ORR Press Release - Late-Notice Cancellations

[43066]

True, but equally some of it may be due to the nature of the obligations of the franchise, TPE has a sprawling network with lots of different stock - that's a more complicated problem than a theoretical single mainline with one unit type. Things that work fine on say, LNER, may not work as well at a TOC with more variety.

I don’t think anything will satisfy the poster you’ve quoted, other than an unequivocal (and false) statement that everything wrong with TPE is the owning group’s fault.

 

[Frankfurt]

TPE drivers already have a mandate for strike action. Are they going to be on strike twice at the same time?

Don't know how it will be ran but this TPE specific ballot closes early April. So unless there's a resolution beforehand TPE Drivers might have 2 mandates soon enough.

 

[VauxhallNova]

The end of the franchises and the willingness of the DfT to settle them all up for a financial contribution was manna from heaven for those TOCs who at the time were, or were going to be, in trouble for crew. It saved them millions.

If they saved millions, that would imply that the settlements weren't an accurate version of a "pre-coronavirus trajectory financial model"?

Without diving down a rabbit hole on where commercial cost and revenue sits in a franchise contract, it was interesting that in 2015 FirstGroup were required to have a Parent Company Guarantee of almost £170m for the TPE contract, implying that the DfT thought they had overbid but still had to award them the contract (hedging that risk with the PCG).

Only Virgin Trains East Coast had a bigger PCG than the TPE one, and that wasn't by much.

 

[The Planner]

It originated in this country with Central Trains where their planning guru was keen on both crew and stock optimisation and timed his trains and diagrammed his staff and stock to get the most out of them. Combining disparate service groups was another of his wheezes. He got people thinking.

Sounds suspiciously like someone from Somerset

 

[Clarence Yard]

If they saved millions, that would imply that the settlements weren't an accurate version of a "pre-coronavirus trajectory financial model"?

Without diving down a rabbit hole on where commercial cost and revenue sits in a franchise contract, it was interesting that in 2015 FirstGroup were required to have a Parent Company Guarantee of almost £170m for the TPE contract, implying that the DfT thought they had overbid but still had to award them the contract (hedging that risk with the PCG).

Only Virgin Trains East Coast had a bigger PCG than the TPE one, and that wasn't by much.

A PCG can also be affected by the amount of risky “investment” you are proposing, in particular rolling stock - it’s not just designed as a finger in the air hedging risk based around how it feels about a bidder. It is quite a mechanistic calculation for the DfT and of course financing a large PCG also costs an Owning Group (OG) so you have to know those figures (or what they are likely to be) quite early on in the bid process because it’s no good spending good money on and then winning a bid that you cannot eventually fund.

The settlements effectively covered the known liabilities of the TOC (including cost shortfalls) and the projected revenue. That provoked quite a discussion in a number of TOCs where the DfT had markedly different figures, not friendly to those TOC OGs at all! On TPE FG had made onerous contract provisions (basically taking a big hit in one or two years to cover future losses) so when the settlement was made, it could release any remaining provision to the FG P&L.

I said this process has saved the TOCs millions because, taking TPE, if it had remained in full private hands, FG would have been forced to unwind the diagram structure it had created, increase the establishment and fund more training, all on their own account.

 

[FenMan]

A PCG can also be affected by the amount of risky “investment” you are proposing, in particular rolling stock - it’s not just designed as a finger in the air hedging risk based around how it feels about a bidder. It is quite a mechanistic calculation for the DfT and of course financing a large PCG also costs an Owning Group (OG) so you have to know those figures (or what they are likely to be) quite early on in the bid process because it’s no good spending good money on and then winning a bid that you cannot eventually fund.

The settlements effectively covered the known liabilities of the TOC (including cost shortfalls) and the projected revenue. That provoked quite a discussion in a number of TOCs where the DfT had markedly different figures, not friendly to those TOC OGs at all! On TPE FG had made onerous contract provisions (basically taking a big hit in one or two years to cover future losses) so when the settlement was made, it could release any remaining provision to the FG P&L.

I said this process has saved the TOCs millions because, taking TPE, if it had remained in full private hands, FG would have been forced to unwind the diagram structure it had created, increase the establishment and fund more training, all on their own account.

And, erm, people wanting to travel from A to B in TPE's sphere of operations, where do they figure in these calculations? Don't tell me, I can guess.

Unless I'm much mistaken, this line of thinking says fare-paying passengers are a tiny part of a far bigger equation, which is bonkers. We are seriously close, in my opinion, to going back to the dark days of the railway being run for the benefit of the provider and their staff. I've said before, elsewhere on this forum, that a Ryanair-type outfit would drive a coach and horses through this negative groupthink.

(Yes, I get it, it wouldn't be easy for Ryanair or other interlopers to do this - I'm talking about the mindset of those charged with running the railway today, a mindset which will only send this mode of travel toward near or actual extinction the way things are going - where's a Chris Green when you need him?)

 

[Facing Back]

A PCG can also be affected by the amount of risky “investment” you are proposing, in particular rolling stock - it’s not just designed as a finger in the air hedging risk based around how it feels about a bidder. It is quite a mechanistic calculation for the DfT and of course financing a large PCG also costs an Owning Group (OG) so you have to know those figures (or what they are likely to be) quite early on in the bid process because it’s no good spending good money on and then winning a bid that you cannot eventually fund.

The settlements effectively covered the known liabilities of the TOC (including cost shortfalls) and the projected revenue. That provoked quite a discussion in a number of TOCs where the DfT had markedly different figures, not friendly to those TOC OGs at all! On TPE FG had made onerous contract provisions (basically taking a big hit in one or two years to cover future losses) so when the settlement was made, it could release any remaining provision to the FG P&L.

I said this process has saved the TOCs millions because, taking TPE, if it had remained in full private hands, FG would have been forced to unwind the diagram structure it had created, increase the establishment and fund more training, all on their own account.

Thanks for this, it has answered a few questions I was too lazy to actually ask.

I have been involved in the unwinding of a couple of PFI contracts in the past which are of a similar scale so was curious on the approach.

I assume from this that the parent company guarantee's have all been settled and they have minimal exposure now? I wonder how this will work with new contractual forms moving forwards - will those guarantees need to be re-applied?

 

[Taunton]

Sounds suspiciously like someone from Somerset

Us lot bain't be so zilly ...

 

[VauxhallNova]

A PCG can also be affected by the amount of risky “investment” you are proposing, in particular rolling stock - it’s not just designed as a finger in the air hedging risk based around how it feels about a bidder. It is quite a mechanistic calculation for the DfT and of course financing a large PCG also costs an Owning Group (OG) so you have to know those figures (or what they are likely to be) quite early on in the bid process because it’s no good spending good money on and then winning a bid that you cannot eventually fund.

The settlements effectively covered the known liabilities of the TOC (including cost shortfalls) and the projected revenue. That provoked quite a discussion in a number of TOCs where the DfT had markedly different figures, not friendly to those TOC OGs at all! On TPE FG had made onerous contract provisions (basically taking a big hit in one or two years to cover future losses) so when the settlement was made, it could release any remaining provision to the FG P&L.

I said this process has saved the TOCs millions because, taking TPE, if it had remained in full private hands, FG would have been forced to unwind the diagram structure it had created, increase the establishment and fund more training, all on their own account.

Interesting, thankyou. Two further questions!

Do you know why and when TPE made an onerous contract provision?

Do you think the DfT became aware of the true extent of TPE's traincrew issues before or after the commercial settlement of the franchise?

 

[Clarence Yard]

You make onerous contract provisions when you know you are not going to get as much financial reward as you are expecting. This avoids future spikes and makes your future cash flows that much easier to manage. How and when to apply it is covered in International Financial Reporting Standards (IFRS) so it’s not something you can just dream up. Some companies, if they think they can get away with it, put it off to the last minute - an unwise move in my view, especially for quoted companies as the markets take a dim view of “unexpected” movements. Sorry, I can’t remember exactly when FG booked the OCPs in their annual accounts or reversed them out but the amounts should be in the fine detail of the annual accounts

Oh yes, the DfT knew all about the train crew issues when they settled. That was one of the negotiating points. But when the DfT knows about a problem, it can take a very long time to act, especially if it has to spend money. It will always look for an easier way out, if it can, to try and solve the problem. That’s not a dig at the DfT, it’s just the way Government works, especially a department that has the Treasury breathing down it’s neck.

Where the DfT went badly wrong with the NRCs was to not put operating the service as the overriding reason to gain the contract performance fees. By mixing in other elements, which do not relate to train performance, they have diluted the incentive. The other, more structural, issues should have helped determine the level of base fee.
There would have still been a bit of a bun fight over who was responsible for the cancellations but it would have been less opaque when it came to the reasons for awarding the performance fees.

As NR is the DfT’s infrastructure subsidiary, they could have ended the practise of overusing P codes long ago but I think we can all work out why they didn’t!

 

[VauxhallNova]

Thanks. It seems strange that the DfT knew about the traincrew issues that were so prevalent even before Covid, but TPE (and SWR, separately) ended up £50m better off than even they expected.

Off-topic, but interesting how the contractual issues played out for FirstGroup in comparison with Arriva and Stagecoach.

 

[greyman42]

Re TPE; the 1520 from York to Man. Airport was cancelled today. It arrived in to York from Saltburn at 1516. There was a STP York to Liverpool that was departing at 1517 due to late arrival of stock. As passengers rushed to change platforms the Liverpool train pulled out leaving all the passengers behind. This is not uncommon with different operators but seems absolute madness when both services were operated by TPE.

 

[Confused52]

A quick check on what is shown on the current Journey Check from TPE for 1324 dep to the end of the day. There were 33 cancellations 11(33%) on the south route, 18(55%) North route, and 4(12%) on the Scottish routes. Listening to what has been said here the issues are highlighted as route learning for diversions on the TRU and sickness as well as lack of cover beyond one hop from base depot. I also observe that 15(45%) of the cancellations involve Liverpool.

It seems to me that on this random sample Liverpool and the south route are over-represented. Does anyone have an explanation?

 

[Clarence Yard]

Thanks. It seems strange that the DfT knew about the traincrew issues that were so prevalent even before Covid, but TPE (and SWR, separately) ended up £50m better off than even they expected.

Off-topic, but interesting how the contractual issues played out for FirstGroup in comparison with Arriva and Stagecoach.

FG has some of the best contract lawyers around (Burges Salmon) and their commercial team is very sharp. The betterment was mainly due to the assumptions about revenue, iirc. They went very conservative about the future revenue for both SWR and TPE when they made those provisions.

 

[43066]

FG has some of the best contract lawyers around (Burges Salmon) and their commercial team is very sharp. The betterment was mainly due to the assumptions about revenue, iirc. They went very conservative about the future revenue for both SWR and TPE when they made those provisions.

They’re okay. They aren’t exactly Slaughter and May, are they? I’m surprised a business the size of FG doesn’t hire a magic circle outfit (or even have them on retainer).

Not to criticise their advice in this particular case, of course, which I have no doubt was top drawer.

 

[VauxhallNova]

What a way to run a railway.

 

[sjpowermac]

What a way to run a railway.

I couldn’t agree more. It’s an interesting and very informative thread, yet utterly depressing.

 

[Peter Sarf]

I couldn’t agree more, this is an utterly depressing thread.

This really shows how dysfunctional the railway has become. So far removed from providing a service with support from the government.

I was never sure about privatisation but happy to go along with it as a way of improving it, positive was lack of state interference (that never happened). But after sectorisation was probably where we got lost, the competition by breaking the railways up was utter stupidity, just undermined the railways. Now I see it as an over complicated, convoluted money pit. Consequently became over managed by the state who have driven the railways into the ground. And cost the tax payer dearly. No common sense allowed to prevail.

 

[VauxhallNova]

And private companies only act in the interest of profit. As one DfT director once told me, it would be ludicrous to expect otherwise.

 

[Peter Sarf]

And private companies only act in the interest of profit. As one DfT director once told me, it would be ludicrous to expect otherwise.

True. And worse still many layers of profit for many interconnected layers of companies.

 

[sjpowermac]

This really shows how dysfunctional the railway has become. So far removed from providing a service with support from the government.

I was never sure about privatisation but happy to go along with it as a way of improving it, positive was lack of state interference (that never happened). But after sectorisation was probably where we got lost, the competition by breaking the railways up was utter stupidity, just undermined the railways. Now I see it as an over complicated, convoluted money pit. Consequently became over managed by the state who have driven the railways into the ground. And cost the tax payer dearly. No common sense allowed to prevail.

Absolutely spot on. £billions literally poured away.

And private companies only act in the interest of profit. As one DfT director once told me, it would be ludicrous to expect otherwise.

A legal obligation I’d have thought.

I’ve absolutely no doubt that the nonsense that has gone on is entirely within contracts.

A couple of Sundays back there was a four hour gap in services heading west over the Pennines (all due to a short notice change to the timetable). I wonder how thread participants so keen to defend TPE would have got on explaining it all to ordinary passengers?

 

[VauxhallNova]

I’ve absolutely no doubt that the nonsense that has gone on is entirely within contracts.

I suppose some elements are a matter of legal interpretation, hence why the lawyers are involved.

I wonder what the "default" level of cancellations is, presumably lower than 25%?

 

[Facing Back]

I suppose some elements are a matter of legal interpretation, hence why the lawyers are involved.

I wonder what the "default" level of cancellations is, presumably lower than 25%?

When is the last time you saw a services contract which didn't have significant areas open to interpretation?

 

[Jack Hay]

FG has some of the best contract lawyers around (Burges Salmon) and their commercial team is very sharp. The betterment was mainly due to the assumptions about revenue, iirc. They went very conservative about the future revenue for both SWR and TPE when they made those provisions.

I have worked with the Burges Salmon commercial legal team and found them very impressive. (This was not, however, on a railway contract.) I think we can safely say that FG chose them because they were good and certainly not because they were the cheap option.

 

[Krokodil]

A couple of Sundays back there was a four hour gap in services heading west over the Pennines (all due to a short notice change to the timetable). I wonder how thread participants so keen to defend TPE would have got on explaining it all to ordinary passengers?

"Because the government are micromismanaging the railways from Whitehall."

 

[Nicholas Lewis]

Lucy Powell Labour MP Manchester Central asks rail minister in a written question

To ask the Secretary of State for Transport, how many train services serving Manchester Piccadilly station were p-coded in each of the last 24 months.

Huw Merriman MP Rail Minister response

The Department does not routinely collect this information centrally. The latest published data on train cancellations can be found on the Office of Rail and Road (ORR) website.

The Department does not hold all information relating to "p-coded" services, which is a broad term used in the rail industry for planned alterations to the timetable including omissions from the plan of the day as this is the responsibility of the ORR.

Although no data is available by station, the ORR recently published figures for all Train Operating Companies' late notice pre-cancellations "P-code" for resource availability (train crew and rolling stock) in rail period 11.

Answer as to be expected but at least MPs now know what P coded is and are putting challenges in

 

[Bald Rick]

Answer as to be expected but at least MPs now know what P coded is and are putting challenges in

I‘m not sure MPs do know what p coded cancellations are.

In fact I’m not sure that a majority of people reading this thread know what they are.

 

[sjpowermac]

"Because the government are micromismanaging the railways from Whitehall."

Ah yes, of course, though I’m shocked that you forgot to get in a round of ‘it all started with Leo’.

 

[VauxhallNova]

Hahahaha indeed!

Not sure the onerous contract forecasts were really too pessimistic. ORR data shows no profit at all being made by TPE in 2016/17 or 2017/18. The reduction in revenue growth had started several years before, and they must have been struggling already in those two years.

 

[Bikeman78]

This really shows how dysfunctional the railway has become. So far removed from providing a service with support from the government.

I was never sure about privatisation but happy to go along with it as a way of improving it, positive was lack of state interference (that never happened). But after sectorisation was probably where we got lost, the competition by breaking the railways up was utter stupidity, just undermined the railways. Now I see it as an over complicated, convoluted money pit. Consequently became over managed by the state who have driven the railways into the ground. And cost the tax payer dearly. No common sense allowed to prevail.

It's ironic that the government that engineered this fiasco is now complaining about rising costs.