which were compounded by the failure of another party to deliver something then they should have a claim against that other party but it is always too easy to blame other factors for the consequences of poor decision making. I think people are reading too much into this whole ECML mess, the lesson if there is any lesson would appear to be not to be overly optimistic in traffic forecasts and bid too high for a concession.

[Clearwater]

The thing I find deeply worrying about all this, is the frequency and diversity of major projects which fail completely.

 

Leaving the ECML aside (and what concerns me, is that it appears to be a serial offender), we see such episodes as the NHS IT project, which was aborted after spending billions. We see the wind farm sector, in which the Dutch, Danes, Germans and to some extent, Italians have raked in many hundreds of millions of Euros in construction contracts, and own much of the productive infrastructure, while we actually own very little.

 

Why DO the Spanish find it profitable to own our airports, the French our utilities, the Germans our parcel delivery network? Why DOES 20-odd percent of our fishing stocks, belong to a single Dutch factory ship, while we have nothing comparable?

 

There’s something profoundly wrong, ECML is just a symptom.

Major projects globally have a mixed record. German efficiency?

https://www.google.co.uk/amp/s/amp.ft.com/content/b90c2a0c-e1b6-11e7-a8a4-0a1e63a52f9c

 

US: http://archive.boston.com/news/specials/big_dig_problems/

 

On the ownership question, you make a sweeping and inaccurate generalisation. Ferrovial owns 25% of Heathrow and 50% of the comparatively small Glasgow, Southampton and Aberdeen. Ferrovial is listed. If you want, you can buy shares. The British teachers’ pension fund, USS, owns 10% of Heathrow. Gatwick is currently owned by GiP and coinvestors. Stansted by a consortium led by Manchester Airport Group in turn owned by the regional councils.

 

On utilities, the french, via the listed EDF, own some power stations and are one of the Big 6 retailers. That’s hardly all our utilities which are owned by a range of investors.

 

Why do they find them profitable and we don’t? Simple answer is some pension fund investors have different return objectives. The Australians and Canadians in particular recognised the massive liabilities their pension funds were accruing and invested in assets that would grow steadily to meet those liabilities. Many UK pension schemes for public sector workers are funded directly by the State. How did these french/German/ Spanish companies buy our assets? Mostly these assets were listed and valued at a price. These investors offered a massive premium to the traded share price, usually 30% or more, to existing investors to sell. Those investors had a choice: take the money and reinvest the profits in additional growth or hold. Entirely rational and helps fuel the growth in the economy that funds our public services. Some UK pensions schemes behave in the same way as the Canadians either directly or indirectly through managed funds to take direct stakes in uk utility and infrastructure assets.

 

On other situations, eg parcels, fish (hardly a major part of the economy), a single global company will be able to offer a broader door to door service across a range of destinations. The back office IT and marketing required to support that will generate an economy of sale that will make them more profitable than an individual national enterprise.

 

Of course UK companies also own overseas assets. National Grid (listed in the uk and with large uk institutions as shareholders - if you have a funded pension scheme you will be an indirect holder) owns a series of assets in the US. There are lots of other examples when you look.

[caradoc]

Thanks everyone for the interesting details and discussions posted above. A couple of things still baffle me;

 

Firstly, given that the infrastructure upgrades, even if on schedule, would take some years to complete, plus even if they were all finished now VTEC doesn't yet have any additional trains anyway, how have they already lost so much money (£200 million has been quoted) ?

 

Secondly, surely when signing the contract for the new franchise VTEC would have insisted on a clause reducing the premium payments to Government if the upgrades (essential for the improved service necessary to generate the additional income) were not completed in the specified timescale ?

[jamie92208]

Thanks everyone for the interesting details and discussions posted above. A couple of things still baffle me;

 

Firstly, given that the infrastructure upgrades, even if on schedule, would take some years to complete, plus even if they were all finished now VTEC doesn't yet have any additional trains anyway, how have they already lost so much money (£200 million has been quoted) ?

 

Secondly, surely when signing the contract for the new franchise VTEC would have insisted on a clause reducing the premium payments to Government if the upgrades (essential for the improved service necessary to generate the additional income) were not completed in the specified timescale ?

 

That's the $64,000 question.   Virgin/Stagecoach have been very quiet about that aspect and Grayling was being very complimentary about the way they have run the franchise on the radio the other day.   I suspect that there may well be some sort of clause and having had their fingers badly burned over the WCML upgrade the DaFT will be very careful what they say at the moment.   As others have commented Virgin/Stagecoach have excellent lawyers.

 

Jamie

[rockershovel]

Re #456 above, that does indeed appear to be a central difference; British management, driven on by its banking system, doesn’t recognise the value of holding control of productive assets.

 

I’ve worked with enough Europeans, to know that “German efficiency” is somewhat less than the whole story. They have a government and a banking system which see an inherent value in controlling productive assets, and being realistic about what returns can be derived. The Dutch have made huge sums out of windfarm construction, because they have made it a policy to do so.

 

Same goes for privatisation, wholly or in part. It’s actually quite a common model, and in certain respects it works very well. It will always be deeply unpopular with its employees, because it has the long-term effect of destabilising their conditions of employment; it will rarely be popular with tax-payers, who usually feel that the likes of Souter and Branson have enough already, and don’t need any of THEIR taxes.

[great central]

That's the $64,000 question. Virgin/Stagecoach have been very quiet about that aspect and Grayling was being very complimentary about the way they have run the franchise on the radio the other day. I suspect that there may well be some sort of clause and having had their fingers badly burned over the WCML upgrade the DaFT will be very careful what they say at the moment. As others have commented Virgin/Stagecoach have excellent lawyers.

 

Jamie

From little snippets I hear, so could be total spherical objects, the bidder is given the contract to sign and that's pretty much it. If they don't sign it someone else will.

I do know from a senior manager some years ago that a question was asked regarding a minor alteration which would actually have improved things for passengers.

On asking the DaFT of the time about it they were told 'if you do that you're breeching your contract and will be fined for it'.

There are many things I hear about but obviously confidentiality means I can't put them on here.

In the same way the company will have written into their contract what they can and can't say in public.

[D854_Tiger]

 

 

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.

 

.

 

A slippery s*d who aspires to be Teflon in nature but only ever achieves the kind of non-stick capability you will find in a very cheap frying pan.

[Dava]

A slippery s*d who aspires to be Teflon in nature but only ever achieves the kind of non-stick capability you will find in a very cheap frying pan.

When Grayling leaves Transport it will be like off a shovel, as we used to say.

 

I had thought Johnson Minor [the cleverer one] had been assigned to Transport inn the reshuffle but obviously missed something as Grayling is still the fall guy.

 

Dava

[The Stationmaster]

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?

 

 

.

 

To which can be added the reported fact (taking such reports at face value) that any money NR realises from land sales etc is no longer its to use but instead goes straight to The Treasury and into the general govt finances pot as 'revenue'.

[Arun Sharma]

To which can be added the reported fact (taking such reports at face value) that any money NR realises from land sales etc is no longer its to use but instead goes straight to The Treasury and into the general govt finances pot as 'revenue'.

It is possible for NR to keep it but it will mean that, in subsequent years, NR's budget/grants will be top-sliced by an equivalent amount. So unless they have the same or more estate to sell off in later years, it doesn't make sense to keep it.

 

Treasury Rules OK!

[stewartingram]

I must admit that my thoughts are that this is the beginning of the end for Virgin, and Stagecoach, in trains. To which I add, thank goodness. The Virgin childishness in there advertising, their brash nature and the awful VoyagerPendolinos that they have forced on us leaves me with no love for the company. And predator Stagecoach in the bus industry, let's not go there. Yes, we've had increased passenger numbers (as everywhere), and yes, eventually Stagecoach/SWT did settle down to give a quite reasonable service. But I for one won't mourn either loss when it happens.

 

Stewart

['CHARD]

 The Virgin childishness in there advertising, their brash nature and the awful VoyagerPendolinos that they have forced on us leaves me with no love for the company. 

 

Admittedly the advertising will never be to everyone's taste, but it's clearly done its job very well over the years on West Coast.  One thing the red machine has always been pretty good at is capturing the social zeitgeist, and I don't think 'childish' featured in the brief.

[62613]

 

 Johnson Minor [the cleverer one]

 

Low baseline to work from though!

[E3109]

I must admit that my thoughts are that this is the beginning of the end for Virgin, and Stagecoach, in trains. To which I add, thank goodness. The Virgin childishness in there advertising, their brash nature and the awful VoyagerPendolinos that they have forced on us leaves me with no love for the company. And predator Stagecoach in the bus industry, let's not go there. Yes, we've had increased passenger numbers (as everywhere), and yes, eventually Stagecoach/SWT did settle down to give a quite reasonable service. But I for one won't mourn either loss when it happens.

 

Stewart

I get a sneaking suspicion that they won't be getting their guards to encourage passengers to sign the protest this time around... (when First won, but Beardie cried foul)...

 

I've noticed a sea change in VT staff in recent years regarding that company. C'mon now 20 years is enough, time for someone else to have a go. 

In an ideal E3109 world, it would be a new BR. Not holding my breath on that one although as suggested on LBC the other night, if Mrs May renationalised the railway in the right way, and reformed the NHS to cut out the waste and put the money into CARE rather than red tape, then she'd be picking the curtains at Number 10 next time round.

 

Don't really wanna get too political here, although the subject matter tends to make it unavoidable.

But I think something like 70% of Conservative voters would prefer to see a renationalised railway.

Yes we know that the Tory backers love to make money on anything and everything they can, and I don't have a real issue with that BUT certain things should be protected against rolls of the dice. Two of those things are the NHS and the railway and surely they must acknowledge that when the ECML was temporarily back in public ownership, HM Treasury did rather well out of it.

[EddieB]

It has been mentioned before, but I would recommend those trying to score political points/knock Virgin/Stagecoach try to find a copy and read the editorial in this month's (February) "Railway Magazine" for a mature and balanced overview.

[jjb1970]

I am no fan of the bearded one or Virgin's marketing but I do think that they have done and are still doing a good job on the WCML.

[Ron Ron Ron]

.....Firstly, given that the infrastructure upgrades, even if on schedule, would take some years to complete, plus even if they were all finished now VTEC doesn't yet have any additional trains anyway, how have they already lost so much money (£200 million has been quoted) ?

 

 

They've lost so much money because they've had to pay all the profits and more, to the government in premiums.

Operationally, the franchise has been making a very good profit, but not enough to cover the price they have to pay to run the franchise (the premium).

To date, VTEC have handed over a reported £800 million to the DafT or Treasury.

This is more than they've earned in profits, leaving them with a £200 million loss.

 

Had the premium payments been set at a lower level, VTEC would be in the black and the government would have continued to receive a regular healthy payment from them.

Edited February 7, 2018 by Ron Ron Ron

[The Stationmaster]

I get a sneaking suspicion that they won't be getting their guards to encourage passengers to sign the protest this time around... (when First won, but Beardie cried foul)...

 

I've noticed a sea change in VT staff in recent years regarding that company. C'mon now 20 years is enough, time for someone else to have a go. 

In an ideal E3109 world, it would be a new BR. Not holding my breath on that one although as suggested on LBC the other night, if Mrs May renationalised the railway in the right way, and reformed the NHS to cut out the waste and put the money into CARE rather than red tape, then she'd be picking the curtains at Number 10 next time round.

 

Don't really wanna get too political here, although the subject matter tends to make it unavoidable.

But I think something like 70% of Conservative voters would prefer to see a renationalised railway.

Yes we know that the Tory backers love to make money on anything and everything they can, and I don't have a real issue with that BUT certain things should be protected against rolls of the dice. Two of those things are the NHS and the railway and surely they must acknowledge that when the ECML was temporarily back in public ownership, HM Treasury did rather well out of it.

 

I worked for nearly 30 years in a nationalised BR and in many respects it was good.  But part of the reason it was good was because it kept the politicos at arms length and the other reason it was good was because most of those at the top had got there via a relatively lowly start and had a pretty good idea of how to run a railway and it would be well nigh impossible to recreate that in much less than a generation, assuming circumstances were right to recreate it (which I doubt).

 

In the intervening years anybody and everybody would be poking their nose on and changing things to suit what they want - which very often would not be what the railway would actually need.  And take NR as an example because it already is basically nationalised - yet is further removed from the needs of its eventual customers than ever before.   Sorry but not only can we not revisit the past but we really can't recreate it as it once was, simple as that.  The present system with franchising might not necessarily be the best in the world but overall it isn't too bad and generally it has worked to the benefit of passengers and the industry as the numbers well illustrate.   I certainly didn't agree, and still don't, with doing away with the Director of Rail Franchising and burying that job within a large Govt department which at times seems far from fit for purpose but that doesn't mean the model doesn't work although it might perhaps be a good argument against giving the traditional arm of the Civil Service even greater control through full nationalisation.

 

Oh and as Ron (x3) has pointed out several times already in this thread The Treasury have actually done far better out of the present franchisees on the ECML than it did out of the Direct Railways concern.

[E3109]

But surely that would've been specified in the franchise contract before they signed for it? Or am I missing something here.

 

(That was in reply to Ron by the way).

Edited February 7, 2018 by E3109

[Joseph_Pestell]

They've lost so much money because they've had to pay all the profits and more, to the government in premiums.

Operationally, the franchise has been making a very good profit, but not enough to cover the price they have to pay to run the franchise (the premium).

To date, VTEC have handed over a reported £800 million to the DafT or Treasury.

This is more than they've earned in profits, leaving them with a £200 million loss.

 

Had the premium payments been set at a lower level, VTEC would be in the black and the government would have continued to receive a regular healthy payment from them.

 

Hot news. The next franchisee on ECML will plagiarise its new livery from IC Swallow which many of us consider to have been the best BR livery.

 

But instead of a swallow, it will feature a goose laying golden eggs. (I need to ask Corbs to illustrate that. Beyond my IT abilities)

Edited February 7, 2018 by Joseph_Pestell

[Coryton]

I am no fan of the bearded one or Virgin's marketing but I do think that they have done and are still doing a good job on the WCML.

 

Though I find Pendolinos (in both standard and - from limited experience - in first) a far less pleasant environment than the Mk 3's they replaced. 

 

I was very pleased to see how different the IETs are in that respect. They even have windows instead of portholes, and a whole toilet per coach.