The plans for the rail franchise bidding processes are to be announced

Rail franchise bidding to go ahead

Plans for three rail franchise bidding processes put on hold following the West Coast fiasco will be announced next month.

But the government will not publish today the specific recommendations about the three – Great Western; Essex Thameside; and Thameslink, Southern and Great Northern – made in a Whitehall-commissioned independent inquiry into franchising led by Eurostar chief Richard Brown.

Transport Secretary Patrick McLoughlin said it was "inappropriate" to publish these specific recommendations "because of their stock market sensitivity".

He added that he had "redacted the relevant paragraphs from the version of the report I have published today".

McLoughlin, who scrapped the West Coast bidding last autumn following errors made by Department of Transport (DfT) officials, said: "I will publish the redacted paragraphs once I have decided the way forward for those three competitions."

After scrapping the West Coast bidding, which had originally resulted in the award of a new 13-year franchise not to Sir Richard Branson's company Virgin Trains but to rival company FirstGroup, McLoughlin set up two independent inquiries.

The first, led by Centrica boss San Laidlaw, was highly critical of some DfT officials' handling of the West Coast bid. Disciplinary proceedings have started against a number of individuals.

McLoughlin, who had also suspended the bidding processes for the three franchises, then asked Eurostar's Brown to head a second inquiry into the franchise bidding process generally.

In his report, Brown said the franchise system was "not broken" but rather had "made a major contribution to Britain's increasingly successful rail network".

He went on: "It is therefore essential for both passengers and the wider rail market that the franchising programme is restarted as soon as possible."

Brown's recommendations include:

:: The franchising programme should be restarted as soon as possible, but at a pace that both the DfT and the industry can sustain;

:: Lengths of franchise should be determined by the circumstances and size of each individual franchise;

:: Proposals to strengthen and simplify the bidding and evaluation process for each franchise;

:: Proposals for the financial and contractual structure of future franchises, including in relation to risk allocation and capital requirements;

:: The government should plan to devolve responsibility for further English franchises to the relevant authorities.

McLoughlin said he accepted Brown's recommendation that the government should determine, by February, the plans for the three suspended franchise competitions. The minister added that he would update MPs when he had determined those plans.

McLoughlin said Brown had also recommended that the government should set out a clear programme for future franchise competitions.

The Transport Secretary added that he would do this in the spring when he would make a further statement of the government's rail franchising policy in light of Brown's recommendations and a recent House of Commons Transport Committee report on rail.

Brown said: "As set out in both my review and the Laidlaw report, the department (DfT) must look to strengthen its franchising capability as a top priority.

"Passengers cannot wait while theoretical discussions are held about the structure of railways. It is essential to get on with the franchising programme in order to maintain the momentum of investment in increasing capacity and improving services."

McLoughlin said: "The review has confirmed that government's approach to rail franchising system is still the best way to secure the rail services for taxpayers and farepayers alike. Any delays to the franchising programme will not affect services for rail passengers and they will continue to receive the services they depend upon."

In his report today, Brown said: "Significant errors were made by the department (DfT) during the (West Coast) competition, which not only caused the cancellation of that franchise award at considerable public expense but also called into question the remaining franchising programme and the department's ability to conduct it."

Brown said most of the conclusions in a government statement about franchising in January 2011 were the right ones and it was "somewhat surprising that their logic was only partially followed in the terms of the West Coast specification and the way the department managed the procurement".

Brown added: "It is clear that the key priority is for the department to rapidly strengthen its franchising organisation, including bringing in a number of senior, commercially experienced people. There is a sharp asymmetry between the experience and capability of bidders and that of the department's franchising teams."

Brown said franchisees should be responsible for risks they can manage and not for ones outside their control.

Bids from companies wanting to run services should be explicitly scored on their proposals for improving service quality for passengers, said Brown.

He also recommended that passenger survey scores should be more closely reflected in franchise commitments and subsequent monitoring of franchise performance.

Brown said he was recommending that "further franchises are devolved to local control, by which I mean, where appropriate, the relevant passenger transport executives or integrated transport authorities in the regions".

He also said further devolution of services in London should be "actively considered".

Anthony Smith, chief executive of rail customer watchdog Passenger Focus, said: "Passengers will welcome the beginning of the end of uncertainty. Delays to franchising are postponing much-needed improvements to rail services.

"The review recommendation that passengers' needs and interests are put at the heart of the franchising process is also welcome. This is in respect of both the award and operation of franchises.

"Also helpful is the refocusing of the purpose of franchising – to secure reliable and value-for-money rail services. Further proposals on devolving franchising need to be looked at carefully to ensure delivery of clear passenger benefits."

Campaign for Better Transport chief executive Stephen Joseph said: "We welcome the Brown review and hope it will produce new safeguards so bids are properly assessed and under-performing franchise holders can be held to account.

"The challenge is now to restart the franchise process in a way that puts passengers and investment first rather than the interests of the Treasury. If we are to continue with franchising, then the Department for Transport shouldn't stick to the old way of designing and delivering franchises but instead make sure that train companies are rewarded for delivering what passengers need and want."

Manuel Cortes, general secretary of transport union TSSA, said: "The Brown report is simply the green light for the train operators to carry on printing money at passengers' expense."

Cortes went on: "The current system is broken but both Brown and McLoughlin want to carry on regardless. Rail fares have doubled since the Tories voted to privatise rail 20 years ago and this report means they will carry on rising above the rate of inflation for the next decade as well.

"Jesse James said he robbed banks because that was where the cash was. Well the rail firms have the same view of their passengers; they rob them because that is where the cash is."

The House of Commons Transport Committee announced that it would take evidence from Brown on Tuesday.

TUC general secretary Frances O'Grady said: "This report provides a litany of franchising failures that have happened since privatisation but then astonishingly concludes that we need more of the same.

"Our current system of corporate welfare – where train operators make a play of bidding for contracts knowing that their future revenue will be underwritten by taxpayers – sadly seems here to stay."

Bob Crow, leader of the RMT transport union, said: "Millions more has been wasted on rail franchise reviews that have achieved precisely nothing and which leave the same gang of private operators holding all the aces and with a licence to rob the taxpayer yet again behind a cloud of total secrecy.

"This doesn't resolve the West Coast fiasco – it compounds it, with the passenger and the taxpayer footing the bill yet again. The only solution to this mess is full renationalisation."

In his report, Brown said: "Government should tolerate the idea that a franchisee may default. It is neither sensible nor realistic to design franchise structures that seek to completely eliminate the risk of default."

He added that the small number – three – of failures that had occurred so far had "skewed the government's appetite for risk".

In each failure case there had been a smooth handover to the government, with no frontline employees losing their jobs, no trains being cancelled and passengers' tickets honoured.

Brown went on: "In my view, therefore, for franchising to function effectively and for the market to function competitively, government should accept that there can be failure.

"Value for money can still be achieved in such situations and passengers protected. The department should be judged by how it deals with failure, should it occur, rather than attempting to over-prescribe, over-specify or create expensive and complex risk transfer mechanisms to avoid such a possibility."

Michael Roberts, chief executive of the Association of Train Operating Companies, said: "This report recognises the successes of Britain's railways since privatisation, and an improved approach to franchising will build on these achievements. Train companies will now carefully consider the recommendations made.

"It is important that the bidding programme is restarted and clarity from the DfT on its next steps remains a priority."

Shadow transport secretary Maria Eagle said: "This government's botched reforms to franchising have cost taxpayers tens of millions of pounds. Commuters who saw their fares go up by as much as 9 per cent this month will be furious that no minister has yet taken responsibility for the incompetence that led to this staggering waste of money.

"This is money that could have been used to keep fares down instead of being handed to private train companies to pay for the cost of their wasted franchise bids."

She said the Brown report showed that "ministers greatly increased the risks to taxpayers by moving to longer 15-year fixed-term franchises without any break clause or review".

Eagle went on: "It is incredible that ministers experimented with this risky new franchising policy on the most complex of contracts. It is even more shocking that they did so after carrying out a bizarre reorganisation of the DfT that saw no senior civil servant with responsibility for rail, a third of the department's staff axed and external financial scrutiny of contracts abandoned.

"The admission that ministers will have to agree franchise extensions or management contracts while franchising is got back on track will see even further taxpayers' money handed to train operators on top of the £45m already wasted."

Eagle said that by focusing the Brown review "so narrowly on franchising" the government had "missed a real opportunity to look more widely at whether alternative models could deliver a better deal for taxpayers and farepayers".

She went on: "However, ministers should accept the proposal that future franchises be devolved to partnerships of transport authorities in the regions with further devolution of services within London.

"This backs up the calls that Labour has made over the past year to give communities a greater say over rail services."

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