East Midlands franchise won by Abellio

[Robertj21a]

Those of us involved in bidding have been aware for some time that there was something delaying the award of franchises. The logical explanation is that DfT were thinking long and hard (and taking copious legal advice) about their approach to bidders who were refusing to take the pension risk.

They are non-compliant; that is simple fact, but of course there are always other considerations. I feel it is commercially naive to expect bidders to take this risk, when it is out of their control and of an unknown quantum. However, some bidders have accepted that risk.

I don’t know about Arriva, but the decision on Stagecoach may have been simplified by the fact that every indication is that their bids were not very competitive price-wise in any case.

As for sending Stagecoach bid documents to Abellio, I don’t understand how that could happen; documents are not emailed in general - it’s why they have the Award system. However it happened, it’s a monumental cock-up, but I expect that whoever was responsible will get a light slap on the wrist; after all no-one lost their job over the WCML fiasco.

Thanks. I'm still amazed that Abellio have taken on an open cheque liability. I really can't understand why any organisation would accept that situation - or how it was that the DfT would hope to find such a 'sucker'. Stagecoach are well rid of the risk.

 

[yorksrob]

Are pensions really an "open cheque" liability ?

I find it hard to believe that the actuaries couldn't take an educated view of what they will cost.

As far as Abellio are concerned, I found them to be quite competent running the old Northern franchise. I just don't trust what the DfT have foisted on them.

 

[Robertj21a]

Are pensions really an "open cheque" liability ?

I find it hard to believe that the actuaries couldn't take an educated view of what they will cost.

As far as Abellio are concerned, I found them to be quite competent running the old Northern franchise. I just don't trust what the DfT have foisted on them.

Yes, too many uncertainties and possible variables.

 

[3141]

Post the collapse of outsourcing providers recently one of the initial lessons has been that there are some thing that can't be outsourced effectively and the provide sector is incapable of accurately pricing some risks if they create a winning bid.

It's not only the collapse of very large outsourcing providers that reveals these issues. Harris Bus of Grays won several tenders for bus routes in east London during the 1990s, but collapsed a few years later. It was reported that they had had to offer higher rates of pay in order to retain and recruit drivers, as there weren't enough suitably qualified drivers in the area to meet all the requirements for them. Harris Bus had got their estimates wrong, but they weren't necessarily incompetent. When information has become available about the different amounts that bidders have offered for a rail franchise, we find that the amounts vary widely. Bidders reach different conclusions about complex matters. Sometimes we discover later that the winner didn't get them all right - National Express East Coast, for example. We'll never know which of the other bidders put in the highest bid that was realistic in the circumstances.

Bidders take some amazing risks, it seems to me, in submitting a bid for a rail franchise and trying to estimate how things will develop over the next seven or eight years. Because they cannot know what the outcome will be, they need to put in bids for almost everything that comes up, hoping to win something. Abellio has been successful in the last few years. Having got Scotrail, Greater Anglia, Merseyrail, West Midlands, and now East Midlands, somebody in the Netherlands is probably thinking "Hang on, do we really want to take on South Eastern as well?"
But I can't guess what conclusion they will reach.

 

[hwl]

... The logical explanation is that DfT were thinking long and hard (and taking copious legal advice) about their approach to bidders who were refusing to take the pension risk....

the question is possibly how long did it take DfT to find someone /anyone that agreed with them?

 

[StaffsWCML]

Any department ran by Grayling is clearly going to be incompetent. I hope this cock up is the end of this clueless man. A trained monkey could do a better job.

If I were the Dutch Tax payer I would be incredibly annoyed that our state run operator appears to be taking on the undefined pension liabilities for almost the entire British Rail Network.

I expect large incompetencies and inadequacies will be uncovered throughout the process. The bid process and franchise system just is not fit for purpose, all franchise awards should now be delayed until after the William review. It is bonkers to order a review of something (which appears to be an admission of something not being and optimum state) and yet still continue to hand out franchises on an old system which is likely to be soon discredited. Say they decided (as would make sense to me) to award franchises for a longer period, the current round winners would have less time running the franchise, the current WCML bid includes HS2 which is not likely to be operational in any form before 2 years before the end of the franchise!

It is a truly bizarre situation. I suppose nothing more should be expected from a department that ordered ferries from a company with no ferries!

 

[MichaelAMW]

Any department ran by Grayling is clearly going to be incompetent. I hope this cock up is the end of this clueless man. A trained monkey could do a better job.

I don't think you should use your views of the Minister to insult the ability of all the civil servants in the DfT, about whom we know very little. They carry out government policy, which may indeed be decided in an incompetent way, but that doesn't mean they are also useless.

 

[StaffsWCML]

I don't think you should use your views of the Minister to insult the ability of all the civil servants in the DfT, about whom we know very little. They carry out government policy, which may indeed be decided in an incompetent way, but that doesn't mean they are also useless.

I did not say that they were specifically individually useless, I am sure there may well be some talented people working there. The kind of have a poisoned chalice implementing bad policy.

Collectively the DfT hasn't exactly got the best record, particularly recently.

 

[43096]

Been posted elsewhere that the standstill period is now open-ended and DfT has gone into “freeze” mode about what to do next. Suggestion is that the DfT-appointed IT investigator might not have reached the right conclusion.

 

[LNW-GW Joint]

I don't think you should use your views of the Minister to insult the ability of all the civil servants in the DfT, about whom we know very little. They carry out government policy, which may indeed be decided in an incompetent way, but that doesn't mean they are also useless.

People personalize this to Chris Grayling quite unreasonably, even if he is the cabinet minister responsible.
All the small print will have been pored over by DfT top brass, including the Permanent Secretary and his lawyers, and the ministers will have been acting on their advice.
They have got it wrong in the past, notably in 2012, and the Perm Sec is now a different one (previous job was in Biz and has also worked in the Treasury).
There will be plenty of flak flying about if they have got this one wrong.
And following the ferry fiasco I doubt even Chris Grayling would survive, though rail minister Andrew Jones made the announcement.
One other senior figure is Peter Wilkinson who has been in charge of franchising since the ICWC debacle.

If there have been mistakes, I expect the competition will be abandoned and bidders will get their costs reimbursed - as in 2012.

 

[Robertj21a]

Perhaps they should just extend it for an indeterminate period and let Stagecoach carry on.

 

[700007]

Perhaps they should just extend it for an indeterminate period and let Stagecoach carry on.

If this ends up happening as a result of legal action, Stagecoach or DOR needs to take action with the beyond outdated East Midlands franchise and start delivering changes to bring it to the 21st century.

 

[Bletchleyite]

If this ends up happening as a result of legal action, Stagecoach or DOR needs to take action with the beyond outdated East Midlands franchise and start delivering changes to bring it to the 21st century.

Agreed. It was OK for VTWC to just play "business as usual" because VTWC is by and large OK.

EMT is seriously flagging and still needs new stock and capacity upgrades whoever ends up running it.

 

[43096]

If this ends up happening as a result of legal action, Stagecoach or DOR needs to take action with the beyond outdated East Midlands franchise and start delivering changes to bring it to the 21st century.

Depends what DfT allow them to do.

 

[Wolfie]

People personalize this to Chris Grayling quite unreasonably, even if he is the cabinet minister responsible.
All the small print will have been pored over by DfT top brass, including the Permanent Secretary and his lawyers, and the ministers will have been acting on their advice.
They have got it wrong in the past, notably in 2012, and the Perm Sec is now a different one (previous job was in Biz and has also worked in the Treasury).
There will be plenty of flak flying about if they have got this one wrong.
And following the ferry fiasco I doubt even Chris Grayling would survive, though rail minister Andrew Jones made the announcement.
One other senior figure is Peter Wilkinson who has been in charge of franchising since the ICWC debacle.

If there have been mistakes, I expect the competition will be abandoned and bidders will get their costs reimbursed - as in 2012.

Submissions are made to ministers who take decisions. Ministers do not always take advice.

 

[700007]

Depends what DfT allow them to do.

Exactly. The DfT needs to force whoever is operating it to start delivering improvements in the short term whilst another DfT muddle gets fixed or 'fixed'. If Stagecoach refuses to accept the terms for improvement more than 'preparing for smart ticketing roll out' or whatever nonsense was agreed last time then DOR may as well take it.

 

[Class 466]

Exactly. The DfT needs to force whoever is operating it to start delivering improvements in the short term whilst another DfT muddle gets fixed or 'fixed'. If Stagecoach refuses to accept the terms for improvement more than 'preparing for smart ticketing roll out' or whatever nonsense was agreed last time then DOR may as well take it.

Same should apply for the slightly off topic SEF whilst we’re at it. Change is needed there desperately.

However I expect if this were to play out in reality, both franchises would get yet more “patch up and carry on” work.

 

[yorksrob]

If this ends up happening as a result of legal action, Stagecoach or DOR needs to take action with the beyond outdated East Midlands franchise and start delivering changes to bring it to the 21st century.

The key thing is to ensure that they don't do anything to bring about a precipitous decline in quality between now and the new trains coming into service.

 

[Wolfie]

Exactly. The DfT needs to force whoever is operating it to start delivering improvements in the short term whilst another DfT muddle gets fixed or 'fixed'. If Stagecoach refuses to accept the terms for improvement more than 'preparing for smart ticketing roll out' or whatever nonsense was agreed last time then DOR may as well take it.

For Stagecoach to make short term changes DfT would have to provide more resources.

 

[whhistle]

If I were the Dutch Tax payer I would be incredibly annoyed that our state run operator appears to be taking on the undefined pension liabilities for almost the entire British Rail Network.

But you're not Dutch, so maybe you wouldn't be annoyed?

And Abellio's rail operation is hardly "almost the entire British Rail network".
It's really not that big.
Two sub-intercity operators (we need to stop thinking the MML is a WCML or ECML sort of railway!), a tiny metro operation and Scotrail (for now) - and if Nicola Sturgeon keeps thrusting her indyref2 ideology until she gets an "out" result, it's not our problem.

 

[StaffsWCML]

But you're not Dutch, so maybe you wouldn't be annoyed?

And Abellio's rail operation is hardly "almost the entire British Rail network".
It's really not that big.
Two sub-intercity operators (we need to stop thinking the MML is a WCML or ECML sort of railway!), a tiny metro operation and Scotrail (for now) - and if Nicola Sturgeon keeps thrusting her indyref2 ideology until she gets an "out" result, it's not our problem.

They will have Scotrail, EMT, Greater Anglia, West Midlands Trains (LNW), Mersey Rail and I understand bid for South East Trains which Stagecoach have been barred from.

They are quite a significant operator here now, without too much success in terms of quality of service.

What is interesting is that the pension liabilities they are underwriting are a much higher value than their entire business. I don't see how that is sustainable, the Dutch tax payer could end up with a big bill at some point.

 

[Wolfie]

They will have Scotrail, EMT, Greater Anglia, West Midlands Trains (LNW), Mersey Rail and I understand bid for South West Trains which Stagecoach have been barred from.

They are quite a significant operator here now, without too much success in terms of quality of service.

What is interesting is that the pension liabilities they are underwriting are a much higher value than their entire business. I don't see how that is sustainable, the Dutch tax payer could end up with a big bill at some point.

If they are the Dutch equivalent of a limited company they can and will renege...

 

[HH]

If they are the Dutch equivalent of a limited company they can and will renege...

It's irrelevant. Each TOC is an SPV and therefore Abellio exposure is only to the level of their Bonds.

 

[Robertj21a]

Just another likely failure that can be foreseen by many already.

 

[43096]

Exactly. The DfT needs to force whoever is operating it to start delivering improvements in the short term whilst another DfT muddle gets fixed or 'fixed'. If Stagecoach refuses to accept the terms for improvement more than 'preparing for smart ticketing roll out' or whatever nonsense was agreed last time then DOR may as well take it.

The issue is not the TOC - Stagecoach have put forward plenty of ideas for solving the EMT PRM issue. All of which DfT have stalled on.

 

[edwin_m]

It's irrelevant. Each TOC is an SPV and therefore Abellio exposure is only to the level of their Bonds.

Parent company guarantees are normal in this sort of situation.

 

[HH]

Parent company guarantees are normal in this sort of situation.

That is what the Bonds are!

 

[Roast Veg]

Out of curiosity, was GNER an SPV? If so, why did it fold with Sea Containers?

 

[700007]

The issue is not the TOC - Stagecoach have put forward plenty of ideas for solving the EMT PRM issue. All of which DfT have stalled on.

Of course, the TOC in question needs to be nudged and given the incentive and permission to by DfT. However there's a reason they've gained the nickname DafT as of late...

 

[class26]

Of course, the TOC in question needs to be nudged and given the incentive and permission to by DfT. However there's a reason they've gained the nickname DafT as of late...

Don`t think DaFT is only of late either !