First will not take over West Coast from December

[merlodlliw]

VT might be able to find the odd Voyager for a token Shrewsbury or Blackpool service after the Pendolino lengthening project is finished, but there's no way a fuller service can be provided without new Pendos being purchased.
I doubt if DfT will let a new train order happen until the longer franchise is awarded.
I thought the exchange about Chester and Shrewsbury services was quite funny really. "Can't think of a finer city to go to than Chester..." (noises off: Except Shrewsbury)"!

If anything, Salop may get the token,has Chester is well taken care of, from three HSTs daily from day one of VT to an hourly service to Euston.

 

[HH]

No company can be anything other than greatly damaged by being told they have won a franchise and then, in the midst of executing plans, told they might not have. Except possibly the incumbent.
Virgin has made it far too much of a commercial risk for anyone else to enter the bidding process for West Coast ever again. Sole bidder franchises going forward.

While it will certainly be something that potential bidders are aware of, such that DfT will need to take steps to ensure that this does not repeat, I doubt very much that it will put off many bidders, if any.

 

[dave59]

VT might be able to find the odd Voyager for a token Shrewsbury or Blackpool service after the Pendolino lengthening project is finished, but there's no way a fuller service can be provided without new Pendos being purchased.
I doubt if DfT will let a new train order happen until the longer franchise is awarded.
I thought the exchange about Chester and Shrewsbury services was quite funny really. "Can't think of a finer city to go to than Chester..." (noises off: Except Shrewsbury)"!

Why wouldn't DfT let a new order happen? They know they are needed for expansion so why hold back? If they dither on this the bids will reflect it.

 

[E16 Cyclist]

While it will certainly be something that potential bidders are aware of, such that DfT will need to take steps to ensure that this does not repeat, I doubt very much that it will put off many bidders, if any.

Perversley i think this whole soap opera could see some new bidders entering the fray. The way this has played out and the fact that for every franchise award we see the same bidders bididng hopefully whatever reforms take place will encourage new companies offering new ideas. Also having seen some of the reaction to First compared to Virgin other compaines wouldn't have that baggage of running buses or not being lucky enough to run a line which was upgraded courtesy of the taxpayer.

I wouldn't mind betting the two year caretaker franchise is won by a none of the above candidate.

 

[Realfish]

Why wouldn't DfT let a new order happen?...If they dither on this the bids will reflect it.

And the costs of new vehicles will inevitably go up

 

[LNW-GW Joint]

Why wouldn't DfT let a new order happen? They know they are needed for expansion so why hold back? If they dither on this the bids will reflect it.

Because there is no business plan to fund them. 1-2-3 year franchises are no use. Virgin might not even be running the service when they were delivered.
Train procurement was left with the bidders for the long franchises and I can't see the DfT wanting to go back to ordering stock when it has said it wants to get out of it.

The alternative is a Section 54 agreement for something like 15 years' operation, which also seems unlikely.

I also depends if the revised ITTs for the temporary or interim franchises include any new services (the failed ITT didn't).

 

[HH]

Text of letter from the Secretary of State to Richard Brown

15 Oct 2012

Following my decision to cancel the competition for the InterCity West Coast franchise, I am asking you to lead an independent Review into the Department’s wider rail franchising programme.

I would like your Review to look in detail at the implications for the remainder of the rail franchising programme, in particular, whether changes are needed to the way risk is assessed and to the bidding and evaluation processes, and at how to get the other franchise competitions back on track as soon as possible

Terms of Reference of the Review are enclosed.

Decisions on how to run the Review and who to involve in it are for you as leader of the Review. You may want to draw on independent advice from outside the Department.

I ask that you report your findings to me by the end of December 2012.

In addition, an independent Inquiry, into the lessons learned from InterCity West Coast, is being undertaken by Centrica Chief Executive Sam Laidlaw. I have asked Sam Laidlaw to provide initial findings before the end of October.

Terms of Reference: Brown Review of the Rail Franchising Programme

1. The review should consider the implications for the remainder of the rail franchising programme of the position reached on the InterCity West Coast competition.

2.This review should take careful account of the points and lessons learned identified in the Laidlaw Inquiry and should also consider:

• How to structure risk transfer between the Department and rail franchisees in order to create optimum incentives in the long-term interests of passengers and taxpayers, and the ability to adapt to changing circumstances.
• How to structure the bidding and evaluation processes to ensure a robust and fair competition, including evaluation of the risk presented by different bids as a basis for decisions that take these risks appropriately into account.
• The timing of the remainder of the franchising programme, so that it can be resumed on a robust basis as soon as possible.
• How the Department can take the learning points from the Laidlaw Inquiry and facilitate a clear and proportionate framework for franchising which balances Government's administrative and commercial judgements with the need for the market to have predictability, transparency and a proportionate application of legal rules.

3. The review should make recommendations on the basis of its findings.

4. The Terms of Reference may be refined further following the publication of the Laidlaw Inquiry. The review shall be completed by 31 December 2012 and published thereafter.

5. The review will be led by Richard Brown, Chairman, Eurostar.

6. The review team should include external expertise as well as expertise from within Whitehall, and some cross-membership as appropriate with the review of lessons learned.

Text of letter from the Secretary of State to Sam Laidlaw

15 Oct 2012

Following my decision to cancel the competition for running the InterCity WestCoast franchise, I am asking you to lead an independent Inquiry into the Department’s handling of the competition.

I would like your Inquiry to identify the lessons to be learned for the Department and for you to recommend what measures the Department should implement to ensure the sound running of future competitions. Terms of Reference of the Inquiry are enclosed.

Decisions on how to run the Inquiry and who to involve in it are for you as leader of the Inquiry. You may want to draw on independent advice from outside the Department and from other Non-Executive Board Members.

I ask that you report your initial findings to me on Friday 26 October and to provide a final report by the end of November.

Terms of Reference: Inquiry into the Lessons Learned for DfT from InterCity West Coast (“ICWC”) competition

1. The Inquiry shall identify the lessons to be learned from the Department’s handling of the franchising process for ICWC in order to ensure the Department maximises benefits to transport users and value for money for taxpayers in future franchise competitions.

2. The Inquiry will comprise an immediate study of the lessons learned following the discovery of significant technical flaws in the way the franchising process for ICWC was conducted which resulted in the cancellation of the ICWC franchising process on 3 October 2012, in particular:

a. The course of events in DfT that led to these technical flaws in order to identify what happened and why it happened up to the point that the intention to award the contract was announced on 15 August 2012;

b. The roles and responsibilities of different advisory and decision-making parties within DfT and externally in relation to these flaws, including the Board Investment and Commercial Committee, the Contract Awards Committee and the Rail Refranchising Programme Board; how well these committees performed their roles, and what can be learned from this about the appropriate structure for governance and assurance of major contract awards;

c. The arrangements for ensuring appropriate review of the technical elements of contract award and appraisal and appropriate quality assurance.

3. The Inquiry should make recommendations on the basis of its findings.

4. The Inquiry will be led by Sam Laidlaw, DfT’s lead Non-Executive Board Member who also leads on procurement among Government Non-Executives. He will draw on others as he sees fit, including from other Non-Executive Board Members. By agreement, Linklaters and Ernst & Young have been appointed to provide an external perspective to the Inquiry.

5. The Inquiry should be completed as soon as possible. Initial findings shall be made available to the Department by 26 October.

6. The Inquiry will be taking place in parallel with the Department’s HR investigations. The Laidlaw Inquiry Report will be published no later than end November 2012.

 

[eastdyke]

Note: This might now benefit from a new thread?

Text of letter from the Secretary of State to Richard Brown and Text of letter from the Secretary of State to Sam Laidlaw

Thank you for sight of those.

From the Sam Laidlaw letter and terms:

I ask that you report your initial findings to me on Friday 26 October and to provide a final report by the end of November

October 26th is not very far away! I guess though it will be a while after before any statements are made to The House, possibly not until after the end of November. Five weeks for back room 'politics' and the Department's HR investigations?

From the Richard Brown terms:

How to structure risk transfer between the Department and rail franchisees in order to create optimum incentives in the long-term interests of passengers and taxpayers, and the ability to adapt to changing circumstances
etc. etc.

(my bold underline)

Nothing about Franchise lengths?
Any advance on a of 'cap and collar' derivative?

 

[dave59]

Because there is no business plan to fund them. 1-2-3 year franchises are no use. Virgin might not even be running the service when they were delivered.
Train procurement was left with the bidders for the long franchises and I can't see the DfT wanting to go back to ordering stock when it has said it wants to get out of it.

The alternative is a Section 54 agreement for something like 15 years' operation, which also seems unlikely.

I also depends if the revised ITTs for the temporary or interim franchises include any new services (the failed ITT didn't).

Section 54 is needed then. Those WCML MP's were very vocal in the debate and it will be unacceptable to them if the 221 replacement order is not put in until after 2016. This is DfT's cock up so they should deliver. If they don't would the Class 390 "business case" for a franchisee post 2016 be affected by HS2?

 

[YorkshireBear]

Section 54 is needed then. Those WCML MP's were very vocal in the debate and it will be unacceptable to them if the 221 replacement order is not put in until after 2016. This is DfT's cock up so they should deliver. If they don't would the Class 390 "business case" for a franchisee post 2016 be affected by HS2?

This is something that concerns me greatly. There was some good investment proposed by Virgin and First and now that this is lost i do wonder whats going to happen. Now that we know its delayed for at least 3 years is it all going to change? Hopefully the next bids will be better not worse? Because all this could put them off doing anything drastic in the franchise. We could be stuck with bare minimum.

 

[The Ham]

This is something that concerns me greatly. There was some good investment proposed by Virgin and First and now that this is lost i do wonder whats going to happen. Now that we know its delayed for at least 3 years is it all going to change? Hopefully the next bids will be better not worse? Because all this could put them off doing anything drastic in the franchise. We could be stuck with bare minimum.

If passenger numbers go up lots during the bidding process (when nothing really is happening in terms of new routes, new stations and the like) there maybe a case for being a bit braver with the investments. However there is a chance that if passenger numbers do not perform as well as they hoped in the next year or so that the bidders may put forward a slightly more cautious package.

 

[HH]

The problem is you need time to build the new units (and some time for design and testing, training, etc.). Why would the West Coast (Short) winner do this? If it waits until WC (Long) then the business case may no longer be there - depends on how HS2 is going.

Can't see how DfT gets around this without S54, but you can be sure that they will not want to do that.

 

[Stats]

The opening of HS2 remains the natural end date of the next long term ICWC franchise. This leads to a shorter franchise than was just offered and, in turn, will lead to less willingness from the successful franchise holder to invest and be innovative as the time frame to make a return from the investment is that much narrower.

 

[YorkshireBear]

I hope they change their mind and allow the next franchise to over see changes to WCML during HS2 opening.

Which brings me to a thought. Should (hypothetically) East Coast become a mixed franchise, and the WCML more regional after the opening of HS2 will Virgin have a flagship franchise to bid for? :P without having to be nitty gritty

 

[HH]

Something that may be of interest from January 2011: http://webarchive.nationalarchives..../consultations/closed/2010-28/govresponse.pdf

It is important that appropriate mechanisms exist within any contract to ensure that operators cannot walk away with no financial consequences for them or their owning group. However we also recognise that performance bonds have a direct impact on both the costs of the franchise to Government and the ability of operators to invest in the network, given that they reduce the borrowing facilities available to the owning group. In an era when Government expenditure is constrained, larger bonds will increase the costs of franchises and reduce an owning group’s ability to invest.

Given what is written here, it seems possible that DfT realised that both the leading bids would require unsupportable levels of funding if their risk model was correctly used. Possibly all 4 bids.

Possibly the 'errors' were not, therefore, errors at all; but done to avoid the huge egg on face that would have resulted from asking for a realistic level of guarantee, losing those attractive bids or even having to start over again.

Pure speculation, but you can see how it might have happened.

 

[pablo]

Agree. Bonds usually get offset against the Company's borrowing facility and reduce their ability to finance work-in-progress or turnover. So, we always accept a worthwhile PCG instead (if there is a decent parent company behind the operating company, that is).

 

[HH]

From the Railway Eye Blog:

This from the minutes of the 9th October meeting of the Rail Delivery Group...

Independent review of franchising

This item had been placed on the agenda of the meeting at short notice in the light of the events of the previous week. It was felt that RDG should take a lead on this issue and express the industry’s views to both Government and the independent review of franchising. Points made during discussions included:

• It was essential that the franchising process was restarted as soon as possible;
• There were many changes that would be desirable but there needed to be realism about what was achievable and changes must not get in the way of restarting the franchising process;
• RDG should consider what had been said before on the subject but should not be constrained by previously expressed views;
• RDG‘s views on the key principles of franchising should be expressed succinctly;
• Owning groups were still considering the changes they would seek and the input that they would make; and
• RDG should identify where there was common ground between the owning groups.

During further discussion the Group suggested that some of the issues that could be lodged with the independent review could include:

• The cost, complexity and risk associated with bidding;
• The size, length and risks of franchises;
• That a significant proportion of the savings and efficiencies presumed in the Statement of Funds Available and assumed in the Initial Industry Plan were dependent on the rapid reinstatement of the franchising process enabling franchises to work with Network Rail;
• Mechanisms used in other transport industries and other countries including the use of framework agreements should be considered; and
• There was a paramount need for flexibility in franchising.

The Group agreed that the issue should be progressed by the creation of a working group. The working group should:

• Review previous work on franchising;
• Recognise that significant change could delay the restarting of the franchise process;
• Be distinct from work done by ATOC and other groups;
• Produce a straw man for further discussion; and
• Be responsible for producing RDG’s submission to the independent review of franchising.

Note that the January 2011 document I linked to earlier was partly as a result of the last round of consultation, and IMO they got it severely wrong last time round (for instance, it seems that nobody picked up on the issues around the risks involved with long term franchises; nor did they pick up the various faults that exist in linking revenue support to GDP). Will they do any better this time? Given that their leader is "There's nothing risky about our bid" O'Toole, you might be forgiven for thinking that it's like asking the lunatics to run the asylum.

 

[Skimble19]

Has anyone else got the below email from Virgin Trains yet?

"Hi Sam

In August, it was announced that Virgin Trains wouldn’t continue operating the
West Coast Mainline franchise beyond 9 December 2012. Customers made it clear that they wanted Virgin Trains to stay and over 174,000 people signed an e-petition urging the government to reconsider. That support helped launch a review, which led to the decision being overturned earlier this month.

The Department for Transport has now asked Virgin Trains to continue running services for between 9 - 13 months, while a competition is run for an interim franchise. This interim agreement is expected to run for 2 years, until the new long term West Coast Mainline franchise is ready to start.

There’s still a long way to go, but none of this would have happened without the incredible loyalty and support of our customers, and we want to say a big thank you.

We’ll now be working hard to continue providing the same great service that you’ve come to expect.

See you onboard soon.

Virgin Trains"

Pretty misleading if you ask me!

 

[D365]

Their publicity is working wonders...

 

[HH]

It seems that the lesson to be learnt from this is: "Why bother to run a railway properly, when you can just rely on spin, marketing and celebrities?".

 

[LNW-GW Joint]

Section 54 is needed then. Those WCML MP's were very vocal in the debate and it will be unacceptable to them if the 221 replacement order is not put in until after 2016. This is DfT's cock up so they should deliver. If they don't would the Class 390 "business case" for a franchisee post 2016 be affected by HS2?

The "goodies" we learned about from the First/Virgin statements included new trains/routes, gated stations, a few station upgrades, and a new ticketing system.
Both bids essentially had these ingredients to a greater or lesser degree.
DfT has to define a WC specification three times in the next few years - once for the "temporary", once for the "interim" and once for the "long" franchises.
I bet we will get gated stations and a few licks of paint, possibly token services to Shrewsbury/Blackpool with existing stock, and a few fares initiatives but not the whole hog.
The rolling stock thing is exactly why DfT wants longer franchises and the private sector to take the risk (basically more seats to fill with higher revenue).
I can't see them taking the short-term risk of ordering any new trains (risk is not popular just now!).

The only glimmer of light is that the "mini-Pendolinos" are seemingly specified in detail between Alstom and Virgin, and the DfT may end up paying for this specification work as a result of the promised reimbursement of bid costs.
So if they have to pay for it they might be persuaded to complete the job and enable an order to be placed.
But I wouldn't bet on it. Look how far the e-Voyager project has got.

 

[tbtc]

How long would it take between the DfT setting up a tender for 125mph EMUs and them actually entering service?

i.e. how much time are we losing by this stasis?

 

[LNW-GW Joint]

How long would it take between the DfT setting up a tender for 125mph EMUs and them actually entering service?
i.e. how much time are we losing by this stasis?

3 years plus?
Nobody at DfT will be remotely thinking of ordering new Pendolinos (or anything else).
DfT procurement is shot to bits just now.

 

[island]

Something that may be of interest from January 2011: http://webarchive.nationalarchives..../consultations/closed/2010-28/govresponse.pdf


Given what is written here, it seems possible that DfT realised that both the leading bids would require unsupportable levels of funding if their risk model was correctly used. Possibly all 4 bids.

Possibly the 'errors' were not, therefore, errors at all; but done to avoid the huge egg on face that would have resulted from asking for a realistic level of guarantee, losing those attractive bids or even having to start over again.

Pure speculation, but you can see how it might have happened.

Easy solution for companies like First: no performance bond, but if you walk away from one of your franchises, every single other one is gone too. First West Coast defaults? Bye bye to the great western, Thameslink, Scotland, and Transpennine routes too. SWT can't pay the piper? EMT is history. c2c runs out of money? ...err... let me get back to you

 

[Masbroughlad]

Something that may be of interest from January 2011: http://webarchive.nationalarchives..../consultations/closed/2010-28/govresponse.pdf


Given what is written here, it seems possible that DfT realised that both the leading bids would require unsupportable levels of funding if their risk model was correctly used. Possibly all 4 bids.

Possibly the 'errors' were not, therefore, errors at all; but done to avoid the huge egg on face that would have resulted from asking for a realistic level of guarantee, losing those attractive bids or even having to start over again.

Pure speculation, but you can see how it might have happened.

Easy solution for companies like First: no performance bond, but if you walk away from one of your franchises, every single other one is gone too. First West Coast defaults? Bye bye to the great western, Thameslink, Scotland, and Transpennine routes too. SWT can't pay the piper? EMT is history. c2c runs out of money? ...err... let me get back to you

I agree. Cross fund your franchises or lose them all if one is fading.

 

[eastdyke]

I agree. Cross fund your franchises or lose them all if one is fading.

So if (for illustration purposes only) EMT was fading would VTL lose West Coast? I suggest not.

Franchisees would either become separate ('coalition') entities like VTL or DB would end up running the lot.

For the taxpayer to get 'best value' there has to remain the chance of a franchise failing somewhere sometime.

 

[ainsworth74]

I agree. Cross fund your franchises or lose them all if one is fading.

Is fading? It never existed!

 

[Cliveblackpool]

It seems that the lesson to be learnt from this is: "Why bother to run a railway properly, when you can just rely on spin, marketing and celebrities?".

Interesting comment. Although I can't 100% agree with your first point.
I think that Virgin's marketing, image etc has gone a long way to their popularity and growth in traffic, and helping to make rail travel more popular.
Stylish looking trains - livery, name and image is far more important in any business than people realize.
Price comes second!!!

Sounds like this cock up is going to cost the WCML customers dear, if we have delays in ordering the new rolling stock.

I assume if that transport minister had signed the contract with First and if / when the model/ figures were proved wrong, they could have claimed substantial compensation.

 

[Eagle]

First West Coast defaults? Bye bye to the great western, Thameslink, Scotland, and Transpennine routes too.

That's not fair, because you'd also be stripping Keolis of one of their franchises (TPE).

 

[Clip]

Interesting comment. Although I can't 100% agree with your first point.
I think that Virgin's marketing, image etc has gone a long way to their popularity and growth in traffic, and helping to make rail travel more popular.
Stylish looking trains - livery, name and image is far more important in any business than people realize.
Price comes second!!!

Sounds like this cock up is going to cost the WCML customers dear, if we have delays in ordering the new rolling stock.

I assume if that transport minister had signed the contract with First and if / when the model/ figures were proved wrong, they could have claimed substantial compensation.

With my cynical head screwed on tightly today,you could say there is only 1 person responsible for that delay.