Franchising
Alliance approach allows for innovation Although there is no one template for public sector contracting that I would urge the government to follow, there are a number of lessons that can be learned both from similar processes in the UK and from other countries in creating successful partnerships between the public and private sectors, in contrast to more traditional attritional models. The ‘Alliance’ approach used in rail
public private partnerships in Australia, such as the one currently being tendered for Sydney’s North West Rail project, appears to offer an example of how risk and reward can be more sensibly shared. Rather than tendering on unknowns, a procurement process lasting over a year where shortlisted bidders and the state government develop bids based on an ‘open book’ approach to costs, means that more innovative solutions can be designed. Once the contract is signed, the winning franchisee will work to a detailed outcome-based specification based on previously agreed unit costs. If it outperforms, it will have a better margin; if it doesn’t, it will still have its costs covered. This approach also means that both the public and private sectors can focus on what they’re really good at – the public sector keeping its role managing the
ongoing policy of the railway including fare-setting, while leaving the private sector to operate complex assets efficiently.
Criteria addressing societal goals Rewarding bids on a specific set of success criteria that goes beyond financial goals into more societal goals is also becoming more widespread in other parts of the UK’s public sector. Although these sorts of contracts have grown more rapidly in sectors where goals can be more easily measured, like in the reform of the prison service for instance, there are similar measurable goals that could be applied to rail franchise operators. Increasing the number of low-income riders, growing the number of tourists that visit regional destinations and reducing anti-social behaviour on trains are just three potential goals that could be accounted for by a franchising agreement. It is absurd that a strategic asset so vital
to the nation’s economic wellbeing as the rail network is being managed entirely for yield. Our rail fares are among the highest in Europe - and still, franchise-owners are going bust. While it is clear that the franchising model we have today is not perfect, root-and-branch change without an adjustment in underlying attitudes will not deliver the changes we need. There
are examples out there of successful and sustainable public private partnerships in the rail sector that work to the benefit of customers, business and government alike. It’s our responsibility to find a solution that will ensure we create a world-class rail system that will serve the economy and is fit for purpose for future generations. Vivek Madan is a partner at OC&C Strategy Consultants, a B2B services practice that has expertise in advising clients who invest in, operate and serve railways globally
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