Supplementary memorandum by Merseyrail
Electrics (FOR 114A)
THE FUTURE OF THE RAILWAYS
The following presentation details the background,
issues and actions taken in the transfer of responsibility for
the Merseyrail Electrics heavy rail franchise from the SRA to
Merseytravel and the successful appointment of a new operator.
The key areas it covers are:
Putting the Merseyrail network in
contextpart of the LTP.
Providing a chronology of what has
been undertaken over the last two years.
The procurement structure.
The concession agreement.
Funding the concession.
Implications of Change of franchise/concession
Achievements of the process.
Supporting Sustainable Inclusive Regeneration.
A Multi-modal package of measures.
A Single Integrated Public Transport Network,
15 Quality Bus Corridors (90km bus
Liverpool City Centre Movement Strategy.
£210 million indicative settlement.
4 Major Schemes:
Central Station Upgrade.
Merseyside Centre of Excellence.
A SINGLE INTEGRATED
No Household on Merseyside shall
be more than 400 metres from a bus stop.
No household on Merseyside shall
be more that 800 metres from a "steel wheels" stop.
Strategic Rail Authority.
Train Operating Companies (25).
Operate UK rail services (including
Provides track and infrastructure.
Merseytravel (Not SRA).
Specifies Merseyrail franchise.
Merseyrail operator (for 25 yrs).
No change from National role.
Fit with Merseyside's requirements.
Part of wider Local Transport Strategy.
20 June 2000Approval
in principle by Chairman of SSRA to local concession concept.
that provision for local concession cannot be included in the
proposal from Merseytravel to utilise Transport Act powers and
franchise exemption order to proceed with proposal.
November 2001SRA and
DfT approve, in principle, use of exemption order and exclusion
of Railways Act Closure Provisions to avoid SRA having role as
operator of last resort.
OJEC Notice submitted by SRA and Merseytravel for expressions
of interest either in a franchise or a local concession.
May 2002Pre Qualified
Candidates invited to submit indicative proposals.
Stock Lease Extension and Novation and Letter of Agreement for
refurbishment signed with Angel Trains.
January 2003Best and
Final Offers Submitted.
Electrics 2002 Ltd ("the operator") applies to Rail
Regulator for Railways Act licences.
April 2003 Serco/NedRailways
appointed as preferred candidate.
23 May 2003Concession
Agreement signed by Merseytravel and Merseyrail Services Holding
Company Ltd ("the concessionaire").
Before 20 July 2003: operator
is transferred to concessionaire upon satisfaction of conditions
precedent and Day 1 Conditions.
2 am on 20 July 2003: operator
commences passenger services on the network.
Following statutory consultation
the Merseyrail Electrics Network Order 2002 was made on 18 July
2002 and, after being laid in Parliament, comes into force on
20 July 2003.
The Order exempts passenger services
on the Merseyrail network from the need to be franchised under
section 23 of the 1993 Act.
It also disapplies sections 37, 39
and 41 of the 1993 Act and applies the alternative procedure for
regulating the discontinuance of railway passenger services in
Schedule 5 to the 1993 Act.
As a consequence of the changes to
sections 37, 39 and 41, it relieves the SRA of the duty to act
as operator of last resort, under section 30.
Voluntary compliance with EU procurement
Main theme partnership with three
shortlisted bidders from outset to end of BAFO process through
iterative process involving:
Full disclosure through paper based and
virtual data rooms:
Updated throughout the process;
Submission of main proposals six weeks
into BAFO to allow for comment (and rejection of components) by
Awarding Authority and advisers;
Focus on operator viability as well as
cost effectiveness of bids:
Merseytravel/SRA alerted candidates
to key misunderstandings in their financial models;
Organised site visits and meetings with
ATM management, Railtrack,
Local Authorities, Angel Trains, Pension Trustees;
Key contract documentation made available
at indicative stage and fully negotiated and finalised in BAFO
Themed meetings between operator
and experts from Awarding Authority team continued up to submission
Patronage and Demand including Concessionary
Performance regimes (Network Rail and
Financial and Risk;
Infrastructure and Schemes.
Clarification questionnaires received
72 business hours before meeting, with response given at meeting
and subsequent circulation of response to all bidders (unless
issue specific to one bidder's initiatives).
Candidates encouraged to innovate
and innovation kept confidential from other candidates.
Post BAFO clarification and negotiation
to reach final position.
All candidates signed heads of terms
committing to key contract provisions, if selected.
Announcement of preferred candidate
to contract in three weeks.
Candidates proposals divided into:
Compliant and fully modelled base unenhanced
Compliant and fully modelled nil subsidy
Enhancements offered at no additional
cost to the Awarding Authority;
to be bought (for increased subsidy payments) at the option of
the Awarding Authority within two years of concession commencement
to a total value not exceeding 10% of operating costs over first
Variants to the base
bid (such as acceptance by the Awarding Authority of mandatory
modification cost to rolling stock) which the Awarding Authority
wanted to be priced, in case it could not afford the base bid;
Variants (such as
changes in risk profile) which the candidates considered might
be better value for money for the Awarding Authority.
Prospects of acceptable bid enhanced
by joint bid development.
Misunderstandings impacting on deliverability
or viability rectified before they became major issues.
Candidates can input into negotiations
with third parties.
Timescale post BAFO substantially
Relationship developed with successful
(and unsuccessful) candidates before contract went live.
Ensured key hard and soft issues
appreciated and addressed.
Resource intensive and costly especially
in BAFO stage.
Risk of conflict with dual role in
developing and appraising bid.
Threat from misuse of disclosed information
to detriment of project.
Risk of candidates blaming Awarding
Authority for weaknesses in bid.
Need to manage third party confidentiality/data
Three compliant bids acceptable to
the Awarding Authority were proposed.
Variant proposals were added to the
base bids to make the overall bids more affordable and attractive.
Period from acceptance of Serco/NS
bid to final contract limited to three weeks (an all time record?).
Negotiations with third parties necessary
to facilitate the transfer from a franchise to a concession were
expedited by involving all three candidates from the time they
were selected in commenting on third party proposals.
All three candidates have submitted
expressions of interest in the Merseytram project.
All expressed their appreciation
for the efficiency and assistance provided by the Merseyrail procurement
Merseyrail Electrics Network Order
2002 ("2002 Order"):
Excludes SRA franchising (but not regulatory)
Transport Act 1968 (ss 10(1)(ii)
Railways Act 1993 and Health and
Safety Act regulatory and access powers remain.
Licensing, Access Agreements, Safety
Closure provisions with some modifications;
Merseyrail Electrics Network Order
2003 ("2003 Order").
Preserves roles of Rail Passengers' Council
Transport Act 2000 funding from DfT.
Takes over the role of SRA of:
Funding services on the Network;
Enforcing the PSR and other obligations
under the Concession Agreement;
Determining whether Concession Agreement
is to be renewed every 7/6 years under the efficient operator
regime and resetting performance and quality benchmarks;
Acting as operator of last resort through
Merseyside Passenger Transport Services Limited;
Co-ordination with key third parties
(Network Rail, RPCNW, Cheshire and Lancashire County Councils).
Continuing to monitor quality of
service on train and at stations under CURSER regime.
The Strategic Rail Authority
Continuing role in relation to national
schemes and consumer protection provisions of Railways Act licences:
Discount Tickets (only disabled and young
Inter Operator Schemes (ticketing settlement
agreement, travelcard agreement, staff travel, national rail enquiries);
Provision of performance data to Merseytravel
for incentive regime;
Bye-laws and railway administration orders;
Advice and assistance with national changes
(18.1 and 18.2 adjustments).
Approval of Licence Assignment to MPTS
to act as operator of last resort;
Access Agreements (Approvals, Directions
Track Access Agreement, Station and Depot
Periodic reviews of access charges (next
due December 2003).
Directions and guidance.
Rail Passengers Committee for the North West
Right to investigate and report to
Merseytravel on breach of Concession Agreement or other matters
relating to passenger services of own volition, following complaint
by a passenger or following a reference by Merseytravel:
Equivalent rights in relation to the
SRA re breach of licence conditions etc.
Right to be consulted, under MOU,
in relation to:
changes to passenger charter or PSR;
exercise of periodic efficiency review
any other matter which may materially
and adversely affect (other than on a temporary basis) the frequency
or periods of operation of railway passenger services for the
quality of rail or station services;
Schedule 5 powers in relation to service
closures and contractual regime in relation to station closures.
Must comply with the Passenger Service
Requirement (Schedule 3).
Normally changed twice a year in
accordance with the Track Access Conditions.
The operator must notify Merseytravel
of proposed changes.
Requirement to co-operate with other
TOCs (eg over connection times).
The operator must use reasonable
endeavours to plan and resource operations to deliver the timetablemust
take account of reasonably foreseeable risks (eg weather and disputes).
As far as possible, passengers should
receive seven days notice if timetable cannot be operated.
The operator must:
Undertake passenger counts (maximum
of four in any 12 months).
Issue Preliminary Statement of capacity
Use reasonable endeavours to ensure
that sufficient capacity is provided to avoid excessive overcrowding,
including by scheduling a minimum number of 50 units (53 units
after completion of the refurbishment).
Operator must seek to avoid exceeding
the Load Factor Specifications in peak periods:
95 passengers per drive car plus 113
in a central carriage.
If Load Factor Specifications regularly
exceeded by more than 4.5% in the morning of evening peak or by
3% over both peaks, operator may be required to include additional
services in the Timetable, if this is feasible:
Where this would require additional rolling
stock, network enhancements and/or third party consents, Merseytravel
may have to fund and otherwise secure this if action is to be
taken to ameliorate over-crowding or if it cannot do so, accept
that other action to control demand may be necessary.
Concessionary and pre-paid tickets
account for 33% of net revenue.
An obligation on the operator to
Existing concessionary and multi-modal
fare schemes (listed in Part 7 of Schedule 1);
New schemes, subject to the operator
being financially no worse off (in the opinion of Merseytravel).
These schemes are administered by
Merseytravel, subject to regulations and guidance.
Rail Settlement Plan (RSP) tickets
account for 65% of net revenue.
Return RSP fares are subject to regulation.
Separate fare baskets for Northern
and Wirral Lines limited to RPI increases overall over the period
of the Concession.
Individual fares within the baskets
permitted to increase by RPI+2 per annum.
Service commitments to passengers
(information, safety/security, customer care etc).
Revised for the new Concessionapplies
only to Merseyrail Electrics services.
Punctuality and capacity standards
reflect Concession obligations (92% of trains within 5 minutes
of schedule, passengers exceeding capacity in peak no more than
92% target based on revised PPM figures
which inter alia take into account Sundays and Bank Holidays;
Accordingly whilst percentage target
is lower than ATM passenger charter targets, underlying target
is more stringent, given the inclusion of all services and a reduction
in the exclusions from the passenger charter figures;
Contains key compensation information:
Refund if passenger decides not to travel
Vouchers worth 20% of ticket value if
delayed for more than one hour.
Allowance of 5% of TRIO ticket price
if punctuality below 92%, 10% if below 90%.
Customer Service Regime (CURSER)
is the service quality monitoring regime administered by Merseytravel:
14 station and six train quality standards
covering provision of information, condition of specific features
(eg seating) and cleanliness;
Regular inspections by Merseytravel staff,
points awarded according to pass/fail criteria;
Line benchmarks of 87% and Station benchmarks
Additional targets for station cleanliness
and train interiors/exteriors;
Additional points if failures not rectified
within defined periods;
Rectification plan triggered if annual
performance below benchmark;
National Passenger Survey (NPS) undertaken
on behalf of SRA:
Based on survey results obtained every
Benchmarks based on the most recent data
(combined Spring/Autumn 2002 results);
Both taken into account in Schedule
15 performance reviews.
Fixed Schedule 6 payments plus RPI
agreed for 25 years subject to:
Adjusted downwards to reflect savings
to operator during circumstances of force majeure or reductions
in Network Rail charges as a result of surplus property income
and upwards to reflect additional charges from Network Rail as
a result of changes of law;
No Net Loss No Net Gain Regime (see next
Benefit sharing if operator's annual
EBDIT over seven year review period exceeds budget by 25%.
Merseytravel to fund if losses to
operator arise (or to be credited with net gain if operator profits)
PSR or Capacity changes which Merseytravel
Merseytravel failing to provide printed
timetables and booklets 4 weeks in advance of notified service
Introduction of new, or variations of,
concessionary fares or pre paid ticketing schemes;
Variations to access agreements to provide
for major LTP projects and cost of utilisation of major LTP projects;
Rebranding, service integration, ticketing
co-ordination as part of service integration measures;
Changes in RPI Fares regime dictated
Re-branding instructions from Merseytravel.
DfT funding (subject to approval
of adjustment) for losses (or credit for profits) arising from:
18.1 (Regulators Periodic Review of access
Change of law;
Change to national discount or inter
Changes to VAT regime.
SCHEDULE 7 PERFORMANCE
Based on PPMpercentage of
trains arriving within five minutes of their scheduled time.
Initial benchmark of 92%, rising
to 93.5% after seven years.
Operator receives £80,934 per
period for each % above benchmark.
Similar penalty levels for performance
below the benchmark (more complex calculation).
Additional penalties for timetable
changes and short formation.
NoteSchedule 7 does NOT operate
"back to back" with Schedule 8 of the Track Access Agreement.
Merseytravel is taking Schedule 7
risk under the new Concession arrangements, although some protection
against significantly improved Network Rail performance from strategic
possessions has been offered by DfT.
Annual Business Plan to be produced
by operator and reviewed by Merseytravel.
Integration commitments including
with the tram (on no net loss: no net gain basis).
Merseytravel approval required to
service, station and depot closures and changes to the PSR:
Derogation and Change procedures may
be used to provide temporary or permanent relief to operator from
PSR or other concession requirements.
Qualified Right of approval to changes
Licences, Access Agreements, Output Contracts
and Rolling Stock Contracts, if they adversely affect operator's
ability to deliver commitments or major schemes.
Preservation of Railways Pension
New employees only whilst employer rate
Nil subsidy enhancements:
Gating at stations;
Improved security management including
conductors patrolling after 7 pm within two years.
Efficient Operator Performance Reviews
to be conducted by Merseytravel after six years and thereafter
every five years:
Criteria for contract continuationlinked
to achievement of PPM, Curser and NPS Benchmarks, assistance with
major LTP projects, compliance with concession agreement, delivery
of nil subsidy enhancements and operator viability.
Termination for major default at
any time or serious or persistent failure to satisfy performance
Otherwise expiry of agreement in
Continuity on termination provided
for inter alia by:
requirement to keep handover package
up to date and for direct agreements between Merseytravel and
operators key suppliers/contractors;
Special rights to veto major changes
in contracts, wages etc over last 12-13 months of concession or
when operator under notice of possible termination;
Operator of last resort plan implemented
by Merseytravel subsidiary, Merseyside Passenger Transport Services
Limited and assignability of Railways Act Licences.
Covers Schedule 6 payments + RPI:
Subject to not exceeding "affordability
limits" by more than £4-5 million; and
No net loss no net gain adjustments triggered
Schedule 7 payments to and from the
Operator to rest where they lay (ie no compensation for Schedule
7 payments by Merseytravel where operator above performance benchmarks):
Subject to side letter permitting possible
revisiting of this issue if strategic possessions regime implemented
by Network Rail and the operator.
Separate admin allowance to be negotiated
annually (subject to maximum of £2,030,000 per annum plus
External audit of funding claims
from DfT (31 Julyprovision of audit information, 31 Octoberaudit
Annual bid for administration costs
to DfT before commencement of financial year and possible need
to seek Schedule 7 funding if strategic possessions strategy is
Funding memorandum with DfT will
need to be renegotiated as from 1 April 2009.
Angel Trains funding refurbishment,
door modifications and other engineering improvements to rolling
stock in return for an extension of their operating lease.
RPF funding for third axle sanders.
Stations IOS (basic facilities at
Programme being reduced.
James Street turnaround.
South Parkway (LTP Scheme).
Garston closure procedure and Network
Concession agreement provision that
Operator will assist with and utilise major LTP schemes as required
Includes adjustments to Track Access
Agreement, station leases and other agreements;
No net loss:no net gain re change of
access rights and losses from utilisation (net operating costs
less additional revenue).
Merseytravel should consider each
major scheme in advance to determine whether it can be implemented
with the Operator on more advantageous/certain terms than provided
for in the Concession Agreement:
eg by operator investing in project to
reflect expectation of increased revenue.
Provision for integration of branding,
timetables and publicity with the tram on a NNL:NNG basis.
Risk of Schedule 7 movements with
If there is a major improvement delivered
by Network Rail and/or the Operator in Network Reliability, the
increase in incentive payments may need to be funded locally.
Revenue risk and benefit with the
No net loss: No net gain provisions re
concessionary fare changes and changes in ticketing schemes more
May encourage operator to invest in revenue
generating network improvements.
Need to monitor national changes
which may trigger no net loss no net gain adjustment and liase
Regulators' reviews (eg December 2003),
change of law, changes in inter operator and national discount
fare schemes, VAT.
Wide powers to change fares regime,
PSR, rolling stock capacity and network branding and to make
provision for major infrastructure or transport integration schemes
if Merseytravel is willing to compensate operator on no net loss
no net gain basis:
Local management powers still subject
to budgetary constraints.
An efficient procurement process
delivered to budget and within tight timescales.
Three proposals specifically designed
to cater for local policies and issues.
A close working relationship with
the successful bidder which is already operational in the mobilisation
stages and will be continued into the franchise.
The ability to focus concession management,
investment and enforcement on local rather than national issues.
Package funded without further recourse
to local community (passengers and non passengers) unless there
is a marked improvement in performance/reliability to be funded
under incentive regime.
Overall fares increases limited to
Additional investment in rolling
stock, refurbishment, passenger and staff security, station and
rolling stock maintenance and commercial expansion of the network.
Market credibility demonstrated by
the level of interest in Merseytram.