Rail franchising in the UK Contents

1The Thameslink, Southern and Great Northern Franchise

1.On the basis of a report from the Comptroller and Auditor General, we took evidence from the Department for Transport (the Department), Network Rail and Govia Thameslink Railway (Govia Thameslink) on the performance of the Thameslink, Southern and Great Northern (TSGN) franchise.1 We also took evidence from the Department, Network Rail, Stagecoach and Virgin Trains East Coast on the recent announcement that the East Coast franchise would end early, which is covered in Part Two of this report.

2.The Department for Transport designs, lets and manages franchises which operate most passenger rail services in Britain. Since September 2014, Govia Thameslink has operated the TSGN franchise. The franchise operates services in the south-east and east of England and is the largest of the Department’s 15 franchises. In 2016–17, there were 321 million journeys on TSGN services.2

3.The TSGN franchise was designed to support the delivery of the Thameslink programme, which aims to increase capacity and reduce overcrowding throughout London and the South East through introduction of new trains, which run more frequently, and infrastructure works costing £5.5 billion. The franchise also intended to increase passenger services and modernise practices on the railway. Network Rail, which is funded by the Department, is responsible for maintaining and improving the rail network, including delivering the infrastructure elements of the Thameslink programme. We reported on the progress of the Thameslink programme earlier in the year.3

Passenger disruption

4.Passengers using the TSGN franchise have suffered a sustained period of disruption, which started almost as soon as Govia Thameslink started operating trains on the franchise. Over the first three years of the franchise, Govia Thameslink trains were the most delayed on the whole rail network.4 Between July 2015 (when Govia Thameslink took over responsibility for Southern train services) and March 2017, 146,000 services, 7.7% of scheduled train services were either cancelled or more than 30 minutes late. This does not include trains which were cancelled in advance because Govia Thameslink expected significant disruption.5 Less than two thirds of trains arrived at their destination within five minutes of their scheduled arrival time during one particularly bad four week period between November and December 2016.6 The Department said that it aims to balance services for passengers and a good outcome for taxpayers in the form of franchise payments. However, in the case of the TSGN franchise, the Department asserted that the franchise is on course to deliver for the taxpayer even though passengers have experienced serious disruption.7 Up to September 2017, the Department received £760 million from Govia Thameslink, which is approximately the amount of revenue it expected when it awarded the franchise.8

5.The Department admitted that it had not achieved a good balance between maximising capacity (by running more trains) and making sure that the rail network was able to recover from disruption.9 It specified a minimum number of train services that operators were required to run in its tender document for the franchise, but also encouraged bidders to suggest how they could provide additional trains from December 2015 and December 2018. After the Department received bids, Network Rail informed the Department that it had significant concerns about the service timetables which all the bidders proposed to operate, including Govia Thameslink’s proposals, which it believed did not comply with its timetable planning rules and did not allow enough time for engineering work.10 The Department told us that it relies on normal industry processes taking place after it awards the franchise to make sure that promised timetables can be delivered.11 However, the NAO found that it was possible that the demands placed on the network by the actual 2015 timetable contributed to the disruption experienced by passengers.12

6.Network Rail accepted that the condition of the rail infrastructure has deteriorated to a point where it is basically not reliable, and that this caused about 13% of the delays passengers suffered between July 2015 and March 2017.13 Carrying out maintenance work overnight is the least disruptive for passengers. However, Network Rail told us that until recently, it was ‘virtually impossible’ to carry out necessary maintenance work overnight as trains run through the night on some parts of the TSGN network. We queried whether Network Rail and Govia Thameslink had the right incentives to work together in the interests of passengers, as they have different stakeholders, objectives, targets and budgets. Network Rail accepted that this had been an issue, since until recently Network Rail and Govia Thameslink used different targets to monitor performance. Both organisations told us that they were now working together very well, although there are still times when their objectives come into conflict.14 Network Rail told us that Govia Thameslink has agreed to make changes to its timetable so that Network Rail can carry out more work overnight. Network Rail also told us that reliability of the infrastructure on routes out of Victoria has improved by 38% because it has been able to ‘get in and maintain [the infrastructure] in a more effective and efficient way’.15

7.We heard from Network Rail that the Thameslink programme means that it is even more important to improve the reliability of the infrastructure of the rail network as the programme is designed to allow 24 trains an hour to pass through the central London ‘core’ section. Each train has to arrive at the ‘core’ at ‘precisely the right moment’. Any problem would have a knock-on effect throughout the railway, potentially delaying a number of trains.16 Network Rail plans to bring forward £900 million of spending to replace old and dilapidated parts of the rail infrastructure earlier than it had intended. Network Rail told us that renewal of the network was expensive and so it generally tried to keep the existing assets in use for as long as possible, but the increasing cost of maintenance and falling reliability of the infrastructure mean that it is necessary to carry out this work now.17 Govia Thameslink agreed that long closures such as the planned closure of the Brighton Main Line for a week in both October 2018 and February 2019 are incredibly disruptive. We asked Govia Thameslink and Network Rail to explain how they will reduce the impact of these works on passengers. Govia Thameslink told us that it is still developing its plans, but that it will seek to use replacement bus and rail services to reduce the impact of closures on passengers, and is considering offering passengers financial compensation.18 Network Rail told us that it believed giving passengers plenty of notice and explaining the benefits of the work it was doing would reduce the number of complaints.19

Managing industrial relations

8.The Department told us that the Thameslink programme is “probably the single most complicated upgrade we have ever attempted on the live UK rail network”. It designed the franchise in a way which would, in its view, minimise the risk of disruption to passengers. This included awarding a single franchise covering the routes most affected by the Thameslink programme and not requiring the operator to take on the risk that revenue is not as high as expected (as is the Department’s usual practice) to avoid incentivising it to focus on maximising revenue at the expense of supporting the Thameslink programme.20 However, the Department did allow bidders to propose increasing the number of ‘driver-controlled’ or ‘driver-only operation trains, where the driver is responsible for opening and closing the train doors.21

9.The Department told us that the worst period of passenger disruption was caused by an extensive period of official and unofficial strike action in response to the expansion of ‘driver controlled operation’.22 RMT began industrial action in April 2016 and called 38 strike days between April 2016 and November 2017. ASLEF, the train drivers’ union, called six strike days between December 2016 and November 2017, and formally introduced overtime bans for 64 days in total between December 2016 and July 2017. Between July 2015, when Govia Thameslink took over the running of the full franchise, and March 2017, around 56,000 (38%) of all cancellations were due to issues related to train crew availability.23

10.Both the Department and Govia Thameslink told us that they did not anticipate that their plans to increase the number of driver-controlled trains would result in a significant amount of industrial action taking place.24 The Department told us that it was aware that there had always been some industrial action relating to the introduction of driver-only operation and that it expected ‘a certain amount of disruption’ when it awarded the franchise. However, it told us that it did not expect or forecast the level of industrial action in response to the Thameslink franchise in part because ‘driver-controlled operation’ was already in use on 60% of services run by the TSGN franchise. The Department asserted that it had tried to discuss bidders’ proposals with the relevant trade unions before letting the franchise but that its offers of communication were not readily taken up. Govia Thameslink also told us that the risk of industrial action ‘crystallised in a way that we had not foreseen’.25 The RMT told us that no specification for any franchise has ever been shared with them and that extending Driver Only Operation was not in the public consultation for the Southern routes.26

11.The Department structured its contract for the TSGN franchise in such a way that Govia Thameslink does not retain the revenue from passenger fares. It accepted that this meant that Govia Thameslink potentially had less incentive than normal to avoid industrial action as its income would not change even if passenger revenue fell, or if compensation was due to passengers.27 The Department told us that it designed the contract in this way to incentivise Govia Thameslink to focus on delivering the Thameslink programme and that its decision was not driven by expectations around industrial relations.28 It also told us that while the Department shouldered the risk that revenue could fall, the consequences of the risk that performance was not good enough was the operator’s responsibility.29

12.The Department and Govia Thameslink stressed that they still believe that there are advantages to driver-controlled operation and that it was at least as safe as other methods of operation. The Department believes that it allows trains to move off more quickly, as the driver does not need to communicate with the guard. Govia Thameslink told us that it believes that the second member of train crew can now assist passengers more easily as they are not required to be in a certain place to open and close doors, and that customers have noticed the improvement.30

Managing performance

13.Govia Thameslink’s contract with the Department contains performance measures, such as targets to limit the number of delays and cancellations. Penalties are charged if Govia Thameslink does not meet these targets. However, the franchise contract, like other contracts the Department has with train operators, defines industrial action as a ‘force majeure’ event, which means that the operator is not usually responsible for poor performance caused by industrial action.31 The Department ultimately decided that much of the disruption in 2016 and 2017 took place for reasons outside Govia Thameslink’s control. As a result, in spite of the significant disruption to passengers, Govia Thameslink has only paid £12.4 million in performance payments, to cover the period from September 2015 to September 2018.32

14.The Department told us that Govia Thameslink’s performance for passengers was so poor that it considered cancelling the contract in early 2017. It ultimately decided that the right thing to do for passengers and taxpayers was to continue to manage and deliver the plan set out in the franchise agreement. The NAO found that the usual approach to determining responsibility for delays and cancellations did not work, because Govia Thameslink made significantly more claims for ‘force majeure’ events once industrial action started. Each of these claims had to be resolved individually. The Department decided that the amount of ‘force majeure’ disruption meant that it did not have sufficient legal grounds to terminate the contract.33

15.In July 2017, the Department agreed a £12.4 million settlement with Govia Thameslink. Govia Thameslink agreed to accept the Department’s analysis of how much disruption was down to ‘force majeure’ circumstances in the year to September 2016 (which meant that Govia Thameslink owed £2.4 million in performance payments) and to pay £5 million a year to settle its obligations for the two years to September 2018. The Department also agreed with Govia Thameslink that this money would be spent on measures aimed at improving services for Govia Thameslink passengers.34 Govia Thameslink told us that it agreed to pay penalties up front because it ‘took a view, after a long and protracted industrial dispute, that [it] needed to draw a line and move on’.35

16.We asked the Department to explain how agreeing fines in advance of services that had not yet been delivered was in the best interests of taxpayers and passengers. It asserted that using the performance regime available within its contract with Govia Thameslink would not have benefitted passengers because of the amount of management time which would have been spent ‘arguing over a huge number of detailed claims’ instead of focussing on improving performance. The Department told us that it believed it had made a reasonable assessment based on the worst case scenario of disruption, and that subsequent improvements in performance meant that a penalty based on actual performance would be lower. It told us that Govia Thameslink will pay more under the agreement than it would have done if the Department had enforced the terms of the contract.36 It does not currently believe that any further fines will be required after September 2018.37 Govia Thameslink agreed that operational performance was rising and asserted that passenger satisfaction was now rising as a result.38

17.The Department said that it could still find Govia Thameslink in breach of its contract if performance deteriorated. This is not a credible threat, since the Department has already decided once that it could not use the performance regime in the contract. The standards expected of all public services dictate that penalties should always be determined by the actual level of performance. Settling on the basis of future performance means the Department has fewer levers available to it to manage Govia Thameslink’s performance if it does not improve.39

1 Report by the Comptroller and Auditor General, The Thameslink Southern and Great Northern rail franchise, Session 2017–19, HC 528, 10 January 2018

2 C&AG’s Report, paras 2–3

3 Committee of Public Accounts, Update on the Thameslink Programme, Twentieth Report of Session 2017–19, HC 466 23 February 2018

4 C&AG’s Report, Figures 2 and 3

5 C&AG’s Report, Para 1.12

6 C&AG’s Report Figure 2,

7 Qq 162,193

8 Qq, 193

9 Q 163

10 C&AG’s Report, paras 3.6–3.7

11 Q 157

12 C&AG’s Report, Para 3.8

13 Qq 144, 148

14 Qq 200–203

15 Q155

16 Qq 149–150

17 Qq 144–148

18 Qq 136–140

19 Q 138

20 Q113, C&AG’s Report, paras 1.6–1.8

21 Q114

22 Q114

23 C&AG’s Report, paras 1.13, 2.6

24 Q117

25 Q 134

26 RMT Union (RFU0002) para 4

27 C&AG’s Report, paragraphs 1.7–1.8

28 Q 129

29 Q 130

30 Qq 118–122, 178

31 C&AG’s report, paragraphs 2.10 and 2.13

32 C&AG’s report. Paragraphs 2.15, 2.17–2.18.

33 C&AG’s report, Paras 2.15, 2.17, Figure 13

34 C&AG’s report Para 2.18

35 Q 169

36 Qq 188, 190

37 Q192

38 Q135

39 C&AG’s report, Para 2.22

Published: 27 April 2018