Rail Franchises to be Replaced with Fixed Fee Contracts

[Clarence Yard]

SWR/TPE were not on the verge of collapse before the EMA’s were introduced, nor was any other TOC. In fact FG, by making onerous contract provisions for both TOCs (often mistaken for a huge in year loss) may have been rather clever as the losses they booked for future years in that provision may now get partially reversed out into the P&L, thanks to COVID.

Whether any OG really wants to continue with a TOC now with a potentially reduced return and knowing that the returns next year under the new fee arrangements will be even lower is another question and one we shall shortly see answered.

 

[Meerkat]

Consistent branding and conditions would improve things considerably, no matter who was actually contracted to run particular services.

It’s a massive assumption that the consistent conditions would be better than current ones!
i would be interested why you think consistent branding would improve anything. It is more likely to be the opposite - even the very best Intercity services would be tainted by the brand, the public perception of which which will be created by the media and that means by the worst service, as that will Be all the media will publish. Currently a failing line will mainly damage the incumbent franchise brand and operating group - at franchise change the public perception will be of far more management change than reality.

 

[DB]

It’s a massive assumption that the consistent conditions would be better than current ones!
i would be interested why you think consistent branding would improve anything. It is more likely to be the opposite - even the very best Intercity services would be tainted by the brand, the public perception of which which will be created by the media and that means by the worst service, as that will Be all the media will publish. Currently a failing line will mainly damage the incumbent franchise brand and operating group - at franchise change the public perception will be of far more management change than reality.

Whether or not they were better, they would be clearer - which is the point.

Consistency would highlight that it's supposed to be an integrated system. Claiming that the 'brand' would get tainted is rather like claiming that the road 'brand' gets tainted because there are severe problems in a particular area. You are trying to apply general marketing principals to what is basically a monopoly service - the same idea behind the whole franchising system. The principals don't apply, as is increasingly clear.

 

[43096]

SWR/TPE were not on the verge of collapse before the EMA’s were introduced, nor was any other TOC. In fact FG, by making onerous contract provisions for both TOCs (often mistaken for a huge in year loss) may have been rather clever as the losses they booked for future years in that provision may now get partially reversed out into the P&L, thanks to COVID.

“Clever” in a very limited sense as I doubt shareholders are happy at having to book the provision in the first place. It was quite the opposite of clever to submit those bids at that level.

 

[Meerkat]

Whether or not they were better, they would be clearer - which is the point.

Consistency would highlight that it's supposed to be an integrated system. Claiming that the 'brand' would get tainted is rather like claiming that the road 'brand' gets tainted because there are severe problems in a particular area. You are trying to apply general marketing principals to what is basically a monopoly service - the same idea behind the whole franchising system. The principals don't apply, as is increasingly clear.

The brand would be clearer??? So what?
i think “integrated system” is far more important to BR nostalgia than modern times.
It really only matters in urban areas with cross mode ticketing, which would mean it would be better not to confuse things with a national brand.

 

[DB]

The brand would be clearer??? So what?
i think “integrated system” is far more important to BR nostalgia than modern times.
It really only matters in urban areas with cross mode ticketing, which would mean it would be better not to confuse things with a national brand.

The terms would be clearer, not the brand - so everyone would know what they are dealing with.

An integrated system is actually very important to many people - it's really only sneering know-it-alls such as yourself who dismiss it as 'BR nostalgia'. This is frequently what people mean when they say they are in favour of nationalisation - a national body, with national branding, would be fine with most of them even if the actual operation was outsourced. Stupidities such sa operator-specific tickets, operators blaming each other for delays, etc, would no longer occur.

It would also provide much more flexibilty in new or changed services to meet demands - currently, these are mostly only ever changed at franchise changes, and if they are across borders between the territory of one franchise and another are unlikely to happen at all.

 

[Meerkat]

The terms would be clearer, not the brand - so everyone would know what they are dealing with.

What terms?

An integrated system is actually very important to many people

Who, and why?

Stupidities such sa operator-specific tickets, operators blaming each other for delays

What is stupid about either of those things?

It would also provide much more flexibilty in new or changed services to meet demands

Be careful what you wish for - it’s more likely to involve the Treasury cutting services at the first whiff of a recession. TOCs can change services if there is money in it.

 

[JonathanH]

Stupidities such sa operator-specific tickets, operators blaming each other for delays, etc, would no longer occur.

British Rail had operator specific tickets - eg Gatwick Express, peak trains out of Paddington etc. How are they stupid when they offer people to make informed decisions about restricting themselves to a specific group of services for a cheaper fare. Do operators blame each other for delays or do their customer facing staff just make observations about what is causing a delay? Even if you have one operator, an announcement may be made about a slower stopping train delaying a faster one.

Where there are operator-specific fares they might well be standardised at the higher rate. Why does no one acknowledge this?

The point is that any system has to be managed at a relatively local level and there will always be boundaries and decisions about operations at the overlap points. Even in a single railway, operations run from different depots and management teams. It sounds like a single body isn't on the table in any case.

 

[Nick Ashwell]

In the simplest terms, what difference is there between these and previous management contracts? Or is that what management contract means in new words?

 

[Class 170101]

Simplistically, the TOC is run by DfT but the top people are 'agency staff' supplied by the contractor (SNC-Lavalin, et al).

Are any of them supplied by the Contractor?
The LNER MD remains the same as it was before it collapsed. The same fot the rest of the Directors?

 

[Bald Rick]

Are any of them supplied by the Contractor?
The LNER MD remains the same as it was before it collapsed. The same fot the rest of the Directors?

The people who the LNER M.D. reports to are ‘contractors’. Those who work for him are LNER employees.
(I think).

 

[Class 170101]

The people who the LNER M.D. reports to are ‘contractors’. Those who work for him are LNER employees.
(I think).

But are they the same people now as before failure does anyone know?

 

[pdeaves]

But are they the same people now as before failure does anyone know?

The person the MD reports to is different. The employees who report to the MD are the same.

 

[Domh245]

But are they the same people now as before failure does anyone know?

Yes & no. Consulting the filings with companies house, VTEC (trading as East Coast Main Line Company Ltd) and LNER have some different directors, quite what the actual reporting structure (in terms of who David Horne reports to, especially as he's now director and MD) I don't know. I suspect some googling of names would probably clarify (for example, Suzanne is finance director)

VTEC


LNER

 

[Bald Rick]

Without going in to too much detail, but there is a difference between Directors and directors.

The former are board members and have statutory responsibilities to their shareholders. Some may be Executive (ie full time employees of the company), and some be Non-Executive (usually part time, and technically not employees).

Some of the Directors listed are executive directors of LNER, and will report to the MD (or in the case of David Horne, are the MD!).

Some of the Directors listed are non-exec. For example Richard George is chair of the Operator of Last Resort company, which effectively owns LNER.

 

[theironroad]

Would the Peter Wilkinson listed as resigned 11/6/18 be the one and the same DfT civil servant who made the news a few years ago about wanting a row with rail staff?

 

[dk1]

Would the Peter Wilkinson listed as resigned 11/6/18 be the one and the same DfT civil servant who made the news a few years ago about wanting a row with rail staff?

That's him. Didn't quite work out as he expected though haha.

 

[Clarence Yard]

In the simplest terms, what difference is there between these and previous management contracts? Or is that what management contract means in new words?

The previous management contracts are effectively a contractor running a DfT owned TOC on behalf of the DfT, employing the existing TOC staff to do so. The contractor usually supplies the Directors or very senior management, for a fee. These contracts are usually organised at short notice so the contractors are directly appointed without a competitive bid process.

The new arrangements are effectively a company, maybe the existing owning group, running the TOC on behalf of the DfT, employing the existing TOC staff to do so. The owning group (if it is them and not SNC-L as OLR) will have Statutory Directors on the TOC board and will collect a management fee.

 

[BeHereNow]

SWR/TPE were not on the verge of collapse before the EMA’s were introduced, nor was any other TOC.

This seems to suggest you are monitoring the balance sheets of all train operators, is that right?

Firsts own financial statements suggest a degree of concern for the finances of both operators.

Half-year Report

otp.tools.investis.com

For South Western, "As previously reported, there is considerable uncertainty about the level of future passenger revenue growth and the revenue protection mechanisms in place, and we remain in discussions with the DfT concerning commercial and contractual remedies"

For Transpennine, "the forecast loss over the franchise term of £106m recognised as a provision in the year to 31 March 2018 remains our estimate of the financial outlook for the franchise including our expectation of the outcome of the May 2018, May 2019 and December 2019 franchise change requests. It should be noted that on adoption of IFRS16 Leases, £106m previously recognised as an onerous contract provision is now recognised as an impairment of the right of use asset.

If the settlement we achieve with the DfT and RNP is below our estimate and we do not recover the significant majority of the amounts included in our franchise change requests there would be a material impact on the reported financial results, including increases in the loss for the relevant period, the value of the impairment to the right of use assets, and the recoverability of amounts recognised as amounts recoverable on contracts. If our estimate of the settlement is not achieved the maximum additional unavoidable loss under the TPE franchise contract would be £83m, £5m lower than at the start of the year due to the repayment of Additional Funding Commitment in the first half of the year."

This was in November 2019, before the driver training issues that led to Leo Goodwin's departure.

 

[LNW-GW Joint]

Robin Gisby is Chairman of LNER and Northern TOCs, and MD of OLR, the government holding company for both TOCs.
I believe he ultimately works for SNC-Lavelin, and holds several other part-time posts.
David Horne, and the Northern MD Nick Donovan, report to him.
He was an MD within Network Rail until 2015.
https://uk.linkedin.com/in/robin-gisby-7b96a5121

For anybody thinking that Peter Wilkinson has departed the railway scene, he is still MD of Passenger Services at the DfT, which includes franchising.
He was part of the Renaissance Trains group (which owned Wrexham and Shropshire), and the First Class Partnerships consultancy.

 

[Starmill]

That's him. Didn't quite work out as he expected though haha.

Do you think? He's still in the picture. His influence is notable even now I'd say. And now his Department holds the keys to... well, everything in England basically.

 

[dk1]

Do you think? He's still in the picture. His influence is notable even now I'd say. And now his Department holds the keys to... well, everything in England basically.

Oh how enjoyable it was to watch him in front of the select committee.

 

[Clarence Yard]

This seems to suggest you are monitoring the balance sheets of all train operators, is that right?

Firsts own financial statements suggest a degree of concern for the finances of both operators.

Yes, the balance sheet (& its notes) tell a more accurate story than looking just at one years profit or loss.

The statements you quoted actually give me reassurance. The franchise Change mechanisms are in play, which means the franchises will, after negotiations have concluded, be financially reset, at least for the period up to COVID. The position with SWR will be more complicated because of the London employment mechanism which has not worked as either the DfT or TOCs involved intended.

If we take a very simplified example, a TOC will put in a Change claim for items covered in a franchise SoSRA, an IRAD or an IAD. Usually the OG and the DfT are not that far apart on the estimate so the franchise gets adjusted and there is a payment to the TOC. If I have made an impairment provision for £100m in the accounts and I am also expecting the Change to come at £60m, if it fluctuates by £5m adverse, I would increase my provision by £5m to £105m and if it comes in £5m better, then I would decrease the impairment provision by £5m to £95m and return £5m to the P&L.

For franchises that have been subjected to numerous changes outside of the franchises control, you can have several Changes within the franchise period. Sometimes the events are bundled up and dealt with as a package, such as in the case of GWR DA2, which is going through it’s second & final set of Change negotiations now.

One of the advantages of moving to a management contract structure is that all these Change provisions and the resulting in-franchise re-negotiations will become redundant.

 

[LNW-GW Joint]

One of the advantages of moving to a management contract structure is that all these Change provisions and the resulting in-franchise re-negotiations will become redundant.

But it also elevates the impact of cost and revenue changes upwards to the DfT, who then have to deal with it (as they do for GTR and other management contract situations).
The "problem" doesn't go away.

One day soon the "single guiding mind" will have to deal with it.

 

[swt_passenger]

Would the Peter Wilkinson listed as resigned 11/6/18 be the one and the same DfT civil servant who made the news a few years ago about wanting a row with rail staff?

All the OLR shadow companies have a number of DfT civil servants as directors while they are dormant. Presumably Companies House needs however many names to set them up in the first place.

Effectively they’re just place holders. There are around 15 companies named DLR OLRn. Usually when a company is activated most of the listed directors change - presumably to bring in the contractors.

 

[BeHereNow]

Usually the OG and the DfT are not that far apart on the estimate so the franchise gets adjusted and there is a payment to the TOC.

Ok, and what if they are far apart?

 

[Wyrleybart]

Oh how enjoyable it was to watch him in front of the select committee.

I suspect you are talking about the battle rather than the war. The war is most certainly not even in it's main phase yet.

 

[Clarence Yard]

Ok, and what if they are far apart?

The event of Change is well defined so the effects are relatively easy to quantify to both parties satisfaction.

The issue of being far apart usually occurs when a particular Change mechanism hadn’t been tested before (they are usually done on a model to model basis) but that is when an expert comes in and opines. It is in the best interests of both parties to conclude Change quickly so there is no merit in dragging it out.

 

[pdeaves]

There are around 15 companies named DLR OLRn

Just for interest, they count to 14, though 1, 2 and 3 have been renamed London North Eastern Railway Ltd, SE Trains Ltd and Northern Trains Ltd, respectively. SE Trains obviously has not been needed further, the other two are self explanatory.

 

[BeHereNow]

The event of Change is well defined so the effects are relatively easy to quantify to both parties satisfaction.

The issue of being far apart usually occurs when a particular Change mechanism hadn’t been tested before (they are usually done on a model to model basis) but that is when an expert comes in and opines. It is in the best interests of both parties to conclude Change quickly so there is no merit in dragging it out.

Surely this is a commercial discussion and therefore the discussions take as long as they take. Would the December 2019 driver training issue have been a change?