Franchising
More clarity on the DfT’s greater discretion to directly award a franchise would be welcome say Graeme McLellan and Darren Fodey
A
detailed rail franchising timetable was published earlier this year and several extensions to existing franchises were announced in
order to smooth the refranchising profile. At the same time, the DfT published a new policy on when a franchise may be directly awarded to an operator. How is it that these direct awards, falling outside the scope of the original OJEU notices, do not have to be competed and on what grounds can franchises be extended?
Direct award – is it legal? In short, the answer is ‘probably’. Generally, the DfT follows the procedures set out in the legislation relating to the letting of public sector and utilities contracts. However, the European regulations envisage circumstances in which railway services may be let without competition, where expressly permitted by domestic legislation. It is generally accepted that section 26 of the Railways Act 1993 gives that permission but this has not yet been tested in the courts. The effect of any direct award is that
the incumbent operator (most likely) will be given the right to continue to operate services, and potential operators will be excluded from tendering for the franchise for longer than originally expected. The impact of a series of directly awarded contracts on competition, bidders and the supply chain should therefore not be discounted. A legal challenge to the proposed
extensions seems unlikely: the industry recognises that franchising needs to be put back on track. Train operators are unlikely to challenge the direct award approach given the desirable long-term outcome for the industry – particularly where their shareholders will not be expected to bid for numerous franchises simultaneously. Many operators have also been offered extensions or directly awarded franchises in respect of one or more of their existing franchises which may also discourage challenge.
New policy
Central to the direct award of franchises is DfT policy. Section 26(4A) of the Railways Act requires the Secretary of State to publish a statement of policy about how he proposes to exercise his franchising
powers, which allow the franchisee to be selected, ‘From among those who submit tenders in response to an invitation to tender (ITT)… for the right to provide… services for the carriage of passengers by railway’. The policy also explains when a franchisee is not likely to be selected in response to an ITT. The DfT’s previous policy on when
a direct award may be made was issued in 2008. Times have changed since then and the need for a series of direct awards meant that the policy had to be revisited: a DfT decision which does not follow its own policy is susceptible to challenge. Around the time of publication of the Brown Review, the DfT consulted on a revised version of its policy statement and the new policy was published on 26 March 2013.
What has changed? The new policy makes four key changes:
1. More flexibility for the DfT The 2008 policy was relatively narrow in specifying the circumstances in which a direct award was likely to be made. These were: • early termination of an existing franchise
• the ‘operator of last resort’ duty arising • facilitating franchise remapping
• temporary uncertainty or instability meaning that better value would be secured. In each case, the Secretary of State
would also need to be satisfied either that: (a) issuing an ITT would be impracticable due to the need to ensure rail service continuity; or (b) if an ITT were to be issued, any bids that would be received would not represent value for money or be affordable. The new policy statement considerably
widens these circumstances. Firstly, a competition might not occur where, ‘The disruption of rail services, or the immediate risk of disruption, means that it is not practicable to do so’. This would likely cover the ‘operator of last resort’ (under section 30 of the Railways Act) and ‘early termination’ scenarios but could be wider still. It is clearly essential to secure the continuity of passenger services: the trains must not stop. In addition, it is likely that the Secretary of State will not issue an ITT where (in his reasonable opinion), doing so would not be conducive to: (1) the effective administration of a sustainable and well-resourced franchising programme; or (2) the fulfilment of government objectives in relation to rail transport (including the remapping of franchises).
June 2013 Page 39
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