Eurostar Chairman Richard Brown has completed his review of UK rail franchising market which was commissioned in the wake of the collapse of the West Coast Main Line franchise competition. The report considers the principles of rail franchising and the changes that are required to deliver an effective franchise system while at the same time delivering the cost efficiencies set out in the May 2011 McNulty Rail Value for Money Study.

In summary, the report's key recommendations are:

  • the bidding process needs to be simplified and clarified so that it is clear what DfT is looking to buy and also to reduce the bidders' costs
  • DfT needs to strengthen its capability (e.g. it needs better people)
  • the franchise terms should generally be between seven and ten years with pre-agreed continuation of between three and five years depending on financial criteria being met. There is also reference to intermediate break points and to residual value mechanisms to encourage investment which has a commercial return beyond the franchise term
  • franchisees should not be responsible for risks they cannot manage – franchisees should not be required to take risk on variations in GDP or Central London Employment growth rates. Conversely, franchisees should take clear responsibility for delivering their initiatives. Also, there should be a simple profit share mechanism to ensure that government shares in any significant financial out performance by the franchisee
  • capital requirements should be set at a level to create financial robustness, to deter default and to protect government up to a reasonable limit for the loss of premium or increase in support in the event of an event of default
  • the evaluation process should assess the financial robustness and deliverability of bids
  • the bids should be explicitly scored on their proposals for improving service quality (with quality given a weighting of between 20% and 40%)
  • there is a recommendation relating to the devolution of the specification and oversight of franchises to organisations such as Passenger Transport Executives
  • an improved change mechanism should be built into the ITT and franchise agreement
  • in addition to improving the teams within DfT which manage the bidding process, franchise management capability within DfT should be improved and DfT should publish guidance on its approach to franchise management, and
  • the franchising programme should be re-started and should be programmed in a way which reflects what the market can resource

In view of the above it seems likely that we will see a staggered procurement process despite the fact that on the current timetable 12 of the UK's 15 rail franchises are due to be re-let by the end of 2015. In his covering letter to the DfT, Mr Brown suggests that there should be "an early announcement on how the Department is bolstering its resources from outside, clarification by February 2013 of its plans for the three paused competitions and a fuller announcement by April 2013 on how it is going to take forward the wider re-franchising programme". We will provide updates on the franchise programme as and when further announcements are made.

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