Rail Franchises to be Replaced with Fixed Fee Contracts

[2L70]

First have been predicticted to be “handing back the keys next month” ever since I joined the forum... Is it just possible there’s a few posters who always want it to happen, and interpret any news at all in that way?

Just seen one of their lobbyists blaming staff on Facebook for the Franchising mess.

 

[Starmill]

It is particularly interesting that the ERMA expires early if a settlement of the original franchise terms is not negotiated in time. Another hard deadline in just three months.

 

[dk1]

Staff email from the EMR MD confirms it for all 3 franchises but no timescale mentioned.

Just seen the internal email extending GA through to September 2021. Back to business as usual

 

[Domh245]

It is particularly interesting that the ERMA expires early if a settlement of the original franchise terms is not negotiated in time. Another hard deadline in just three months.

It does seem from a cursory skim read of the linked news pieces that today's announcements are just kicking the can down the road, with the actual proper change due to happen next year?

 

[Bletchleyite]

It does seem from a cursory skim read of the linked news pieces that today's announcements are just kicking the can down the road, with the actual proper change due to happen next year?

It reads like they might actually publish the Williams Review in some form!

 

[Starmill]

It does seem from a cursory skim read of the linked news pieces that today's announcements are just kicking the can down the road, with the actual proper change due to happen next year?

It looks like it. It also looks like the DfT have been 'persuaded' to increase their offer from 1% to 1.5%, so I wonder if they will have taken their dues in the fine print.

FT report that an 18 month cost to DfT for management fees is around £100 million at 1.5%.

 

[LNW-GW Joint]

It is particularly interesting that the ERMA expires early if a settlement of the original franchise terms is not negotiated in time. Another hard deadline in just three months.

But what could the terms be?
Without knowing the future regime, how does a franchise owner choose to terminate or take some kind of direct award?
You'd think DfT had a road map for the future setup, and knows what concessions it wants to offer.
It will be particularly complex for franchises which had a long time to run (eg Avanti, EMR, Keolis Amey for Wales).

 

[Starmill]

I don't get the impression that Transport for Wales intend to make any changes?

 

[Mikey C]

There is a press release from Go-Ahead https://www.londonstockexchange.com...tr-contract-to-run-to-september-2021/14691916

Interesting that Southeastern continues under its existing EMA until October 2021, or March 2022, why the different treatment?

 

[hwl]

Interesting that Southeastern continues under its existing EMA until October 2021, or March 2022, why the different treatment?

Already lots of direct award "can kicking" analysis in place for the EMA! Similar to GWR which got an early ERMA.

But what could the terms be?
Without knowing the future regime, how does a franchise owner choose to terminate or take some kind of direct award?
You'd think DfT had a road map for the future setup, and knows what concessions it wants to offer.
It will be particularly complex for franchises which had a long time to run (eg Avanti, EMR, Keolis Amey for Wales).

This is about tidying up the past relatively soon, not the future. e,g. TPE and SWR were in renegotiation with DfT phase before this happened, this is to force a deadline for the owning groups to take a hit

 

[pdeaves]

Interesting that Southeastern continues under its existing EMA until October 2021, or March 2022, why the different treatment?

As the new franchise agreement started on the same day as the EMAs came in, perhaps they had a clause in the contract allowing that. I mean, the negotiations would have been running concurrently with the same people.

 

[DB]

A very interesting press release:

Rail franchising reaches the terminus as a new railway takes shape 

New system will end franchising model and deliver a simpler, effective model through high performance targets and simplified journeys.

www.gov.uk

Does anybody actually believe the promise of 'simplified journeys' (which presumably means ticketing)? How many times have they trotted this one out, for nothing much to change?!

Moderator note: please continue this discussion in the dedicated thread https://www.railforums.co.uk/threads/how-can-rail-fares-be-simplified.209367/

 

[Horizon22]

Interesting that Southeastern continues under its existing EMA until October 2021, or March 2022, why the different treatment?

I think because the EMA was agreed around the time the old Direct Award (god knows which number) was due to end in March which is when everything kicked off so the arrangements are probably similar already?

 

[tiptoptaff]

So what is the difference between say GWR and Southern who have EMAs, and the majority of others who have ERMAs? Is there a fundamental difference between an EMA and an ERMA? Apologies if this has already been discussed

 

[theironroad]

As expected, nothing much changes in short term at least.

Message from shapps seems to be that the previous franchising model is definitely dead (though that's hardly shocking news).

However, it's not a wipe slate clean and start anew. The agreements from the previously signed franchise agreements have to be unwound by negotiation between parent companies and DfT. Seems mid December in the case of first group is mentioned in their releases this morning. Obviously tpe and swr were in some difficulty pre covid and aspects of the agreement were already being revisited before EMAs cam along.

Curious question is if, assuming agreements are successful on unwinding old agreement, will the DfT be looking to the incumbent parent companies as the first choice for a direct award or concession or will they use the opportunity to a) possibly merge some franchise tocs and b) have a competitive tendering exercise for the new DA/concession.

Apart from some talk about bearing down on capital costs and the usual simplify tickets and get trains to run on time refrains, there was not much detail at this stage what else the government plans.

 

[SussexLad]

I wonder if this new system is open to "abuse" by parent companies?

If the cost base is paid to the TOC and they pay it out, potential to abuse the system is their. If it is paid directly by the DfT then I can imagine some enterprising companies may suddenly be more interested in sub contracting work out if it has a kick back that they don't have to pay back.

A very interesting area to watch.

 

[JonathanH]

I wonder if this new system is open to "abuse" by parent companies?

If the cost base is paid to the TOC and they pay it out, potential to abuse the system is their. If it is paid directly by the DfT then I can imagine some enterprising companies may suddenly be more interested in sub contracting work out if it has a kick back that they don't have to pay back.

A very interesting area to watch.

Almost certainly not, as you would expect the DfT to have to provide sign off on substantial economic changes and contracts, and if it is open to "abuse", then the National Audit Office will be employed to rule on that "abuse". A private company can't just game a system to commit fraud.

 

[2L70]

Having someone appointed onto company Boards of Directors by the government would be an idea.

 

[SussexLad]

Almost certainly not, as you would expect the DfT to have to provide sign off on substantial economic changes and contracts, and if it is open to "abuse", then the National Audit Office will be employed to rule on that "abuse". A private company can't just game a system to commit fraud.

The DfT should think about these things, but the likely hood of that actually being done is low (in my opinion).

Also I am not talking about fraud. I am talking about sticking to the rules of the contract and using them to your advantage. How many private companies do that? Loads.

 

[Horizon22]

The DfT should think about these things, but the likely hood of that actually being done is low (in my opinion).

Also I am not talking about fraud. I am talking about sticking to the rules of the contract and using them to your advantage. How many private companies do that? Loads.

This is of course a concern. Many have stated the DfT are not at all good at contracting and the TOCs/owning groups may well have better contractual expertise than the owner which can lead to issues (for the DfT that is), especially as these contracts have been drawn up somewhat in haste.

 

[SussexLad]

This is of course a concern. Many have stated the DfT are not at all good at contracting and the TOCs/owning groups may well have better contractual expertise than the owner which can lead to issues (for the DfT that is), especially as these contracts have been drawn up somewhat in haste.

Exactly. The lack of profit warnings also makes me a bit concerned.

 

[SynthD]

This feels like the water companies where the government sets requirements and profit margins. We’re still seeing headlines about problems that they weren’t motivated enough to fix.
They avoid the word concession. Do you expect them to use it in the future?

 

[Bletchleyite]

This feels like the water companies where the government sets requirements and profit margins. We’re still seeing headlines about problems that they weren’t motivated enough to fix.
They avoid the word concession. Do you expect them to use it in the future?

Concession maybe isn't a good word, as its normal use is related to e.g. deals for having coffee stalls at stations.

Franchise isn't great either, as they aren't. Franchises involve buying into a master brand, and TOCs don't do that!

 

[Cardiff123]

I don't get the impression that Transport for Wales intend to make any changes?

They don't, not yet anyway. Keolis Amey's emergency agreement funding from Welsh Govt/TfW runs until next month. The TfW Rail Services TOC was already basically the model the UK Govt has now adopted. Any profits above 2% that Keolis Amey make are returned to TfW.

 

[yorkie]

New thread to discuss how ticketing can be simplified: https://www.railforums.co.uk/threads/how-can-rail-fares-be-simplified.209367/

 

[Taunton]

If the cost base is paid to the TOC and they pay it out, potential to abuse the system is their. If it is paid directly by the DfT then I can imagine some enterprising companies may suddenly be more interested in sub contracting work out if it has a kick back that they don't have to pay back.

Not abuse, but just normal commercial arrangements.

For example, TOC buys diesel fuel at normal oil company's rates. No reason to negotiate any more, it's part of costs. Oil company invoices, TOC pays. DfT Auditor can see price list, invoice, and payment.

Oil company separately agrees a "Group Rebate", not with any TOC but with the owning group, based on the turnover for all the companies the group owns, possibly including non-rail (such as the Bus Bandits). They get through 50 million litres in a year, it gives them a 5% rebate, paid at year end. This sort of thing is absolutely standard in the construction industry. Group pockets it.

 

[A0wen]

Having someone appointed onto company Boards of Directors by the government would be an idea.

No - it would be a very *bad* idea.

You have a choice between a civil servant or a politician and frankly neither are suitable board directors, particularly as they'd merely be trying to do the bidding of the government of the day, rather than ensuring the company is well run.

 

[Silverlinky]

Interesting and differing responses from the rail unions....

RMT: https://www.rmt.org.uk/news/rmt-responds-to-governments-extension-of-emergency-measures/

RMT responds to Government’s extension of Emergency Measures Agreements on UK rail franchises

Responding to an announcement that the Government is extending Emergency Measures Agreements on UK rail franchises with new ERMA’s contracts transport union RMT today called on the Government to cut out the middleman and bring all UK rail franchises into public ownership once and for all.

ASLEF: https://www.aslef.org.uk/article.php?group_id=7271

The government has extended the emergency measures agreements which ran out on Sunday 20 September. The decision was not unexpected, and comes after the DfT exercised its option on 2 September to extend the EMA at GWR until at least 26 June 2021.

Commentators in right-wing newspapers such as the Daily Telegraph and Daily Mail have claimed it is 'nationalisation by the back door' – which it isn't – but it is a way of road testing what we understand will be the conclusions of the Williams rail review when it is finally published.

Keith Williams will, we believe, suggest replacing the failed franchise model with a system of management contracts. Instead of bidding for a franchise, and taking the fare box, operators will receive a fixed fee for running a service while the Treasury collects the cash.

These extended EMAs – which have been criticised in some quarters – will, the DfT says, give Transport Secretary Grant Shapps an opportunity to see if the model works.

'We are being pragmatic,' said GS Mick Whelan. 'We don't want cliff-edge changes during a pandemic. We want to make sure our members continue to get paid for doing their jobs.

 

[Master29]

Having someone appointed onto company Boards of Directors by the government would be an idea.

Surely a conflict of interests.

 

[rdlover777]

So, will this result in a second BR? Or will it end in a big four situation?