3 Letting the new franchise
11. The Department plans to let an interim franchise
that will run until 2021, to then be followed by a longer term
franchise. The interim franchise will expand the current Thameslink
franchise to incorporate the Great Northern, Southern and part
of the South Eastern franchises, bringing all services running
on the route under one franchisee.
[24]
12. The interim franchise arrangements will have
to take account of two key factors: the disruption up to 2018
from the infrastructure work and the need for the franchisee to
take direct responsibility for bringing the new trains into service.[25]
In recognition of these factors the Department is planning to
let a 'management-style' contract for the interim franchise, under
which the franchisee is paid a management fee for operating the
route instead of being dependent on revenue from ticket sales,
which would transfer a lower level of risk to the franchisee than
conventional arrangements, despite initially rejecting this option
in July 2012.[26] At
that time the Department considered that a management-style contract
did not fit with its policy that franchisees should be responsible
for revenue growth.[27]
In January 2013 the Department then decided to use a management-style
contract, in light of the conclusions in the Brown Review—which
led to them giving greater weight to the disruption that would
take place during the construction phase.[28]
The Department was not able to explain clearly whether the decisions
made in either July 2012 or January 2013 were underpinned by sound
quantitative analysis.[29]
The Department did accept that it knew about likely disruption
well before 2013 and that there was scope for better planning
in the future.[30]
13. The Department does not have a good track
record of managing franchises and has not let a management-style
contract before.[31]
The Department did not provide enough evidence to satisfy us that
it has fully thought through all the risks associated with running
a competition for such a contract for the first time. The Department
told us that it has taken steps to strengthen management of the
franchise programme as a whole including bringing in an interim
Director of Franchising with extensive industry experience and
making greater use of external advisors.[32]
It did not, however, explain how it plans to manage the specific
risks associated with letting this franchise as a management contract
for the first time. We also have concerns that the short-term
nature of the current franchise director's post raises a risk
of him ending up back in industry negotiating one of the franchises
he advised on granting.[33]
The Department was unable to tell us how long the interim franchise
director will be in post and acknowledged that there was a longer
term succession planning issue.[34]
24 C&AG's Report,para 1.13 Back
25
Q 152 Back
26
Qq 133-135; C&AG's Report, para 3.10 Back
27
C&AG's report, para 3.10 Back
28
The Brown Review of the Rail Franchising programme, CM
8526, January 2013 Back
29
Qq 147-150 Back
30
Qq Q133-35, 156-157 Back
31
Q 158 Back
32
Q 158 Back
33
Qq 162-165 Back
34
Q 161 Back
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