Memorandum submitted by Mott MacDonald
Ltd
1. What should
be the purpose of passenger rail franchising?
Is the current system achieving that purpose?
1.1 The fundamental principles of passenger
rail franchise should remain delivering a quality of service that
offers value for money within the financial constraints of the
government. Increasingly this means that the passenger must pay
for network enhancements to compliment the significant network
maintenance investment funded through Track Access Charges.
1.2 Within the growing UK economy, transport
congestion is increasingly affecting economic efficiency. All
urban transport networks (particularly in London and the South
East) are operating at saturation levels. The importance of protecting
our natural environment is generally recognised and therefore
the sustainable land-use and transport policies will continue
to influence national transport policy. The Victorian railway
assets have been utilised to their optimum level without appropriate
renewal and investment, particularly over the last 30 to 40 years.
There are only limited opportunities for significant capacity
enhancements as the network continues to balance the needs for
urban commuting, inter-urban travel and freight. One critical
area for possible review through the High-Level Output Specification
[HLOS] will be the trade-off between performance and capacity—as
recent timetable changes has seen the introduction of lower train
frequencies and therefore capacity, for example, South West Trains
and one Railway, to improve performance.
1.3 The inclusion of the Base Case Specification
for service provision in the franchise Invitation to Tenders,
leads DfT Rail to take responsibility for assessing this performance
and capacity trade-off, and ensuring appropriate capacity for
growth is built into the specification. With the rail industry
framework for regional and corridor strategies (the Regional Planning
Assessments for the next 10 years) and detailed plans (the Route
Utilisation Strategies for the next 20 years) on-going, it is
not clear that DfT Rail will be able to fully address the capacity
needs currently for franchise renewals (for example, the Consultation
Document on the New Cross Country Franchise, DfT, June 2006, does
not include forecasts for the franchise period to confirm the
adequacy of the service pattern specifications).
2. How well does the process for awarding
franchises work?
What input do operators, passengers and other
interested parties have into the design of franchised services?
Has there been a smooth transition of franchising
arrangements from the Strategic Rail Authority to the Department
for Transport?
2.1 We believe that the current system is
cumbersome and onerous, both on the bidders and DfT Rail. It is
unclear whether there is sufficient and appropriate information
available in a timely manner to bidders—an external audit
(possibly by the National Audit Office) of the information made
available may be an effective process in the short-term. A process
of Supplier Accreditation for all franchises for a fixed period
(three to five years) as opposed to Accreditation for each individual
franchise may be an appropriate simplification of the process.
2.2 There is a concern within the industry
that the financial bids (which in the initial franchise process
it is understood showed significant variation between bidders)
are narrowing as the market matures. With all bidders invited
to tender meeting high quality levels in operations and service,
the process must be able to differentiate between relatively small
differences in the offers, without being open to legal challenge,
which may put increasing onus on DfT Rail in the procurement process.
2.3 The transition from the Strategic Rail
Authority to the DfT resulted in a short (though noticeable) delay
in the franchise process, though there has not been perceived
any significant change in the implementation of the process between
the two organisations. Key decisions, such as the procurement
of the new rolling stock for the domestic services on the Channel
Tunnel Rail Link within the Integrated Kent Franchise appeared
to have been delayed as a result of the transition.
3. Are franchise contracts the right size,
type and length?
What criteria and processes are used to determine
the nature and length of franchises?
What criteria and processes are used to evaluate
franchise bids?
Do franchise holders deliver value for money to
passengers and the Government throughout the duration of their
contracts?
Are risks suitably apportioned between the Government
and franchise holders?
What is the scope for improving services through
franchise agreements?
3.1 Short (seven year) franchises clearly
reduce the forecasting risks inherent in the franchise process
with an appropriate revenue risk and reward mechanism. Short franchises
afford the Government and bidders a sound basis for the short-term
development of the network. Bidders investment will remain low
in this approach, as there is generally insufficient time for
the necessary financial rewards to be delivered in a seven year
franchise. It is unclear how major new schemes can be funded through
short franchises, and therefore may require bilateral agreement
between DfT Rail and Network Rail to ensure capacity and performance
schemes are developed and implemented.
3.2 If this duration is retained, DfT Rail
will need to take appropriate leadership in the national rolling
stock strategy (including rolling stock cascade between franchises)
and procurement (including investment). Unlocking the reported
high profits for re-investment in the rail industry from the rolling
stock leasing companies should be a key objective of the next
round of franchises.
3.3 This leads to a trade-off between franchise
length and DfT Rail investment and leadership. The longer the
franchise, the less public sector investment may be required and
possibly less direction on the implementation of the UK rail strategy
will be required by central government.
4. Do we need more competition and vertical
integration?
Is franchising compatible with open access operations?
Should train, rolling stock and track operation
be more closely integrated?
4.1 It remains unclear whether there is
sufficient income within the industry to attract new Open Access
Operators—where these have gain access rights (such as Grand
Central) there have been very serious concerns raised on the viability
of existing franchises. Therefore, we believe that competition
should primarily be through the franchise process rather than
the franchise map.
4.2 The contractual complexity of UK rail
industry (irrespective of the financial implications of profit
on profit with each supplier) leads to the natural conclusion
that vertical integrated businesses may offer a more efficient
operation and probably financial return. We believe that it is
worth investigating the intermediate position (as implied by the
question) to integrate operations (signalling and control) and
rolling stock delivery with the franchise, retaining the separation
of the infrastructure from the train operations.
21 June 2006
| 
