Passenger rail franchising in Great Britain

Gatwick Express, the first railway service to be franchised in 1996

Passenger rail franchising in Great Britain is the system of contracting out the operation of the passenger services on the railways of Great Britain to private companies through a system of franchising.

The system was created in the 1990s as part of the privatisation of British Rail, the former state owned railway operator, and involves franchises being awarded by the government to train operating companies (TOCs) through a process of competitive tendering.[1] Franchises usually last for a minimum of seven years and cover a defined geographic area or service type; by design, franchises are not awarded on an exclusive basis, and day-to-day competition with other franchises and open access operators is possible, albeit occurring on a limited number of services.[2] Over the years, the system has evolved, most notably reducing the initial total of 25 franchises down to 17 through a series of mergers, but it still continues to be the main form of passenger rail service provision in terms of route miles. A limited number of urban services are privately run, but are awarded by the local authority.

The system only covers the railways of Great Britain (and the Isle of Wight); the railways in Northern Ireland are owned and operated by the state-owned company NI Railways.

History

Before privatisation: an InterCity train owned and operated by British Rail
After franchising: a GNER-operated train on the InterCity East Coast franchise

Genesis to sale

The franchising system was created by the Railways Act 1993 as part of the privatisation of British Rail by the Government of John Major, and the first franchises came into effect in 1996. Prior to this, the railway system had been owned and operated by the government-owned corporation British Rail (BR), which has since been wound up.[3]

Prime Minister John Major envisaged splitting up the railways and returning ownership to an equivalent of the "Big Four" railway companies that had existed before the creation of British Rail (BR). The Treasury advocated an alternative plan put forward by the Adam Smith Institute which separated railway infrastructure from train service operation and contracted out passenger services to seven-year franchises. This scheme formed the basis of the system which was implemented, which saw the creation of 25 shadow franchises, to be sold off in a process managed by the Director of Passenger Rail Franchising, which specified service levels and public subsidies that were to be paid to operators.[4] The legislation allowed BR to bid for franchises, if the DPRF agreed, but in practice he never did.[5]

Under the original 1993 legislation, the Franchise Director set out the minimum service levels of a franchise in a Passenger Service Requirement (PSR), being the current BR timetable in the case of the first sell offs, and put this out to competitive tender. Winning bidders were decided on a pure cost basis – those who offered to pay the highest premium, or lowest subsidy, would run the franchise. Once signed, franchise agreements could only be terminated under certain conditions, namely not meeting the PSR, although fines were available as an intermediate step.[5]

The Treasury had initially envisaged franchises to be around 3 years long, to promote sustained competition, however as it became clear that potential buyers were not interested in such short terms, it was announced in 1995 that franchises would be around 5 to 7 years long, or longer if major investment was required.[6] The first franchise agreements to be signed were for the South West and Great Western franchises, on 19 and 20 December 1995 respectively.[7] The first passenger train service operated by a privatised franchise was the South West Trains 05.10 Twickenham to Waterloo on 4 February 1996, although this came after the first privately run service, which ironically was a rail replacement bus service covering the early morning Fishguard to Cardiff journey in South Wales, due to engineering works.[8]

As the program progressed, all franchises had been awarded and commenced by 1 April 1997, the last being ScotRail. OPRAF was initially criticised for taking too long, but answered that most of the delays were outside of their control, and were indeed caused by the government itself. The first four franchise competitions only attracted four bidders each, well below government expectations, although competition increased as the program went on and investors gained more surety over the way the system was to operate as a whole. Ultimately, although there were 25 franchises, the eventual buyers came from only 13 different companies. Many were bus companies, with the hoped for interest from airlines and shipping groups failing to be converted into solid bids. In addition, despite several bids, due to difficulties in raising finance, only three bids from management buyout groups had been successful.[6]

National Express Group was the winner of most franchises, with five (Gatwick Express, Midland Mainline, North London, Central and ScotRail). Prism Rail came next, with four (LTS, Wales & West, Valley Lines and WAGN). Connex, Virgin and MTL all captured two each, with the franchises they won being closely related (South Central and South Eastern for Connex, Cross Country and West Coast for Virgin, and Mersey Electrics and North East for MTL). Stagecoach also won two, although the second was the tiny Island Line, which would eventually be merged with their main win, South West. Great Western Holdings also won two, on opposite sides of the country - Great Western and North Western; First Group, who had won a single franchise in Great Eastern, were a minority partner in GWH. Their March 1998 buyout of the other GWH partners increased their total to three.[6]

In the end, most of the franchises were awarded for lengths from 7 to 7 and a half years. Only seven franchises were longer - two for 10 years (Great Western and Midland Mainline), and five for 15 years (LTS, Gatwick Express, South Eastern, Cross Country and West Coast). Only one was shorter, the 5 year award for Island Line.[6]

1997-2010

Rail Passengers in Great Britain from 1829-2014, showing the early era of small railway companies, the amalgamation into the "Big Four", nationalisation and finally the current era of privatisation

The Labour government elected in 1997 chose not to reverse the privatisation process, although they set out a number of reform proposals, including the setting up of a new Strategic Rail Authority (SRA), whose functions would absorb the responsibilities of the Franchising Director, as well as some duties previously performed by the Rail Regulator and the Department of Transport's Railways Directorate. Since this would take time as it involved legislation, in the mean time it established the SRA in shadow form, in June 1999. Part of their brief was to ensure the railways operated as "a coherent network, not merely a collection of different franchises". Their goals were closely aligned with the governments wider objectives, set out in July 2000 as the ten-year plan, Transport 2010.[9]

In 2000 the shadow SRA announced plans to use the re-franchising of the 18 shorter term (7 year) franchises expiring by 2004 to make various changes aimed at improving service grouping and lengthen franchises, with the aim of making them more robust and better able to invest in services. It aimed to have these proposals agreed by Autumn 2001, and published a timetable for the letting of 9 franchises in three tranches.[9] These long term plans were disrupted in 2001/2 by the impact of the Hatfield rail crash, which led to the nationalisation of Railtrack, creating Network Rail.[7] On 1 February 2001 the position of Franchising Director was abolished by the Transport Act 2000 and the passenger rail franchising functions were formally transferred to the SRA.[9]

The SRA began to doubt its new long term strategy as it failed to negotiate a 20-year franchise for the East Coast due to uncertainty over Railtack's ability to finance planned upgrades, and abandoned bidding negotiations in July 2001 after 21 months.[9] Instead it elected for a short 2-year extension, hoping the situation would be clearer by then. Short term extensions were also to be considered for other 7 year franchise renegotiation facing similar issues, which had not yet reached a finalised agreement.[9][10]

By the end of 2002, the SRA had also changed its policy on Franchising Agreements to introduce various other performance criteria in addition to keeping to the PSR, aimed at raising the overall quality of passenger journeys. Franchise lengths would be kept to between five and eight years, but extensions would be permitted if Key Performance Indicators (KPIs) were met. It also changed the approach to risks in costs and revenues, and introduced incentive payments for performance and long term investment. The changes took effect after the awards for the Transpennine and Wales & Borders, which were already too advanced. The tendering process was also simplified, giving more details up front in order to speed up the process and make bid assessment more robust. Through the use of tactical short term extensions, the SRA planned to achieve the changes in franchise redesign, and smooth out the timetable for re-franchising, aiming for two or three awards per year.[11]

In February 2002, the Chiltern franchise became the first to be awarded on a 20-year length, the winning bidder being Chiltern Railways, the incumbent franchisee since privatisation.[12]

In August 2003, FirstGroup purchased GB Rail, the first time since privatisation that a TOC had been bought by another TOC.[13]

The Railways Act 2005 abolished the SRA and transferred the responsibility for franchises in England and Wales directly to the government through the Secretary of State for Transport, with the Welsh Government being given a direct role over services in Wales. Responsibility for the ScotRail franchise was passed to the Scottish Government.[5] The 2005 Act also gave local and devolved administrations the ability to alter fares up or down, provided they funded the extra cost, or used the savings on other transport modes. The In a move designed to make them accountable for their decisions in this new role, English PTEs were removed from being direct parties to franchise agreements, instead gaining a role in long term planning and a statutory right to consultation over franchises in their areas. In London, the Act required the DfT to consult Transport for London on any franchise with services to, from or within London. In July 2007, these powers were extended, with measures designed to protect those outside London, with the DfT as the arbiter of disputes.[7]

In October 2007, the European Union set the maximum length of a rail franchise at 22.5 years - 15 years initially, with a 50% extension in certain circumstances.[7][14]

By 2007 the Labour government was happy with how the franchise system was leading to improvements in customer satisfaction and better trains, crediting TOC's use of their freedoms under the system to deliver passenger growth. The 2008 recession sparked fears over franchise' ability to survive, although the government allayed these fears in 2009. In response to continuing criticism, changes in how franchises were agreed and monitored continued; by 2010 agreements contained penalties for failure to increase reliability, and the number of KPIs had been reduced.[7]

2010-present

UK rail subsidy as a percentage of GDP per journey from 1982 to 2014, indexed to 1982

The coalition government elected in May 2010, paused re-franchising pending a review, published in January 2011. As a result, they reformed the system further to increase operator's flexibility, with greater incentives for cost reduction by operators, with franchise terms dealt with on a case by case approach. They extended the standard franchise term to between 15 and 22.5 years (with shorter terms where expedient), ending the Cap and Collar approach to risk which provided for risk-sharing with government regarding future demand, and introducing profit sharing and review points. It also took a less prescriptive approach to service specification, introduced measures to tackle crowding and changed to the way quality measurement was approached. The new system was to be applied first with the West Coast bid. Because of the increased future risks carried by operators, the government required a large financial surety to discourage early contract default.[15][16][17]

In 2012 the franchising system essentially collapsed in the wake of the West Coast controversy (see below). As a result of the crisis, the government commissioned two inquiries, the Laidlaw inquiry to look into the cause of the West Coast failure, and the Brown review to investigate the wider franchise system. All franchising awards were suspended pending the conclusion of the Brown inquiry. The Laidlaw Report was published in December 2012, and found the DfT to be primarily responsible for the West Coast failure, having made several errors in its financial modelling.[5] Three outstanding franchise competitions (Great Western, Essex Thameside and Thameslink) were paused pending the outcome of the Brown Review.[7] It was published in January 2013, and concluded there were no fundamental flaws in the system, but made 11 recommendations on how it could be improved. One recommendation was to spread out the re-franchising schedule to avoid bunching, which the government acted upon in committing to holding no more than four competitions per year, and staggering the East and West coast awards.[5] Among Brown's recommendations was the breaking up of the standard franchise period into two terms - an initial term of between 7 and 10 years, followed by an automatic extension of a further 3 to 5 years, should performance criteria have been met (but also possibly being granted if they weren't, to dissuade abuse by under-performing TOCs). It also recommended further transfer of powers to local and devolved administrations.[7]

The West Coast controversy led to the introduction of the Direct Award concept, whereby the government can award a franchise that is up for renewal directly to the incumbent rather than through a tendering process, but only if the operator's proposed terms match the governments projected expectations of future performance based on its past record. If a reasonable contract cannot be drawn up through negotiation, the franchise is then re-let as normal. In the following few years, most franchises were renewed as Direct Awards, in part to achieve the smoothing out of the schedule recommended by Brown.[5]

Following the pause for the Brown report, the system resumed in 2013; the DfT published a revised timetable in March 2013, with the first tender being concluded in May, the Direct Award for the Essex Thameside franchise.[18]

In 2014, the DfT was re-organised, with responsibility for rail franchising becoming part of the new Office of Rail Passenger Services's remit under an externally recruited chief, the ORPS itself being part of a new Rail Executive within the DfT.[7]

In January 2015, as part of its statutory duty to promote competition, the Competition and Markets Authority CMA) launched a policy review to determine if there were opportunities to improve the current system outside of the current areas of competition - the bidding process and open access operators. In July 2015 it identified four possible areas for reform - an increased role for open access operators, having two successful bidders for each franchise, having more overlapping franchises and having multiple operators with licences on each route.[2] The ORR responded with a final report on the likely impact of these changes in December 2015.[19]

Tendering, monitoring and termination

Railway franchises are decided by the UK Government's Department for Transport (DfT), who design the boundaries and terms of service, and award contracts to the train operating companies.[20]

Prior to formally tendering a specific franchise, the DfT publishes a Prior Information Notice (PIN) outlining the basic details, and opens a consultation with relevant transport authorities, devolved administrations and Passenger Focus. At the end of this process, a formal Invitation To Tender (ITT) setting out the detailed terms of the proposed franchise agreement is sent to the three to five prospective bidders who have been identified as pre-qualified. ITT's may include a range of variations for the prospective bidder to consider, and in addition, they may also submit variations themselves. The franchise is awarded to the bid which is deemed most viable, and which offers the best value and reliability. If relevant, bidders past performance is also considered.[7]

Performance is monitored throughout the contract period.[7]

In contrast to earlier bail outs, following the 2004 changes in approach to cost/revenue risk, unless there are exceptional circumstances, the DfT's policy toward failing franchises is to not rescue them with further financial assistance, but to hold them to the agreement and terminate the franchise early, and then run the franchise directly as an operator of last resort (OOLR), pending a re-tendering. Franchises Agreements also contain a cross-default clause, which allows other franchises also held by the company or an affiliate to be terminated.[7]

Finance

Rail franchise holders in Great Britain accept commercial risk, although there are clauses in newer franchises which offer some compensation for lower-than-expected revenue (and also claw back some excess profits, should these occur).

The main costs incurred by franchisees are track access charges (paid to Network Rail), although other significant costs come from staffing, leasing stations (from NR) and rolling stock (from ROSCOs). They will also directly pay for light maintenance of stock, with heavy work being done as part of the ROSCO lease. The main revenue stream is from fares (or the franchise subsidy in cases where there is a shortfall), although franchisees are also allowed to directly sub-let commercial units in leased stations.[5]

Franchises

List of franchises

Below is a table of all current and former franchises.

Franchise Start Finish Origin Fate
Anglia Railways 5 January 1997 31 March 2004 original defunct
Caledonian Sleeper 1 April 2015 2030 new extant
Central Trains 2 March 1997 11 November 2007 original defunct
Chiltern Lines 21 July 1996 2021 original extant
CrossCountry 5 January 1997 11 November 2007 original defunct
East Coast 28 April 1996 2023 original extant
East Midlands 12 November 2007 2018 new extant
Essex Thameside 7 November 2014 2029 new extant
Gatwick Express 28 April 1996 21 June 2008 original defunct
Great Eastern 5 January 1997 31 March 2004 original defunct
Great Western 4 February 1996 31 March 2006 original defunct
Greater Anglia 1 April 2004 2016 new extant
Greater Western 1 April 2006 2019 new extant
Integrated Kent 1 April 2006 2018 new extant
Island Line 13 October 1996 3 February 2007 original defunct
London, Tilbury & Southend 26 May 1996 6 November 2014 original defunct
Mersey Rail Electrics 19 January 1997 20 July 2003 original defunct
Midland Main Line 28 April 1996 11 November 2007 original defunct
Network SouthCentral 14 October 1996 24 July 2015 original defunct
New CrossCountry 12 November 2007 2019 new extant
North London Railways 2 March 1997 11 November 2007 original defunct
North West Regional Railways 2 March 1997 11 December 2004 original defunct
Northern 12 December 2004 2025 new extant
Regional Railways North East 2 March 1997 11 December 2004 original defunct
ScotRail 31 March 1997 2025 original extant
South Wales & West Railway 13 October 1996 13 October 2001 original defunct
South West Trains 4 February 1996 3 February 2007 original defunct
South Western 4 February 2007 2017 new extant
SouthEastern 13 October 1996 31 March 2006 original defunct
Thames Trains 13 October 1996 31 March 2006 original defunct
Thameslink 2 March 1997 31 March 2006 original defunct
Thameslink Great Northern 1 April 2006 13 September 2014 new defunct
Thameslink, Southern and Great Northern 14 September 2014 2021 new extant
TransPennine Express 1 February 2004 2023 new extant
Valley Lines 13 October 1996 13 October 2001 original defunct
Wales and Borders 14 October 2001 2018 new extant
Wessex 14 October 2001 31 March 2006 new defunct
West Anglia Great Northern 5 January 1997 31 March 2006 original defunct
West Coast 9 March 1997 2017 original extant
West Midlands 12 November 2007 TBA new extant

Shadow franchises and privatisation

Before privatisation, the passenger services of British rail were latterly organised into three units:

In preparation for privatisation, these underwent further reorganisation, being split up into 25 train operating units (TOUs), gradually incorporated as separate, shadow businesses. These "shadow franchises" were effectively TOCs in their own right, being owned by BR, but operated and managed in the same way the future private franchises were to be - negotiating contracts with the already privatised Railtrack (the infrastructure and major station owner) and ROSCOs (the rolling stock leasing companies), as well as dealing with the various regulators to obtain the necessary licences etc. To complete the process, these 25 TOUs were then sold off in 1996 and 1997.[5]

BR Division TOU/Franchise Privatised on Buyer
InterCity Great Western 4 February 1996 Great Western Holdings
NSE South West Trains 4 February 1996 Stagecoach
InterCity East Coast 28 April 1996 Sea Containers
InterCity Gatwick Express 28 April 1996 National Express
InterCity Midland Main Line 28 April 1996 National Express
NSE London, Tilbury & Southend 26 May 1996 Prism
NSE Chiltern Lines 21 July 1996 management buyout
NSE Island Line 13 October 1996 Stagecoach
RR Valley Lines 13 October 1996 Prism
InterCity Thames Trains 13 October 1996 Go-Ahead
NSE SouthEastern 13 October 1996 Connex
NSE South Wales & West Railway 13 October 1996 Prism
NSE Network SouthCentral 14 October 1996 Connex
InterCity CrossCountry 5 January 1997 Virgin
InterCity Great Eastern 5 January 1997 First
RR Anglia Railways 5 January 1997 GB Railways
InterCity West Anglia Great Northern 5 January 1997 Prism
RR ScotRail 31 March 1997 National Express
RR Central Trains 2 March 1997 National Express
RR Mersey Rail Electrics 19 January 1997 MTL
RR North West Regional Railways 2 March 1997 Great Western Holdings
RR Regional Railways North East 2 March 1997 MTL
InterCity Thameslink 2 March 1997 Govia
NSE North London Railways 2 March 1997 National Express
InterCity West Coast 9 March 1997 Virgin

Subsequent changes

Major changes to the makeup of franchises have occurred since privatisation.

Wales and western England (2001)

From 14 October 2001, to implement a desire for one franchise covering all of Wales, two new franchises were created by re-configuring two existing ones:

Merseyrail (2003)

Reflecting its exclusive nature, using the Merseyrail Electrics Network Order 2002 the Secretary of State exempted the system from being designated as a railway franchise under the terms of the 1993 Act. Coming into force on 20 July 2003, this allowed the local Merseyside Passenger Transport Executive to contract out the service as a 25-year concession (to Merseyrail Electrics (2002) Ltd, a joint venture between Serco and NedRailways.[7]

Northern England (2003-4)

In late 2003 and into 2004, changes to the two franchises covering the north of England, the North West Regional Railways (NWRR) and Regional Railways North East (RRNE), were performed:

Greater Anglia (2004)

From 1 April 2004, the Anglia Railways and Great Eastern franchises were merged into the new Greater Anglia franchise, which also received the West Anglia services of the West Anglia Great Northern franchise.

Greater Western, Thameslink Great Northern & Integrated Kent (2006)

In 2006, further mergers occurred, taking effect from 1 April:

Island Line (2007)

From 4 February 2007, the Island Line franchise was merged into the South West Trains franchise to form a new South Western franchise.

London and the Midlands (2007)

Several changes took effect from 12 November 2007, resulting in the cessation of the Midland Main Line, North London Railways, and Central Trains franchises, in the process creating two new franchises, and expanding a third, as follows:

Theses changes were introduced to more closely align franchises with the operations of Network Rail.[21]

Gatwick Express (2008)

Route map of the South Central franchise in 2010.

From 22 June 2008, the Gatwick Express franchise was merged into the South Central franchise (being retained as a separate brand).

TSGN, Essex, Caledonian Sleeper (2014-15)

From 14 September 2014, the Thameslink Great Northern franchise (created in 2006) was incorporated into the new Thameslink, Southern and Great Northern franchise, in anticipation of the merger of the South Central franchise - this duly occurred from 25 July 2015, with the new franchise retaining both Southern and Gatwick Express as separate brands. Post merger, the combined TSGN franchise is the largest in terms of both income, number of trains and total staff.[5]

From 7 November 2014, the London, Tilbury & Southend franchise was renamed as the Essex Thameside franchise

From 1 April 2015, the Caledonian Sleeper services of the ScotRail franchise were divested into a new Caledonian Sleeper franchise (with the remainder staying as the ScotRail franchise). As with the ScotRail franchise from 2005, the specification and tendering of the sleeper franchise is also devolved to the Scottish Government.[5]

Current franchises

After these various subsequent changes, the franchises have been reduced in number to 16. Their current status is listed in the table below, with their current TOC, the 2014/5 figure for their annual subsidy or premium (with subsidies expressed as a positive pence per passenger kilometre figure), as well as the dates of their expected renegotiation, and the expected date of start of that next contract period.

Table data source (unless otherwise stated in cell):[5]

Franchise Train Operating Company TOC owner 2014/15 premium/subsidy (in pppkm) Retender Award
Caledonian Sleeper Serco Caledonian Sleepers Limited (SCSL). Serco n/a n/a TBA 2030
Chiltern Chiltern Railways Arriva UK Trains (Deutsche Bahn) £30.2 million -2.5 2020 (May) 2021 (December)
Cross Country CrossCountry Arriva UK Trains (Deutsche Bahn) £47.3 million -1.4 2018 (April) 2019 (October)
East Anglia Abellio Greater Anglia Abellio (NedRailways) £187.1 million -4.1 ongoing 2016 (June)
East Coast Virgin East Coast Inter City Railways Limited (Virgin & Stagecoach) £249.1 million -5.1 TBA 2023
East Midlands East Midlands Trains Stagecoach £82.6 million -3.5 2016 (July) 2018 (March)
Essex Thameside C2C NXET Trains Ltd (National Express) £18 million -1.7 TBA 2029
Great Western Great Western Railway (GWR) FirstGroup £62.1 million -1.0 ongoing 2019 (March)
Northern Northern Arriva UK Trains (Deutsche Bahn) £112.7 million 4.9 TBA 2025 (March)
ScotRail ScotRail Abellio (NedRailways) £261.1 million 8.6 TBA 2025 (April)
South Eastern Southeastern London & South Eastern Railway Limited (Govia) £32.5 million 0.7 2016 (November) 2018 (June)
South Western South West Trains Stagecoach £374.3 million -6.0 ongoing 2017 (June)
Thameslink, Southern & Great Northern (TSGN) Thameslink/Great Northern/Southern/Gatwick Express Govia £99.8 million -4.5 TBA 2021 (September)
TransPennine Express First TransPennine Express FirstGroup and Keolis £43.5 million 2.3 TBA 2023 (March)
Wales & Borders Arriva Trains Wales Arriva UK Trains (Deutsche Bahn) £101.9 million 8.5 2017 (March) 2018 (October)
West Coast Virgin West Coast West Coast Trains Limited (Virgin & Stagecoach) £93.7 million -1.8 2015 (December) 2017 (September)
West Midlands London Midland Govia £62.9 million 2.7 TBA TBA

Franchisees

Franchisee Brand Owner Franchise From Notes To Notes
Anglia Railways Train Services Ltd Anglia GB Railways Anglia Railways 5 January 1997 Won

(7.25 years)[22]

 13 August 2003
First 14 August 2003[23] Sold (parent company)[13] 31 March 2004 franchise defunct
Serco Caledonian Sleepers Ltd[24] Caledonian Sleeper Serco Caledonian Sleeper 1 April 2015 Won (15 years) 2030
Central Trains Ltd Central Trains National Express Group Central Trains 2 March 1997 Won (7 years 1 month)[22] 1 April 2004
1 April 2004 Granted 2-year extension pending recasting[25] 1 April 2006
1 April 2006 Further short term extension[26] 11 November 2007 franchise defunct
Chiltern Railways Company Ltd Chiltern Railways M40 Trains Ltd (mebo) Chiltern Lines 21 July 1996 Won (7 years)[22]
Laing Rail Ltd 10 March 1999 Laing holding increased from 26% to 84%,[27] increased to 100% by sale to DB[28] 3 March 2002
3 March 2002 Won (20 years)[12] 21 January 2008
DB Regio AG (Deutsche Bahn) 21 January 2008 Sold (parent company)[28] August 2010
Arriva UK Trains Ltd (Deutsche Bahn) August 2010 Transferred to Arriva after their takeover by DB 2021
CrossCountry Trains Ltd Virgin Virgin Rail Group CrossCountry 5 January 1997 Won (15 years)[22] October 1998
Virgin Rail Group (joint venture) October 1998 Stagecoach acquired 49% of VRG[29] 21 July 2002
22 July 2002 Renegotiated as a rolling year on year management contract,[30] continued until expiry after failure to renegotiate franchise[21] 10 November 2007[31] franchise defunct
Great North Eastern Railway Ltd GNER Sea Containers East Coast 28 April 1996 Won (7 years)[22] 27 April 2003[9]
April 2003 2 year extension[32] April 2005
1 May 2005 Won (10 years - 7+3)[33] 9 December 2006
10 December 2006 Terminated early, converted to management contract pending re-tender[34] 8 December 2007
NXEC Trains Ltd National Express East Coast National Express Group 9 December 2007 Won (to 31 March 2015)[35]

Terminated early after intention to default announced in July 2009.

 13 November 2009
East Coast Main Line Company Ltd East Coast Directly Operated Railways Ltd 14 November 2009 Publicly owned interim operator 30 April 2015
Virgin Inter City Railways Ltd - joint venture (Stagecoach 90% -Virgin 10%) 1 March 2015 Won (8 years)[36] 2023
Stagecoach Midland Rail Ltd East Midlands Trains Stagecoach East Midlands 12 November 2007 Won (to 1 April 2015)[37] 1 April 2015
1 April 2015 Extension option exercised[38] 17 October 2015
18 October 2015 Direct Award[39] 4 March 2018
see London, Tilbury & Southend franchise Essex Thameside see London, Tilbury & Southend franchise
Gatwick Express 28 April 1996 Won (15 years)[22] 21 June 2008 defunct
Great Eastern 5 January 1997 Won (7.25 years)[22] 31 March 2004 defunct
Great Western 4 February 1996 Won (10 years)[22] 31 March 2006 defunct
Greater Anglia 1 April 2004 2016 extant
Greater Western 1 April 2006 2019 extant
Integrated Kent 1 April 2006 2018 extant
Island Line 13 October 1996 Won (5 years)[22] 3 February 2007 defunct
LTS Rail Ltd LTS Rail Prism Rail plc London, Tilbury & Southend (renamed Essex Thameside as new 15 year franchise was being consulted) 26 May 1996 Won (15 years)[22][40] July 2000 defunct
National Express July 2000 Sold (parent company) July 2002
c2c Rail Ltd c2c July 2002 rebranded
26 May 2011 extension (2 years), pending re-tender[41] 25 May 2013
26 May 2013 Direct Award (16 months, plus up to eight 28-day extensions)[18] September 2014
September 2014 extension option 6 November 2014
NXET Trains Ltd 10 November 2014 Won (15 years)[42] 2029
Merseyrail Electrics Mersey Rail Electrics 19 January 1997 Won (7 years 2 months)[22] 20 July 2003 defunct
Midland Main Line 28 April 1996 Won (10 years)[22] 11 November 2007 defunct
South Central Ltd Network SouthCentral 14 October 1996 Won (7 years)[22] 24 July 2015 defunct
XC Trains Ltd. CrossCountry Arriva UK Trains Ltd (Deutsche Bahn) New CrossCountry 11 November 2007 Won (to 31 March 2016[31]) 2019 extant
North London Railways 2 March 1997 Won (7.5 years)[22] 11 November 2007 defunct
North Western Trains North West Regional Railways 2 March 1997 Won (7 years 1 month)[22] 11 December 2004 defunct
Northern 12 December 2004 2025 extant
Northern Spirit Ltd Northern Spirit[22] Regional Railways North East 2 March 1997 Won (7 years 1 month)[22] 11 December 2004 defunct
ScotRail 31 March 1997 Won (7 years)<[22] 2025 extant
Wales & West Passenger Trains Ltd Wales & West[22] South Wales & West Railway 13 October 1996 Won (7.5 years)[43] 13 October 2001 defunct
South West Trains 4 February 1996 Won (7 years)[44] 3 February 2007 defunct
South Western 4 February 2007 2017 extant
Connex South Eastern Ltd SouthEastern 13 October 1996 Won (15 years)[22] 31 March 2006 defunct
Thames Trains 13 October 1996 Won (7.5 years)[45] 31 March 2006 defunct
Thameslink 2 March 1997 Won (7 years 1 month)[46] 31 March 2006 defunct
Thameslink Great Northern 1 April 2006 13 September 2014 defunct
Thameslink, Southern and Great Northern 14 September 2014 2021 extant
TransPennine Express 1 February 2004 2023 extant
Cardiff Railway Company[43] Valley Lines 13 October 1996 Won (7.5 years)[47] 13 October 2001 defunct
Wales and Borders 14 October 2001 2018 extant
Wessex 14 October 2001 31 March 2006 defunct
West Anglia Great Northern 5 January 1997 Won (7 years 3 months)[22] 31 March 2006 defunct
West Coast Trains Ltd Virgin Virgin Rail Group West Coast 9 March 1997 Won (15 years)[22] 2017 extant
October 1998 Stagecoach acquired 49% of VRG[29] 21 July 2002
22 July 2002 Renegotiated as a management contract[30]
West Midlands 12 November 2007 TBA extant

Controversies

West Coast upgrade delay

In the wider context of the controversy over Railtrack's failure to upgrade the West Coast Main Line, this led to criticism of the SRA for failing to ensure the Cross Country and West Coast franchises transitioned from subsidised to premium paying franchises. This had been anticipated in the initial 15 year franchise agreements (1997 to 2012), but depended on Railtrack delivering the upgrade on time. Instead, the delays meant the contracts had to be renegotiated early as management contracts, and continued to be subsidised for several years until they could be re-let, which was seen as a cost to the public purse, adding millions to the billions run up in over-spend on the upgrade itself.[48][49][50] The initial management contracts came into effect on 22 July 2002, and would see the West Coast franchise supported by the SRA until March 2003, and if agreement on a new franchise terms was not reached by then, it would continue as a management contract, in return for a fee of 2% of revenue. Similarly, Cross Country would be supported until March 2004, and then by a 1% fee if not renegotiated, but with the option of the SRA putting it out to tender.[30] Unhappy with Virgin's proposal for terms of the remainder of the original 15 year Cross Country franchise, the SRA terminated negotiations on 6 August 2004.[51] The temporary arrangements continued until the franchise was re-let in a revised form, announced in October 2005.[21] Although Virgin was shortlisted as a bidder for this revised franchise, it lost out to Arriva, who took over as the new franchisee from 11 November 2007.[31]

Bidding process

The 2003 purchase of GB Railways by First Group was seen by some as an attempt by First to bypass the franchising system - GB were the holders of the Anglia franchise, which was undergoing re-tendered at the time - First had already been rejected for the shortlist of three bidders, which included the incumbent. Responding to media criticism that he had been "outmaneuvered" by First, the head of the SRA argued that he could not decide who would become a preferred bidder based on what might happen in future regarding mergers and acquisitions.[13] The purchase went through, but GB was unsuccessful in winning the Anglia franchise, as well as two others it was also bidding for (Northern and Wales & Borders).

Failed franchises

Connex

In October 2000, after passenger complaints, the SRA announced that Connex would be losing its contract to run the Network SouthCentral franchise on its expiry in 2003, which it had been operating through its Connex South Central TOC. Having announced the new operator (from 2003) would be Southern, a Govia subsidiary, the South Central TOC was sold to Govia in 2001 as a way of terminating their involvement early and cutting their losses. In November 2003, Connex was stripped of its only other UK rail operation, the Connex South Eastern TOC running the South Eastern franchise, eight years before it would have expired, due to poor financial management. It was replaced by a new, publicly owned TOC, South Eastern Trains; with the franchise eventually returned to the private sector through re-tendering, which saw it pass to the Southeastern TOC April 2006 as part of the newly created Integrated Kent franchise.[52]

East Coast

In December 2006, the Great North Eastern Railway TOC operating the InterCity East Coast franchise was stripped of its contract six years before it would have expired, due to financial difficulties at its parent company Sea Containers.[7] It was eventually re-tendered to the National Express East Coast TOC in August 2007, GNER having been allowed to operate it in the interim on a management contract basis. NXEC then in turn also got into difficulties due to the recession and was forced to relinquish the franchise after the government refused to renegotiate its terms.[7] In November 2009 the franchise was handed over to a newly created and publicly owned East Coast TOC, before eventually being re-tendered to a new TOC, Virgin Trains East Coast, in March 2015.[53]

2012 West Coast re-tendering

In 2012 the franchising system ran into some difficulty; the Department for Transport awarded the InterCity West Coast franchise to FirstGroup,[54] but in October the Secretary of State for Transport reversed this decision after significant technical flaws had been revealed in the way the franchise process was conducted. Since then, Virgin Trains has been given a temporary management contract to run the franchise until a fresh competition can be run.[55][56]

Temporary public ownership: East Coast was brought in to run the failed InterCity East Coast franchise in 2009
A return to private operation: Virgin Trains East Coast took over the franchise in 2015

Public/private ownership

According to the Railways Act 1993, the public sector cannot bid for rail franchises in Great Britain, although some rail franchises in the past have been taken on temporarily by a state-owned operation following an unsuccessful private franchise.

Some critics of the franchising system have suggested that state-owned organisations, such as the Government-owned holding company set up to take temporary ownership of franchises, Directly Operated Railways, should be allowed to tender for rail franchises on a permanent basis.[57] They highlight the fact that many of the current rail franchise holders are actually joint ventures involving subsidiary companies of the state-owned railways of other countries, such as SNCF of France or the German Deutsche Bahn.[58]

Some commentators have criticised the re-franchising deals by comparing the performance of the private-sector franchisees unfavourably with the public-sector operators.[59] Advocates of the franchising system contrast public-sector operations with commercial operators, citing their ability to invest private capital into the franchises, financial returns to the Treasury and customer incentives such as free on-board wi-fi and loyalty card schemes.[60]

Competition inquiries

Whenever there is a possibility through the franchising process for multiple franchises to come into the common ownership of a larger transport group, these can lead to referrals to the competition authorities for investigation (currently the Competition and Markets Authority (CMA)), if it is deemed there is a concern that market dominance might result in a monopoly. This can also be triggered when there is an overlap between train and bus services in a particular area or corridor (most bus and coach services in Great Britain having been privatised in the 1980s).

Many investigations are cancelled without conclusion, simply because the concerning situation does not arise (i.e. a different company wins the bid). Investigations are also often closed with no action, after it is found there is little concern (such as in cases where the operator has little-to-no ability to create a monopoly situation in practice, even though they may control large areas of services). Where a concern is found to be significant, it is often resolved through the operators agreeing to certain undertakings designed to prevent the monopoly situation occurring, although in some cases investigations will conclude there is no alternative but to block the proposed contract.

Investigations which resulted in undertakings are as follows:

Auditing

Passenger Rail Franchising has been examined by the National Audit Office and a report was published on 15 October 2008.[66]

Concessions

A small number of urban railway systems are not franchised but are contracted out as a concession instead. Examples of this form of operation include the operation of Transport for London's London Overground (awarded to London Overground Rail Operations), Docklands Light Railway (Keolis/Amey plc) or Manchester Metrolink (RATP). Concession holders are paid a fee to run the service, which is usually tightly specified by the awarding authority. They do not take commercial risk, although there are usually some penalties/rewards built into the contract for large variations in performance.

See also

References

  1. ↑ Transport, European Conference of Ministers of (2007). Competitive Tendering of Rail Services. Paris: Organisation for Economic Co-operation and Development. pp. 9–10. ISBN 9789282101636. Retrieved 5 March 2015.
  2. 1 2 "CMA to examine scope for greater rail competition for passengers - News stories - GOV.UK". www.gov.uk. Retrieved 2016-02-02.
  3. ↑ Parker, David (2012). "16. Privatising the Railways: from Rejection to Legislation". The Official History of Privatisation. London: Routledge. ISBN 9780415692212. Retrieved 5 March 2015.
  4. ↑ Bagwell, Philip; Lyth, Peter (2002). Transport in Britain : from canal lock to gridlock ; [1750-2000]. London [u.a.]: Hambledon and London. p. 187. ISBN 9781852852634. Retrieved 10 March 2015.
  5. 1 2 3 4 5 6 7 8 9 10 11 House of Common Briefing Paper SN1343 Railway passenger franchises, 14 December 2015, Louise Butcher
  6. 1 2 3 4 Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  7. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 House of Common Briefing Paper SN6521 Railways: franchising policy, 30 September 2015, Louise Butcher
  8. ↑ "Britain's railways are doing well despite privatisation". The Independent. Retrieved 2016-01-31.
  9. 1 2 3 4 5 6 "House of Commons - Transport, Local Government and the Regions - First Report". www.publications.parliament.uk. Retrieved 2016-02-16.
  10. ↑ UK, DVV Media. "Extension not competition as franchise replacement stalls". Railway Gazette. Retrieved 2016-02-16.
  11. ↑ SRA Strategic Plan 2003, p. 64-65
  12. 1 2 Gibbs, Geoff (2002-02-18). "Chiltern wins first 20-year franchise". The Guardian. ISSN 0261-3077. Retrieved 2016-02-15.
  13. 1 2 3 "First Group back on track for Anglia after merger". The Independent. Retrieved 2016-02-15.
  14. ↑ Articles 4.3 and 4.4 of Regulation 1370/2007/EC
  15. ↑ Odell, Mark; Jacobs, Rose (3 October 2012). "How franchise hit the buffers". Financial Times. Retrieved 5 October 2012.
  16. ↑ Robert Wright (March 2011). "Goodbye to the cap-and-collar". Rail Professional. Retrieved 3 October 2012.
  17. ↑ Philip Hammond (5 August 2011). "New franchising programme". Department for Transport. Retrieved 3 October 2012.
  18. 1 2 "[ARCHIVED CONTENT] Essex rail contract agreement - Press releases - GOV.UK". webarchive.nationalarchives.gov.uk. Retrieved 2016-02-17.
  19. ↑ "Passenger rail services: competition policy project Competition and Markets Authority case - GOV.UK". www.gov.uk. Retrieved 2016-02-02.
  20. ↑ "Rail franchising". GOV.UK. HM Government. Retrieved 10 March 2015.
  21. 1 2 3 Milner, Mark (2005-10-18). "Branson will reapply for franchise in rail shakeup". The Guardian. ISSN 0261-3077. Retrieved 2016-02-16.
  22. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  23. ↑ "FE Investegate |GB Railways Grp PLC Announcements | GB Railways Grp PLC: Cancellation on AIM". www.investegate.co.uk. Retrieved 2016-02-15.
  24. ↑ "Caledonian Sleeper Franchise | Transport Scotland". www.transport.gov.scot. Retrieved 2016-02-15.
  25. ↑ "Central Trains Franchise Extended". Sky News. Retrieved 2016-02-15.
  26. ↑ "United Kingdom Government News: CENTRAL TRAINS FRANCHISE EXTENDED TO AUTUMN 2007". www.gov-news.org. Retrieved 2016-02-15.
  27. ↑ "Green light for Laing rail stake". The Independent. Retrieved 2016-02-15.
  28. 1 2 RAILNEWS. "Deutsche Bahn buy Chiltern Railways | Railnews | Today's news for Tomorrow's railway". www.railnews.co.uk. Retrieved 2016-02-15.
  29. 1 2 "Stagecoach climbs aboard Virgin Rail". BBC. 1998-06-22. Retrieved 2016-02-15.
  30. 1 2 3 "Stagecoach Group welcomes Virgin Rail deal - Stagecoach Group". www.stagecoach.com. Retrieved 2016-02-16.
  31. 1 2 3 Osborne, By Alistair. "Arriva wins Cross Country rail routes". Telegraph.co.uk. Retrieved 2016-02-16.
  32. ↑ "Rail line receives £100m improvement". Telegraph.co.uk. Retrieved 2016-02-16.
  33. ↑ UK, DVV Media. "GNER wins second franchise term". Railway Gazette. Retrieved 2016-02-16.
  34. ↑ Wright, Robert; Correspondent, Transport (2006-12-15). "GNER east coast franchise terminated". Financial Times. ISSN 0307-1766. Retrieved 2016-02-16.
  35. ↑ "Department for Transport - National Express awarded contract for growth on InterCity East Coast". 2007-12-19. Archived from the original on December 19, 2007. Retrieved 2016-02-16.
  36. ↑ "More seats, more services and new trains for East Coast passengers - Press releases - GOV.UK". www.gov.uk. Retrieved 2016-02-16.
  37. ↑ Transport, The UK Department for. "Department for Transport announces winner of East Midlands franchise". webarchive.nationalarchives.gov.uk. Retrieved 2016-02-17.
  38. ↑ "East Midlands Trains wins extension to franchise on main line". Derby Telegraph. Retrieved 2016-02-17.
  39. ↑ UK, DVV Media. "New East Midlands direct award franchise agreed". Railway Gazette. Retrieved 2016-02-17.
  40. ↑ "OPRAF press release -11 November 1998". 1999-11-13. Archived from the original on November 13, 1999. Retrieved 2016-02-17.
  41. ↑ RAILNEWS. "c2c extension awarded to National Express | Railnews | Today's news for Tomorrow's railway". www.railnews.co.uk. Retrieved 2016-02-17.
  42. ↑ "[ARCHIVED CONTENT] Better journeys for east London and Essex passengers as c2c franchise starts - News stories - GOV.UK". webarchive.nationalarchives.gov.uk. Retrieved 2016-02-17.
  43. 1 2 Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  44. ↑ Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  45. ↑ Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  46. ↑ Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  47. ↑ Parker, David (2012). The Official History of Privatisation: Popular capitalism, 1987-97. Routledge. p. 472. ISBN 9780415692212.
  48. ↑ "West coast rail upgrade expected". BBC. 2002-08-28. Retrieved 2016-02-16.
  49. ↑ Osborne, By Alistair. "Hurtling towards a £7.6bn bill at full tilt". Telegraph.co.uk. Retrieved 2016-02-16.
  50. ↑ "House of Commons - Transport - Appendices to the Minutes of Evidence". www.publications.parliament.uk. Retrieved 2016-02-16.
  51. ↑ "FE Investegate |Strategic Rail Auth Announcements | Strategic Rail Auth: Virgin CrossCountry franchise". www.investegate.co.uk. Retrieved 2016-02-16.
  52. ↑ "BBC NEWS - UK - England - Train firm loses franchise". BBC News. 27 June 2003. Retrieved 4 March 2015.
  53. ↑ "http://www.theguardian.com/business/2015/mar/02/repainted-and-rebranded-virgin-trains-east-coast-service-leaves-london". External link in |title= (help)
  54. ↑ "New operator for West Coast passengers" (Press release). Department for Transport. 15 August 2012.
  55. ↑ Two-year-extension-for-Virgin-Rail-after-West-Coast-chaos.html "Two-year extension for Virgin Rail after West Coast chaos". The Daily Telegraph (London). 6 December 2012.
  56. ↑ "Virgin awarded another extension to West Coast Main Line franchise as Essex Thameside award is further delayed". Rail.co.uk. 22 June 2014. Retrieved 5 March 2015.
  57. ↑ de Castella, Tom (3 March 2015). "Would it be realistic to renationalise the railways?". BBC News. Retrieved 4 March 2015.
  58. ↑ Armitage, Jim (20 November 2014). "Revealed: How the world gets rich – from privatising British public services". The Independent. Retrieved 4 March 2015.
  59. ↑ Topham, Gwyn (1 March 2015). "East Coast rail line returns to private hands". The Guardian. Retrieved 4 March 2015.
  60. ↑ Topham, Gwyn (2 March 2015). "Repainted and rebranded – Virgin Trains East Coast service leaves London". The Guardian. Retrieved 4 March 2015.
  61. ↑ "Inter City Railways / InterCity East Coast franchise merger inquiry Competition and Markets Authority case - GOV.UK". www.gov.uk. Retrieved 2016-02-02.
  62. ↑ "Arriva plc / Wales and Borders Rail Franchise Competition and Markets Authority case - GOV.UK". www.gov.uk. Retrieved 2016-02-02.
  63. ↑ "Firstgroup plc / ScotRail franchise merger inquiry (CC) Competition and Markets Authority case - GOV.UK". www.gov.uk. Retrieved 2016-02-02.
  64. ↑ Osborne, By Alistair. "Byers links Prism Rail sale to fare freeze". Telegraph.co.uk. Retrieved 2016-02-02.
  65. ↑ "National Express to comply with MMC". The Independent. Retrieved 2016-02-02.
  66. ↑ The Department for Transport - Letting Rail Franchises 2005-2007 (PDF). London: National Audit Office. 15 October 2008. ISBN 978-0-10-295431-9.

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