Franchising news this morning

[corneliuslundie]

Can someone clarify something for me please?

I was under the impression that when Northern Rail as operated by Arriva "failed" it was put in the hands of an operator of last resort, which DfT always has up its sleeve and is what was done with the East Coast franchise. Am I wrong and Arriva is still running things, albeit under a different arrangement to the previous franchise?

Re HS2, of course of DfT decided to it could create a new state owned company along the same lines to operate the line, but it has always been stated that it would be an integral part of the West Coast franchise. It is not a stand alone line. It is intended to be integrated with the rest of the network.

Incidentally, I believe that one of the partners in the "company of last resort" arrangements is Arup. They are by far my favourite consultancy. When I was working I knew a lot of people in the organisation and they were all excellent. I would be happy to see any company they were involved in running part of the railways.

Jonathan

[rockershovel]

.... to summarise the previous half-dozen or do posts, yes, pretty much. 

 

Privatisation has had twenty-five years, now. If it could resolve its problems, it would surely have done so, by now. The notion that the ECML is financially problematic, is hardly new, for example. 

 

I don't think that there can be any real doubt, at this stage, that there are too many franchises or contracts, and the system needs simplifying. The level of risk on the operators seems to be subject to an excessive number of variables. There seems to be an excessive degree of micro-management from political sources, which tends to imply a lack of confidence in the system by those responsible for it; a lack of competence amongst those responsible for it; or both. 

 

[woodenhead]

7 minutes ago, rockershovel said:

.... to summarise the previous half-dozen or do posts, yes, pretty much. 

 

Privatisation has had twenty-five years, now. If it could resolve its problems, it would surely have done so, by now. The notion that the ECML is financially problematic, is hardly new, for example. 

 

I don't think that there can be any real doubt, at this stage, that there are too many franchises or contracts, and the system needs simplifying. The level of risk on the operators seems to be subject to an excessive number of variables. There seems to be an excessive degree of micro-management from political sources, which tends to imply a lack of confidence in the system by those responsible for it; a lack of competence amongst those responsible for it; or both. 

 

Or more simply Franchising was a dream but it ended as a smokescreen - there was no freedom for the TOCs outside of the strict terms of the license they had to run the trains on behalf of HMG.

 

ECML failed time and time again because they handed it to the proposer with the highest profit projections and then in standard outsourcing culture the new TOC began to try and find excuses to avoid paying the money it promised and when that did not work they simply handed back the keys and walked away.

 

Why is there micro management, because HMG and DFT have never let go of the railways, they knew they couldn't, they just wanted to be able to blame the TOCs for anything and everything that went wrong.

 

What I have not noticed in all of this curtailment of franchising is the TOCs not speaking out against it, HMG have just de-risked the whole sector, the TOCs can still make a profit but now it is going to be easier for them to predict the return and all the risk has been taken back onto HMG.  Juxtapose this with buses in Greater Manchester, the Mayor wants to build a London model and the bus companies do not like it one bit and have been doing PR to keep the status quo.

[andyman7]

1 hour ago, corneliuslundie said:

Can someone clarify something for me please?

I was under the impression that when Northern Rail as operated by Arriva "failed" it was put in the hands of an operator of last resort, which DfT always has up its sleeve and is what was done with the East Coast franchise. Am I wrong and Arriva is still running things, albeit under a different arrangement to the previous franchise?

Re HS2, of course of DfT decided to it could create a new state owned company along the same lines to operate the line, but it has always been stated that it would be an integral part of the West Coast franchise. It is not a stand alone line. It is intended to be integrated with the rest of the network.

Incidentally, I believe that one of the partners in the "company of last resort" arrangements is Arup. They are by far my favourite consultancy. When I was working I knew a lot of people in the organisation and they were all excellent. I would be happy to see any company they were involved in running part of the railways.

Jonathan

It is no longer operated by Arriva. The rail franchises are separate legal entities from an owning group, and when they end the legal entity is either transferred or ported into a new entity tied to the new owners, complete with all the staff contracted to it and the associated rolling stock and other contracts. That is why the name changes but the staff, services etc remain the same.

In theory, a franchise should move from one private sector owner to another but as long ago as 2003 (when the Connex South Eastern franchise was terminated by the SRA for financial reporting irregularities) it became obvious that the option for an 'operator of last resort' owner was needed. The title is a bit misleading because they don't actually fulfill the role of operator; they become instead the caretaker shareholder. These arrangements are not designed for the long term management of the industry and so are just a holding arrangement until new structures are agreed and, if required, legislated for.

[andyman7]

8 minutes ago, woodenhead said:

ECML failed time and time again because they handed it to the proposer with the highest profit projections and then in standard outsourcing culture the new TOC began to try and find excuses to avoid paying the money it promised and when that did not work they simply handed back the keys and walked away.

That something of an oversimplification of the situation, one that suits media and politicians to use, but disguises the truth that no-one walked away unscathed.

The idea behind franchising is to get a bidder to accept a risk transfer from government, but government both sets the rules and has to recognise that some risks cannot be accommodated within the contract. To protect the taxpayer, the franchisee has to put up a bond (millions of £ in the case of the rail contracts). They will lose this bond if they default and it is very painful. No-one can hand a contract back and walk away without forfeiting the bond but once they have done so they have fulfilled their contractual obligation in the event of being unable to continue.

GNER won the East Coast franchise for the second time in 2005 but the parent company (Sea Containers) got into difficulty and in the contract was ultimately ended because of the risk that it could not meet the bond obligations going forward. The franchise was retendered an won by National Express, but the financial crash of 2008 blew apart their financial predictions. They were unable to continue and lost their bond. East Coast ran the franchise under the 'Operator of Last Resort' arrangements and whilst they paid a surplus to Government, this was less than the amount that had been anticipated. The franchise was the  re-let to Virgin/Stagecoach with strong revenue growth based on delivery of infrastructure upgrades by Network Rail that failed to materialise on time. Virgin/Stagecoach took a fair bit of the risk on this, so the failure to deliver cost them very dearly in the loss of their bond.   

[woodenhead]

There may be a bond, but for the TOC it is a known value so they know the cost of walking away - it might be expensive but less expensive than carrying on.

 

I did over simplify but there was no need to complicate either.

 

Franchising has just been a fancy name for outsourcing.

[melmerby]

2 hours ago, Nearholmer said:

 

 

What Melmerby says is news to me, but given that somebody, public or private sector, will presumably be operating WCML intercity services, and that, unless we are all very unlucky, they will be a competent railway operator*, what is the issue?

 

 

It was on the news at the time the WCML "franchise" was let to Avanti, that they would be the operator of HS2 if they were still incumbent.

I haven't seen it in any official documentation but I imagine it isn't far from the truth.

 

 

[rockershovel]

1 minute ago, woodenhead said:

There may be a bond, but for the TOC it is a known value so they know the cost of walking away - it might be expensive but less expensive than carrying on.

 

I did over simplify but there was no need to complicate either.

 

Franchising has just been a fancy name for outsourcing.

 

Exactly so, and this is why resolving it is so problematic. 

 

I very much suspect that (Covid19 aside) we are undergoing one of the sea-changes in public life which arise periodically. On the basis that the 1997 General Election was the last one, it is about due. 

[woodenhead]

16 minutes ago, rockershovel said:

 

Exactly so, and this is why resolving it is so problematic. 

 

I very much suspect that (Covid19 aside) we are undergoing one of the sea-changes in public life which arise periodically. On the basis that the 1997 General Election was the last one, it is about due. 

 

[rockershovel]

1 hour ago, woodenhead said:

 

 

... and look how THAT worked out!