The IEP order included all the development and testing costs for the two fleets, plus depot construction and all the maintenance costs for 27.5 years.
Any follow on order is bound to benefit from this sunk cost, which is why incremental vehicle costs are as low as £2m.
No other manufacturer would be able to offer anything like this price for an equivalent train unless the fleet size was equally huge, which is impossible.
The HS2 stock will be following the same pattern, particularly as it will be classic compatible (ie not available off the shelf).
I fundamentally disagree! The issue is not really one of sunk costs but of the cost of risk. In this context the leasing or usage cost per vehicle for HS2 will be more dependent on whether the DfT passes all the operational risk to the train supplier or whether the TOC carries some of the risk.
On 9th July 2014 National Audit Office published a report (
Procuring new trains HC 531 Session 2014-15 9 July 2014) which was openly critical of the way the DfT has procured the IEP and Thameslink trains.
The financial figures included in the NAO’s report for the IEP were analysed by transport journalist Roger Ford in the August 2014 edition of
Modern Railways (pages 30 to 31). He concluded that the annual charge on the train operator for the Western’s tranche of trains will be some £300 million (my rounding).
The Office of Rail Regulation (now the Office of Rail and Road) publishes a range of statistics on railway use, costs and revenues. In its document entitled “
GB rail industry financial information for the year ending 31 March 2013” are included the annual rolling stock charges for the Train Operating Companies (TOCs). Those for first Great Western (fGW) amount to £68 million - I use the figures for 2013 for consistency as they refer to the same period as the NAO's report. To this amount must be added the cost of daily maintenance and cleaning to bring the numbers to the same basis as the IEP charges. In the ORR table is a heading ‘Other operating expenditure’ of £177 million for fGW which includes these, and many other, expenses, so it would be reasonable to assume a total charge of some £80 to £90 million for the current fleet on the same basis as the IEP calculations. Note that this is the cost to the train operator
for the total fleet:
all the High Speed Trains and
all the trains required for the Thames Valley and Bristol suburban services, the two Cotswold lines and the West Country.
In other words the annual cost of the IEP fleet alone is some three times what fGW/GWR paid for all of its trains in that year. These charges are to be paid for the life of the contract, that is for 27.5 years, so the sums are significant: the Present Value (in 2013 pounds) of the IEP contract is £4.1 billion for the Great Western alone.
Analyses have also been published that suggest that the costs for leasing the Class 800 trains through the IEP deal will amount to around £20,000 more per vehicle per month than comparably complex trains purchased by a ROSCO. The comparison is with the 57 nine and eleven coach long 140mph tilting Class 390 trains - both the train types are 140mph 25kV emus with distributed traction and have been or are being built in comparable numbers. In the one case the trains have tilting packs throughout the length of the trains, in the other diesel power packs under many, but not all, of the coaches so the mechanical complexity is, although not the same, very similar. Both types require design, development and testing so these costs are not a sufficient reason for the large difference in monthly costs per vehicle.
This comparison has been made as a sanity check on the validity of the numbers - it is an approximation as an indication of orders of magnitude, it is not expected to be accurate to the last decimal place. But however one cuts the numbers the cost per vehicle per month for the IEP trains comes out considerably more than for those purchased by a ROSCO with a separate maintenance contract.
The conclusion is that the difference is the price between the trains procured under the IEP contract and those purchased by the ROSCO is not only due to the writing off of the R&D costs but is also because the DfT passed
all the risks of train development and operation to Agility Trains who only get paid in full for completed diagrams - the price it charges will include an allowance for any missing/failed diagrams. A ROSCO deal with a TOC means that the TOC carries some of the operational risk itself.
Risk is very expensive to insure - look at the difference in your car insurance premiums if you select not to carry any excess.
This is now all water under the bridge - the difference in costs between the conventional trains and the 'IEP trains' was fudged in the second Direct Award to GWR in that the expected premiums were lower than would have been expected to be the case if a ROSCO had bought the trains.