Franchising
Rail franchising in the UK - a model for the future
Vivek Madan points to the successful and sustainable public private partnerships in the rail sector that work to the benefit of customers, business and government alike, and says we need to create a system that addresses long-term economic objectives and wider social goals
T
he West Coast Main Line fiasco and the responses to it have once again highlighted the limitations of the government’s current franchising model, emphasising a broader malaise in its relationship with the private sector. As a result, the government is taking stock and spending time getting its house in order, recently publishing a revised strategy for managing franchise bidding and delaying many of its scheduled tenders.
The issues surrounding the franchising process have reignited the debate around ‘which is better’ for our railways - franchising or public sector management? However, this structural and politicised way of looking at the issue will not lead us to the right answers. We need to begin by asking more fundamental questions that have been ignored since the 1970s - focusing instead on what investment and management expertise is required to create a world- class transport infrastructure for consumers and how this can be provided. Looking more closely at the West Coast bid, the blame for its failure was laid at the door of the overstretched civil servants, who lacked the technical skills to correctly assess the bids, as well as an overarching lack of leadership. Sam Laidlaw’s enquiry into the bid pointed out that: ‘Embarking on an ambitious, perhaps unachievable, reform of franchising, in haste, on the UK’s most complex piece of railway was irresponsible and involved such an element of risk that greater senior executive oversight and relevant technical expertise was required.’ West Coast isn’t the only example of long-term deals between the public and private sectors in rail to have collapsed - the failure of the East Coast Main Line, which is still under direct government control after the franchise collapsed in 2009, is another well-known example of a similar type of mismanagement.
Current process designed for failure However, the real issues at the heart of the franchising process are more deep-seated than the ones outlined in Laidlaw’s review. I would argue that, regardless of execution, the current process is designed for failure: the parameters under which contracts come to market are flawed, the operational and financial risks transferred onto bidders are crippling, and wider social goals are not addressed at all. Although ensuring that the public purse
gets a good deal is important, there is far too great a focus on trying to squeeze every last pip out of companies at the bidding stage – in essence, trying to get as high a guaranteed revenue stream as possible rather than thinking more strategically about what the public needs from a railway. The long-term economic objectives of building a world-class infrastructure for consumers and creating better connectivity
to drive economic growth are not set as specific aims for bidding companies, meaning that the whole process is defined by financial requirements. Despite this seemingly quantitative
approach, however, the margin for error for calculating unit costs and passenger numbers is extremely high. Rather than working with the bidders to come up with their underlying business cases, the Department for Transport leaves them to gamble on long-term trends. This does not represent real ‘risk transfer’, since as the operator of last resort any franchise that goes under will end up being run by the public sector anyway at great cost. Similarly, social aspects such as
ridership and economic development should be set as a key indicator of success. Encouraging more people to use rail should be one of the ultimate aims of any contract.
May 2013 Page 57
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