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

[Max Legroom]

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.

My experience of Virgin Mobile is slick marketing and non-existent customer service to the extent that I'd avoid anything Virgin branded if at all possible!

[Pete the Elaner]

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.

I agree about Pendo's vs Mk3's but the latter were limited to 100mph on the WCML because they couldn't tilt. The smaller Pendo windows were probably put there to increase strength.

I can't comment about the IETs because I have never seen one, let alone ride in one, but didn't Mk3s have 2 toilets per coach? This reduction may be because Mk3s didn't have to store their waste. Dumping it on the track was hardly a pleasant way to dispose of it though.

[Joseph_Pestell]

I agree about Pendo's vs Mk3's but the latter were limited to 100mph on the WCML because they couldn't tilt. The smaller Pendo windows were probably put there to increase strength.

I can't comment about the IETs because I have never seen one, let alone ride in one, but didn't Mk3s have 2 toilets per coach? This reduction may be because Mk3s didn't have to store their waste. Dumping it on the track was hardly a pleasant way to dispose of it though.

Surely, a given number of passengers will generate the same quantity of "waste" whatever the number of toilets? (Possibly more if they had to queue for a while)

[Ron Ron Ron]

......surely they must acknowledge that when the ECML was temporarily back in public ownership, HM Treasury did rather well out of it.

 

As Mike (The Stationmaster) said, the Treasury has up to now done very well out of VTEC, who have made a far higher return out of the franchise than EC did during its tenure.

The problem has been that the Treasury have been doing far too well out VTEC, due to the overambitious and many would say, unrealistic franchise terms.

Had the terms required a much more conservative level of premium payments, VTEC could have returned almost double what EC were able to do, over a similar time period.

 

 

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).

 

 

If you are referring to the premiums, yes it was written into the franchise agreement.

As explained above, the agreed level of payments was set far too high, based on flawed revenue growth assumptions and an expectation that increased capacity would have been deliverable.

VTEC pitched their bid too high (as I'm sure the other two bidders did) and the DafT and Treasury were far too greedy.

 

 

 

.

['CHARD]

The smaller Pendo windows were probably put there to increase strength.

 

 

And to reduce feelings of queaziness from the tilting experience, for those susceptible to it, I understand.

[Ron Ron Ron]

My experience of Virgin Mobile is slick marketing and non-existent customer service to the extent that I'd avoid anything Virgin branded if at all possible!

 

 

Virgin Mobile, which is part of Virgin Media, has nothing to do with the Virgin Group whatsoever, other than using the Virgin branding, which they pay a licence fee for.

Virgin Media is a subsidiary of American company Liberty Global.

 

 

.

[jamie92208]

My experience of Virgin Mobile is slick marketing and non-existent customer service to the extent that I'd avoid anything Virgin branded if at all possible!

 

 

Virgin Mobile no longer has any input from Virgin. It was sold off and no doubt pays for the brand name.   All it's network is outsourced and regularly re tendered as my No 1 son has found out to his disadvantage on at least 2 occasions.

 

Jamie

[Clearwater]

A quick point on forecasting and how you get to a £200m loss. As a first order, the turnover and costs are c £800m. A 2.5% over and underestimate produces a £40m year loss. Multiply by 3-4 years, add on some compensation payment and you’re at that sort of figure pretty quickly. Highlights how operationally levered these sort of franchises can be.

[lmsforever]

Maybe the press and radio tv etc will tell everyone the truth about VTEC eventually reading what the experts say is enlightening but I doubt if DAFT will be brought to back as the civil service  refuses to answer to anyone.The future of the ECML is a worry will NR do the work and will a franchisee actually make it work ,Virgin must be fed up with their name being trashed and Stagecoach seeing their record on other franchises being questioned wondering what they can do.Comments by MP,s have been ridiculous showing how they no longer have any credibility and should be ignored by everyone .At least you can buy your own IEP Hornby have brought out and extremely accurate model of one ,so model the EC and run your own successful services thts the answer!

[Clearwater]

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.

Sorry, I disagree with your analysis about British banks and the value they place on “productive assets” and the differences to German banks. I’ve been in banking syndicates with both British and German banks financing the very assets you refer to. There is very little difference in approach between the nations. If anything, I’ve seen some continental banks be less disciplined and ending up over exposed to long term assets with low returns. These banks were massively bailed out by their parent governments.

 

I’ve seen enough finance raised, in the debt and equity markets, for UK infrastructure to be pretty confident of the value ascribed to the sector by UK institutional (aka your pension and insurance money) to know the value they place on such assets. If you’re interested, count up the number and value of sterling bonds issued by the utilities and airports.

 

You also seem to neglect that one reason overseas investors have historically invested in the uk is that they place a premium on our strong legal system, the robust policy and regulatory framework and the resulting stability and predictability that brings. It’s a “safe home” for their money. This argument that uk assets should be held by uk investors is bogus. As I explained above, any foreign investors will have paid a premium to enter the sector. If a uk investor believes he can take that cash, and reinvest it at a higher rate than he was earning from the asset in question, he should sell and do that. It’s the equivalent of noting that Bank A pays you interest of 1% but if you move your money to bank B you get interest of 3%. Clearly you’re better off if you’re prepared to move your mobey. As I noted, different investors have different priorities and some UK funds do invest in steady predictable yields as part of their portfolio.

 

On the public policy question “should we allow xyz nation to control our critical assets”answer is it depends on the regulation (caa, ofwat ofgem etc). Regulation, under ministerial guidance sets the policy direction to deliver the service we want. Ownership is not relevant. It’s not as if you can physically shift our gas network to another country! Those investors are buying proxy UK GDP.

[rockershovel]

I would strongly disagree with much of the previous content... maybe....

 

The Dutch have prospered greatly from wind farm contracts, raking in money from all over the EU and using it to build a highly profitable, state of the art construction fleet which works world-wide and employs a lot of Dutch personnel. I’ve worked on some of them, and very impressive they are.

 

The Germans have a major car building industry, VAG and BMW, and I greatly doubt that they operate this for their own amusement. Our government sold ours to asset-strippers, who literally sold the nameplate off the gates. The Germans have a whole business sector, “mittelstand” which doesn’t even have a word in English, let alone an equivalent. Nor do they have to send in the Army to carry out security at a major international showpiece like the Olympics, because their contractor has failed; nor have Carillion-style collapses. Even their health system has an IT system which works quite well.

 

I don’t dispute much of what you say, particularly about the rule of contract law in U.K. being a major international attraction, which is undoubtedly true. But it’s the nature of what ensues... I’ll declare a personal interest here. I was part of the “Aberdeen gold rush” in the 1970s, that great national adventure which was a huge feat in many ways. But, forty years on, Norway has become one of the richest nations in the West per-capita; Statoil has become a major world class player. Where’s OUR money?

 

Mrs May has been “on the spot” today about the possible role of American investors in the NHS under any future trade deal. Are you REALLY saying we should allow the American insurance companies in here, because someone makes a good return on them?

 

So we must agree to disagree profoundly as to the role and purpose of “foreign investment”, I think.

[phil-b259]

 I was part of the “Aberdeen gold rush” in the 1970s, that great national adventure which was a huge feat in many ways. But, forty years on, Norway has become one of the richest nations in the West per-capita; Statoil has become a major world class player. Where’s OUR money?

 

 

IIRC the answer is:- Used to bankroll extensive changes in industrial strategy, that while necessary, significantly increased welfare payments etc.

 

The contrast could not be more stark, Norway, from the outset treated its oil revenues as 'something special' - as an 'extra' to the usual Government budgeting process which was largely unchanged for the pre-oil era. This allowed most of the extra revenue into ring fenced 'social funds' design to supplement* for some of its most deprived / economically depressed areas plus in later years environmental programmes etc. providing a long term ongoing source of funding on top of (not instead of) regular Government funding.

 

The UK Government by contrast was incapable of such long term thinking and simply treated the revenues no different from any other tax receipt and used them to further the short term political imperatives of the party in charge at the time.

 

Sure it probably was good initially - lower taxes always go down well with the British electorate (who seem blind to the consequences of such short termism) and in any case setting up large Government run 'social funds' didn't fit with the prevailing faith in 'small Government' and 'the power of free trade to make us all fabulously rich' thinking anyway.

 

However 30/40 years on, with many UK communities previously dominated by heavy industry being high up the deprivation index, with the UK finances wrecked by repeated financial crashes (due to an over reliance on the service sector and banking to provide the bulk of the Treasury's income), the decisions taken by the Norwegian Government all those decades ago look far more sensible than the stance taken by the UK....

Edited February 7, 2018 by phil-b259

[Mike Storey]

Maybe the press and radio tv etc will tell everyone the truth about VTEC eventually reading what the experts say is enlightening but I doubt if DAFT will be brought to back as the civil service  refuses to answer to anyone.The future of the ECML is a worry will NR do the work and will a franchisee actually make it work ,Virgin must be fed up with their name being trashed and Stagecoach seeing their record on other franchises being questioned wondering what they can do.Comments by MP,s have been ridiculous showing how they no longer have any credibility and should be ignored by everyone .At least you can buy your own IEP Hornby have brought out and extremely accurate model of one ,so model the EC and run your own successful services thts the answer!

 

Civil servants are accountable to their elected Minister, who is responsible to the Secretary of State, who is responsible to us, via our elected reps in parliament and their specialist inquisitors in the appropriate Transport Committee, and the Public Accounts Committee, supported by the National Audit Office. That is where much of the "truth" will come out.

[phil-b259]

Civil servants are accountable to their elected Minister, who is responsible to the Secretary of State, who is responsible to us, via our elected reps in parliament and their specialist inquisitors in the appropriate Transport Committee, and the Public Accounts Committee, supported by the National Audit Office. That is where much of the "truth" will come out.

 

Indeed - like the scathing NAO report into the whole Southern trains mess which quite clearly identified the actions of the DfT as the main culprit. https://www.nao.org.uk/report/the-thameslink-southern-and-great-northern-rail-franchise/

 

As they state, “Over the last three years long-suffering passengers on the Thameslink franchise have experienced the worst performance on the rail network. Some of the problems could have been avoided if the Department had taken more care to consider passengers in its design of the franchise.”

 

I wouldn't mind betting that the same sorts of criticisms could also be said about the VTEC franchise....

Edited February 7, 2018 by phil-b259

[stovepipe]

 

If you are referring to the premiums, yes it was written into the franchise agreement.

As explained above, the agreed level of payments was set far too high, based on flawed revenue growth assumptions and an expectation that increased capacity would have been deliverable.

VTEC pitched their bid too high (as I'm sure the other two bidders did) and the DafT and Treasury were far too greedy.

 

.

You make it sound like the franchise specification issued for tender by the dft required that £3.3bn of premia be paid. This is incorrect, VTEC bid that amount to win the franchise, no-one forced them to. I'm not arguing that the franchise system isn't flawed - it is, but the one thing we are told about private companies repeatedly is they are better at taking and managing risk than public sector organisations. Yet here we have a private company within 3 years of taking over the franchise, and before the infrastructure improvements were planned to come on line, making a very serious loss. Seems to me VTEC are likely to run out of parent company guarantee and default on premia payments before May 2019, the date when infrastructure improvements were due to come online. In my view this failure should be laid firmly at VTECs door.

[phil-b259]

You make it sound like the franchise specification issued for tender by the dft required that £3.3bn of premia be paid. This is incorrect, VTEC bid that amount to win the franchise, no-one forced them to. I'm not arguing that the franchise system isn't flawed - it is, but the one thing we are told about private companies repeatedly is they are better at taking and managing risk than public sector organisations. Yet here we have a private company within 3 years of taking over the franchise, and before the infrastructure improvements were planned to come on line, making a very serious loss. Seems to me VTEC are likely to run out of parent company guarantee and default on premia payments before May 2019, the date when infrastructure improvements were due to come online. In my view this failure should be laid firmly at VTECs door.

 

Equally nobody forced the DfT to actually chose that over ambitious bid did they? A bit like nobody forced anyone to take out all those risky mortgages before 2008, or forced councils to put public money in Icelandic banks.

 

Now granted with any bid / contract setup it can be difficult to decide where to draw the line - however things like previous experience and considering 'what if scenarios' are just as important as all the wonderful promises the bidder may include or the money they are willing to pay.

 

Ever heard of the saying 'Sounds too good to be true' - well that statement sounds very much like the ridiculously large growth forecasts Stagecoach / Virgin used to underpin their bid. Given previous high profile failures you would have though someone at the DfT would have had the sense to say No and reject the bid.

 

Oh and who was it that drew up the 'invitation to tender' guidance that ultimately the Stagecoach / Virgin bid based on - why yes the DfT again.

Edited February 7, 2018 by phil-b259

[stovepipe]

I'll say it again the franchise system is flawed, but all three bidders had the same info in the ITT, which of course was written by the dft, who else would do it? And if you're wedded to the privatisation dogma as recent governments have been, then you are unlikely to think the super efficient, super competent private company would do anything so stupid as overbidding, and I'm sure the bids were scrutinised closely, and the bidders questioned extensively before a decision was made. Having being involved in letting numerous competitive contracts, the quality dimension only goes so far, and if there is a big gap in prices, then money talks. In fact it would be very difficult for a public sector contract to be let in any other way, given the procurement and audit rules in place. With the £200m of parent company guarantees, in fact the contract allows for a reasonable degree of protection for the dft.

 

I now hear that VTEC have been informed they are in breach by dft, and the contract will be ended, 2 years 9 months into its 8 year term.

http://www.railjournal.com/index.php/main-line/virgin-stagecoach-east-coast-rail-franchise-faces-early-termination.html

 

Going out on something of a limb here, but I would not be surprised if VTEC had reckoned on getting through to the start of improved services in May 2019, and then renegotiating based on the inevitable non-delivery of the infrastructure improvements.

[Glorious NSE]

Going out on something of a limb here, but I would not be surprised if VTEC had reckoned on getting through to the start of improved services in May 2019, and then renegotiating based on the inevitable non-delivery of the infrastructure improvements.

The intention to continue till 2019 and renegotiate was publically stated by Virgin back in November IIRC, the DfTs take at the time was to finish the contract in 2019 rather than renegotiate.

 

If they had got that far that's not unreasonable IMHO, although i'm sure would still have been viewed as evil capitalists stealing our money in some quarters.

 

The interesting thing to me is what changed between November and February - is it coincidence that the public face of the franchise was Virgin in November, but appears to be Stagecoach in February?

 

 

[Clearwater]

I don't disagree that Norway has managed its oil resources extremely well. The UK's decisions were different and made by both parties in Government during the 74-79 Labour Government and 79-87 Tory Government (I know they were in until 97 but the earlier period more relevant here). North Sea Oil revenues sustained the exchequer when, as you will recall, the economy was so parlous we had the IMF bail out of the 70s. To me, the big differences between the UK and Norway population and diversification of the economy. The UK is about 12x the size (c60m vs 5m). If we had the same volume of oil, necessarily the impact per capita is greater for Norway. Also, as a smaller economy, the oil bonanza needed different management to the larger more diverse UK economy. Would/could/should the UK have created a Sovereign Wealth Fund? Interesting question but one for the historians.

 

Motor manufacturing. Believe it or not, we are a global leader and exported 1.3m cars last year (https://www.smmt.co.uk/vehicle-data/manufacturing/). Motor manufacturing tends not to be a complete process at any one point with different components often crossing the border many times. There are other industries where we do well - biosciences, tech etc. Sure other countries may develop other specialities. You can cherry pick examples as to where other countries lead but I don't think you can extrapolate from that the conclusion that the UK is in an economic mess. Let's not forget that despite everything, the UK remains one of the largest economies in the world and one of the richest nations. We're incredibly fortunate. That's why we're able to spend our time here arguing about misplaced rivets on toy trains.

 

Do I think American insurance companies should run chunks of the NHS? No. Do I object to US companies bidding for contracts let by the NHS? No - if they provide something better and cheaper than other companies then no. Do I think the NHS (and other public services) should be self sufficient? No - that's patently absurd. THere's always a line, unless you're Tom Good and even he had to compromise eventually, where you have to buy in certain goods or services. To me, privatisation breaks down where the user does not pay directly for the service and where the service provider cannot reasonably take the risk on the outcome of the service delivery. Rail it's clear that there is a user paid service. Ditto energy and water. Both subject to economic regulation. The principle of the NHS is that it is collective social insurance, free at the point of use and based on clinical need not ability to pay. However, as I'm sure you know there has always been a range of private contractors, eg GPs and Dentists. I believe Bevan sanctioned GPs remaining private contractors as part of their price to accept the formation of the NHS. Can some contractors provide some services more efficiently, and therefore allow scarce public resources to go further, probably. There's a debate to be had as to which those services can/could be without compromising the founding principles of the NHS.

[stovepipe]

The intention to continue till 2019 and renegotiate was publically stated by Virgin back in November IIRC, the DfTs take at the time was to finish the contract in 2019 rather than renegotiate.

If they had got that far that's not unreasonable IMHO, although i'm sure would still have been viewed as evil capitalists stealing our money in some quarters.

The interesting thing to me is what changed between November and February - is it coincidence that the public face of the franchise was Virgin in November, but appears to be Stagecoach in February?

 

My suspicion is that renegotiation was the original intention at the time of bidding, NR has form in non-delivery of infrastructure after all. FWIW I don't see it a renegotiation as unreasonable either, contacts are formed by two parties, both of which have obligations. Yes I noticed Grayling's change to Stagecoach too, perhaps Virgin alone are being lined up to ride to the rescue?

[pete_mcfarlane]

Nor do they have to send in the Army to carry out security at a major international showpiece like the Olympics, because their contractor has failed;  

I think the UK did a better job of Olympic security than the Germans did last time they hosted the games. All of the Israeli team made it back from London. 

[Bob Reid]

It just goes to show that all these guarantees of extra funding, better services, better management and cast-iron contracts to ensure it always happened and were bullet proof were all a load of tosh.  Quite frankly we were duped.

When you can pull out of a contract with more than six? years remaining because you can no longer afford it and do so with the full support of the elected Government representative without any punitive penalty, just who is being made a mug off?

The only risk transference these contractors are very good at is always making sure it always transfers to someone else. I'm afraid too many posts on here expounding the virtues of good business management by the latest business guru.  To the average man / woman in the street its just "Bull$hit means Bull$hit"  

Edited February 7, 2018 by Bob Reid

[stovepipe]

Yep £200m was the limit of the 'cast iron' guarantee, but therein lies the inherent problem with private sector contracts, if the contract is too risky and punitive, you have no tenderers willing to price it. Therefore contract risk is limited, and the government keeps the remaing risk despite the political posturing.

 

An alternative is publically owned/operated where all kinds of risk can be passed onto the organisation in charge, though if things go wrong a huge whole can be quickly blown in the public sector finances. At least in BR days the risk of budget overspend could be balanced over the whole portfolio, which may well be more efficient overall given the right management structures. To be honest no-one has yet found an appropriate blend of the two competing operating models, though it looks like Grayling might be having another go at it with the route 'alliances'.

[Bob Reid]

22 years is a long time to find a working model - it sounds like some of my modelmaking efforts (those consigned to be shelf of shame).

 

[rockershovel]

I’d hardly be surprised if VTEC entered the contract based upon renegotiation following the non-delivery of upgrades to the network. That sounds like plain, old-fashioned contingency planning, to me. The sort of thing any company undertaking a multi-year, multi-million pound contract, ought to do as a matter of course. The question must surely be, how did DfT come to let a contract containing such a major pitfall, at such an early stage?