Franchising Limb (1) covers the current situation
where direct awards are needed to bring the franchising programme back on track. However, it could potentially include other situations where (for whatever reason) a franchise competition is running late and contractual extensions in the existing franchise agreement have been exhausted. Limb (2) provides little clarity as to when the discretion to award a franchise contract directly will be exercised. While the government’s objectives in relation to rail may be clear, they can of course change and there is no information on how it will be determined whether a government objective necessitates a direct award.
2.New franchise terms need not be ‘substantially the same’ as existing The old policy indicated that a direct award would be made on ‘terms substantially the same as those of the existing franchise agreement’. This requirement has disappeared: there is now more flexibility to negotiate revised terms. Having already announced that many franchises will be extended, it has been widely reported that operators could use the circumstances to their advantage in negotiating more advantageous terms. This remains to be seen.
3. Presumption of direct award to incumbent There is now a ‘rebuttable presumption’ that a direct award will be made to the incumbent operator. This will in most cases make practical sense given the incumbent’s knowledge of the existing franchise and to avoid the need for a swift and expensive mobilisation. However, the presumption is rebuttable. The Secretary of State will take into account other factors including value for money, the delivery of major projects, impacts on the wider UK rail network and the government objective that passenger rail services should be operated privately. This leaves a wide get-out for the DfT to award to a non-incumbent. Where a direct award is made, the
new policy envisages that the franchise will be competitively tendered as soon as practicable thereafter.
4. Presumption of private sector operation. The ‘operator of last resort’ duty under section 30 of the Railways Act will remain if negotiations with a private sector operator fail. However, the new policy includes a presumption in favour of private sector operation – meaning that the DfT should always try to seek a private
operator in preference to the public sector.
Uncertainty remains The new policy was intended to provide certainty to the industry and a clear way forward for franchising. This objective has broadly been met. With a timetable set, the next eight years will be a consistently busy time. Time is also allowed to reflect Brown’s other recommendations in the proposed franchise agreements. There remains some uncertainty: there is now greater discretion to award a franchise directly and it is not clear how that discretion will be exercised. It remains to be seen how the current extensions will play out in practice and what terms the DfT is able to secure from incumbents. A different policy may of course be
adopted in future once the system is back on a level footing – which may include removing the broader discretion when it is no longer needed. Whatever happens, there is hope that
the decisions taken by the Secretary of State do indeed mark a fresh start for franchising.
Graeme McLellan is a partner and Darren Fodey is an associate in the Rail group at law firm Stephenson Harwood.
www.shlegal.com
June 2013 Page 41
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