Virgin Trains East Coast franchise to end 24 June 2018 and is temporarily re-nationalised

[WillPS]

Put simply, yes they have been higher, and that has effectively brought the franchise to an end as the losses are unaffordable to the franchisee. RDG stated the premiums were 30% greater than under DOR, but we know that was not covered by revenues. The future increases in contributions would have been even more problematic, as they partly depend on service increases which were impossible to deliver without NR infrastructure projects which are delayed or deferred. As it happened, we never got that far.

So they started higher than the position East Coast were already returning on a not-for-profit basis, and went up from there?

That strikes me as incredibly aggressive on their part and incredibly naive on the DfT's part to conclude it was sustainable. Is there no affordability considerations when managing the auctions?


(Sorry I'm coming in to this a bit blind - as you might see from my posting history I'm only an occasional lurker these days! I come out of the woodwork when something goes belly-up with the crap franchising system we have...)

 

[mpthomson]

So they started higher than the position East Coast were already returning on a not-for-profit basis, and went up from there?

That strikes me as incredibly aggressive on their part and incredibly naive on the DfT's part to conclude it was sustainable. Is there no affordability considerations when managing the auctions?


(Sorry I'm coming in to this a bit blind - as you might see from my posting history I'm only an occasional lurker these days! I come out of the woodwork when something goes belly-up with the crap franchising system we have...)

Many of the future revenue forecasts, although optimistic in nature relied on NR delivering a series of improvements (that it had promised to do so) to infra that would have allowed VTEC to significantly enhance its service in terms of numbers of trains etc. These improvements are running significantly behind schedule meaning that VTEC had no chance at all of meeting their revenue projections.

No side comes out of this looking good at all. It would be telling to see all the bidders' projections (not that we're going to), I bet they're all pretty similar...

 

[deltic]

As part of my day job I have had to audit bids to run services on behalf of government or councils (not train related) but the rules used are precisely the same.

It is extremely difficult using the guidelines to justify anything other than the bid that suggests the highest return to whichever public authority. In other words just being very optimistic isn't a reason for disqualifying a bid, you have to find a big mistake made by the bid team and prove it to the nth degree.

It doesn't therefore surprise me that what was clearly an optimistic bid was selected.

It may well be that the rules need a rewrite but on the flipside the rules must not rule out the best return to whichever authority, rules that work for every case are pretty much nonexistent

Not quite the case for rail franchise bids - bids that are regarded as too optimistic can and are revised downwards.

 

[tbtc]

It's all very well to say that VTEC returned more to the taxpayer than DOR, but it was running at a loss and so unsustainable. DORs returns were continuing profits, albeit at a lower level

The difference is that VTEC had a benchmark for the premiums that they were expected to pay.

DOR didn't.

Anyone should be capable of running the ECML franchise profitably in the twenty first century - the question is what level of premium is appropriate to pay to the Government. Since DOR wasn't a proper franchise there wasn't a proper benchmark for how much money to return. The simplistic stuff you see on Twitter about how "DOR were good because they were paying a premium" ignores the fact that the size of the premium is the important thing.

Personally, I've not ideological view re privatisation. I'm left of centre but I believe that most of the mistakes made on the railway are on behalf to "the state" (whether that's Network Rail, DfT, ORR, Secretary of State for Transport, backbench politicians, Welsh Assembly Government etc). If a private company can do the job better/ cheaper/ require a lower subsidy/ pay a higher premium (whilst taking a slice for themselves) then I'm okay with that. I'd rather be pragmatic. If LNER can pay more premiums than VTEC did then that's great too.

But if VTEC based their bid on dodgy figures inherited from DOR and the assumption that the Government would fund the various infrastructure improvements (that are being delayed/ descoped/ cancelled) then it becomes harder to paint them as the bad guy, despite the obvious knee-jerk reactions of some on here.

 

[mpthomson]

Branson sued the NHS when he lost a contract (and also sued in 2012 when he lost).

Virgin Care have only sued the NHS once, in 2017. The they reason sued was not that they lost the contract, but rather the organisation felt that there had been a breach of NHS process in terms of procurement. The fact that the NHS paid out meant that he was almost certainly correct. That's allowable in court and rightly so, despite what some people might like to happen to any company they personally don't approve of.

It would be telling to see the result if VTEC decided to sue the DfT over NR's numerous failings what the result would be, although I suspect that them not doing so is one of the clauses in the early exit agreement.

Somebody sued Virgin Care on 2012 as they won a contract, but their action was unsuccessful.

 

[Bletchleyite]

British Rail advertising, from what I've found on the internet, seemed to emphasis specific service improvements (see 'The Sprinters are Coming') - or stating that things were getting better rather than that they are already great. (There was a whole series of customer service focussed adverts about "We're getting better")

It was “We’re getting there” (but not quite got there yet...)

 

[Joe Paxton]

Yes they do. Souter sued for payments on SWT. Branson sued the NHS when he lost a contract (and also sued in 2012 when he lost).

Stagecoach won that dispute, which went to arbitration on 2010 and centred on the interpretation of their franchise contract with the DfT.

It was the DfT that didn't want the case to be dealt with via the RIDR dispute resolution process, and so went to the high court (Telegraph article). It was dealt with via RIDR in the end.

I think the conclusion of many was this was a demonstration of the somewhat inadequate nature of some of the franchise contracts that had been drawn up by the DfT.

 

[Tetchytyke]

Virgin Care have only sued the NHS once, in 2017. The they reason sued was not that they lost the contract, but rather the organisation felt that there had been a breach of NHS process in terms of procurement. The fact that the NHS paid out meant that he was almost certainly correct.

...or that it was cheaper to pay out than fight it, which is what one CCG pretty much said.

It cost one CCG £328,000. This directly affects patients, who won't receive treatment because that money had gone. He sued six CCGs. All from his tax-free baddie's lair in the Carribbean. I don't think the words to describe that behaviour, essentially stealing money from sick kids, can be used on a family website. Remember that Virgin Care is one of the few Virgin companies that he still owns outright.

He sued and won in 2012 when he lost VTWC. I didn't say that was Virgin Care.

Stagecoach won that dispute, which went to arbitration on 2010 and centred on the interpretation of their franchise contract with the DfT.

They did win the dispute, but it shows that they do think running a public contract is like shooting fish in a barrel and it also shows that they're prepared to fight dirty when they don't get their own way.

I think the conclusion of many was this was a demonstration of the somewhat inadequate nature of some of the franchise contracts that had been drawn up by the DfT.

I'd agree with that. All the power rests with the franchisees. This, I think, is politically motivated: privatisation only makes sense for companies when the risk lies with someone else.

 

[gsnedders]

So they started higher than the position East Coast were already returning on a not-for-profit basis, and went up from there?

That strikes me as incredibly aggressive on their part and incredibly naive on the DfT's part to conclude it was sustainable. Is there no affordability considerations when managing the auctions?


(Sorry I'm coming in to this a bit blind - as you might see from my posting history I'm only an occasional lurker these days! I come out of the woodwork when something goes belly-up with the crap franchising system we have...)

Procurement law is complex, but in general it's very hard to justify going for anything but the bid that scores highest (and franchise premiums play a large part of the scoring). If the DfT were to go for the one that didn't score the highest, it'd almost certainly end up in the courts, because it all rests on whether the bid is sustainable (and in a very real sense, you can't give an absolute answer, because there are too many variables), and in doing that you also need to consider how much the cost of reletting the franchise early would be if it were to fail (and how much it'd cost to set up the Operator of Last Resort): if the bid is sustainable for 90% of its duration, and is sufficiently much higher over the second highest bid, then it may be worth accepting that bid given the total cost is lower even if it does fail at the end.

Note, however, there are various bits of assessment done:

The Department carries out risk adjustments to elements of a bid which it feels present a significant risk of a materially different financial outcome to that proposed by the bidder

The Department requires bidders to provide underwritten guarantees of financial support from their parent companies. This aims to protect the taxpayer from the risk of lower premia or higher subsidies than had been contracted. This support is also intended to discourage bidders from submitting overambitious bids. Bidders are required to commit a minimum level of financial support, but can increase this if they feel it would improve the financial robustness of their bids. Bidders are not allowed to offer additional finance during the competition.

The Department tests whether the risk-adjusted bids and levels of parent company support result in the bid remaining within a defined set of financial ratios for the duration of the franchise. The Department then assesses the overall risk of default of each bid. Bids that are judged ‘high’ risk are disqualified.

 

[Robertj21a]

...or that it was cheaper to pay out than fight it, which is what one CCG pretty much said.

It cost one CCG £328,000. This directly affects patients, who won't receive treatment because that money had gone. He sued six CCGs. All from his tax-free baddie's lair in the Carribbean. I don't think the words to describe that behaviour, essentially stealing money from sick kids, can be used on a family website. Remember that Virgin Care is one of the few Virgin companies that he still owns outright.

He sued and won in 2012 when he lost VTWC. I didn't say that was Virgin Care.



They did win the dispute, but it shows that they do think running a public contract is like shooting fish in a barrel and it also shows that they're prepared to fight dirty when they don't get their own way.



I'd agree with that. All the power rests with the franchisees. This, I think, is politically motivated: privatisation only makes sense for companies when the risk lies with someone else.

I'm not sure I quite follow why you're so upset. You mention that 'he/they' pursued various issues through the legal system - and he/they won. Isn't that why we have an independent legal system, so that people can pursue claims that they feel are valid ?

 

[Agent_Squash]

I'd agree with that. All the power rests with the franchisees. This, I think, is politically motivated: privatisation only makes sense for companies when the risk lies with someone else.

I think bus companies are doing well for themselves with minimal DfT involvement?

 

[yorksrob]

I think bus companies are doing well for themselves with minimal DfT involvement?

Are they doing well for passengers though.

Given various threads about collapsing services due to withdrawn subsidy and anecdotal experience of some surprisingly high fares, I doubt it.

 

[johnnychips]

Agreed.

I think bus companies are doing well for themselves with minimal DfT involvement?

Try reading the 'First' thread in Buses and Coaches section

 

[OxtedSignaller]

It will be interesting to see how the implementation of class 800 trains goes. This franchise should of been treated as one of transition as they modernise working practices and stock. The class 800 railway should be much more efficient in terms of operation, maintenance and staffing so perhaps it will become a more profitable franchise as time progresses. Let’s just hope the DfT doesn’t start one of their battles in regards to DOO On DOO compatible trains.

 

[swt_passenger]

Many of the future revenue forecasts, although optimistic in nature relied on NR delivering a series of improvements (that it had promised to do so) to infra that would have allowed VTEC to significantly enhance its service in terms of numbers of trains etc. These improvements are running significantly behind schedule meaning that VTEC had no chance at all of meeting their revenue projections.

However some of the improvements had not been promised, or committed to, because they were not yet funded by DfT. This was all pointed out by NR in evidence to the select committee a few months back.

Details were discussed around about post #79 of this thread onwards, there’s a post that includes a link to NR’s evidence. Post #79 itself makes the point that there was nothing overdue at that time.

 

[Robertj21a]

I think bus companies are doing well for themselves with minimal DfT involvement?

The only real franchising for the bus industry is for services in London.

 

[Joe Paxton]

The only real franchising for the bus industry is for services in London.

It's not really franchising, it's tendering, and the whole system is quite tightly controlled by TfL. The various bus operators take no revenue risk.

 

[Emblematic]

Not only no revenue risk, the operators don't take any revenue, they just carry TfL Oyster/contactless readers.

 

[Tetchytyke]

I think bus companies are doing well for themselves with minimal DfT involvement?

Are they? Outside London ridership is in freefall, evening and Sunday services are but a hazy memory, and the whole thing is being propped up with ENCTS money.

They're also not franchises. Except in London, where all the revenue risk is with TfL.

 

[Tetchytyke]

You mention that 'he/they' pursued various issues through the legal system - and he/they won.

No, the CCGs settled out of court, and have pretty much said it's because it was cheaper to settle than fight. Hardly a ringing endorsement of our legal system.

 

[Tetchytyke]

However some of the improvements had not been promised, or committed to, because they were not yet funded by DfT. This was all pointed out by NR in evidence to the select committee a few months back

Absolutely spot on.

Also bear in mind that Stagecoach haven't failed with future projections, they've failed with current ridership. The fact DafT haven't signed off on funding might have made the franchise a basket cawe in a few years. But it is a basket case now.

All comes back to Stagecoach failure.

 

[3141]

.

He sued and won in 2012 when he lost VTWC.

He didn't "sue". He sought a judicial review of the DfT's decision to award the West Coast franchise to First. The DfT found it did not have the evidence it needed to back up its decision - with reference to the particular points raised by Virgin - and cancelled the franchise award. (And possibly saved First Group from reaching a point similar to where Stagecoach/Virgin are now.)

 

[The Ham]

Absolutely spot on.

Also bear in mind that Stagecoach haven't failed with future projections, they've failed with current ridership. The fact DafT haven't signed off on funding might have made the franchise a basket cawe in a few years. But it is a basket case now.

All comes back to Stagecoach failure.

They failed on future projections for the simple reason that they didn't have access to usage data for now because now was the future when they took over the franchise.

 

[Griff]

Interesting DfT document:
Short-term Intercity East Coast train operator - 2018 options report

That short-term Intercity East Coast train operator report document was an interesting read!

It'll be interesting to see what LNER's booking engine will look like etc.

And it will also be interesting to see what happens to the proposed Huddersfield, Middlesbrough and extra Lincoln services now.

VTEC did do brilliant job of refurbishing the interiors of their HST & Class 91 sets though!

 

[jon0844]

It will be interesting to see how the implementation of class 800 trains goes. This franchise should of been treated as one of transition as they modernise working practices and stock. The class 800 railway should be much more efficient in terms of operation, maintenance and staffing so perhaps it will become a more profitable franchise as time progresses. Let’s just hope the DfT doesn’t start one of their battles in regards to DOO On DOO compatible trains.

IF there was to be any changes that might cause friction or full-blown striking anger, I am sure they'd wait until they got a new operator in a few years and put the blame on them!

 

[jon0844]

No, the CCGs settled out of court, and have pretty much said it's because it was cheaper to settle than fight. Hardly a ringing endorsement of our legal system.

But that could just be damage limitation.

 

[Tetchytyke]

They failed on future projections for the simple reason that they didn't have access to usage data for now because now was the future when they took over the franchise.

Yes, totally agree.

My point is that the talk of future improvements not happening is irrelevant. They haven't failed because a future improvement didn't happen. They failed because they overestimated growth on the current infrastructure.

 

[Z12XE]

Anyone know what their expected passenger growth was?

It does make you wonder what will happen now with other TOCs that bid on massive increases, East Anglia for example requires a 10% per year growth which just isnt anywhere near happening

 

[Emblematic]

Yes, totally agree.

My point is that the talk of future improvements not happening is irrelevant. They haven't failed because a future improvement didn't happen. They failed because they overestimated growth on the current infrastructure.

It's not entirely irrelevant. If the improvements were happening as originally planned, the TOC may have calculated that they would move into profit (after premium payments) and therefore have continued with the franchise, writing off the previous losses and maybe injecting more working capital to see the franchise through the class 800 transition. Without the improvements, there was no possibility of profit whilst making the future premium payments, and with losses mounting the only possible outcomes were a renegotiated premium profile or termination.

 

[route:oxford]

Are they? Outside London ridership is in freefall, evening and Sunday services are but a hazy memory, and the whole thing is being propped up with ENCTS money.

Really? It's a double decker every 5-8 minutes as usual here on a Sunday and every hour throughout the night - even services on Christmas Day.

No bus subsidies here either. Just the usual pensioner pot though..