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Government's rail franchising programme "not broken" says independent reviewer

The businessman tasked with reviewing the Government's rail franchising programme following the cancellation of the West Coast Main Line competition has concluded that the current system is "not broken".11 Jan 2013

In his report, Eurostar chairman Richard Brown said that there was "no credible case for major structural change" to the Department for Transport's (DfT) overall franchising programme. He instead called on the Government to "strengthen the capability" of the department, simplify processes and consider devolving more English franchise arrangements to Integrated Transport Authorities and other local agencies.

The report is one of two commissioned by the Government after "flaws" identified in the procurement process led to the cancellation of the West Coast Main Line franchise competition in October. Specific recommendations relating to three other franchise competitions, which were put on hold following the announcement, have been removed from Brown's report. The DfT is set to publish its plans for these routes in February.

Responding to the report, Transport Secretary Patrick McLoughlin said that any delays to the franchising programme would not affect services for rail passengers. It was confirmed in December that current operator Virgin would continue to operate the route until November 2014, to give the Government time to tender for longer term operating arrangements.

"The review has confirmed that government's approach to rail franchising is still the best way to secure the rail services for tax payers and fare payers alike," McLoughlin said. "It has identified a number of detailed improvements, which I will carefully consider before publishing a further statement regarding the government's franchising policy in the spring."

Brown's report follows the December publication of Centrica chairman Sam Laidlaw's review into the "serious technical flaws" which led to the cancellation of the West Coast franchise competition on 3 October. FirstGroup had been announced as the Government's preferred bidder to run the franchise, for a period of up to 15 years, on 15 August. Incumbent operator Virgin announced that it would be pursuing a judicial review of the decision, branded "insane" by the company's Sir Richard Branson, later that same month.

Evidence of mistakes by the DfT in the procurement process, stemming from the way the level of risk in the bids was evaluated, emerged during the Government's evidence-gathering in preparation for a court hearing into Virgin's judicial review application. In his report, Laidlaw discovered an "accumulation of significant errors" related to inadequate planning and preparation, complex organisational structure and weak governance within the department.

Brown said that he "supported" Laidlaw's recommendations, calling for the DfT to "rapidly strengthen" its franchising team with "a number of senior, commercially experienced people" as a "key priority". Restarting the franchising programme should be done "in a way which takes account of the speed with which the Department can build its capabilities and resources", with structural recommendations implemented on a phased basis.

The Government should let franchises for a length of time "determined by the circumstances and size of each individual franchise", rather than adopting a standard 15-year term, Brown said. He recommended a 7-10 year initial term which would be continued if agreed criteria were met up to the 15 year point, albeit with intermediate 'break points'. Shorter or longer terms may be appropriate in some circumstances, but a franchise term should not be for less than five years, he said.

More technical recommendations state that franchisees should not be made responsible for risks they cannot manage, including those related to wider economic conditions. Bids should be explicitly scored on improving service quality to passengers, while evaluation should also consider the "financial robustness and deliverability" of bids.

Infrastructure law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, described Brown's conclusions as "sensible".

"Brown's findings provide a missing piece to the railway infrastructure jigsaw for the UK," he said. "The sensible conclusion that there should be no wholesale revision to the model will no doubt be welcomed by tenderers and prospective tenderers for the franchise programme and is in contrast to some of the other changes to infra models being raised elsewhere by government. The recognition that there is not 'one size fits all' for each franchise, especially in terms of franchise length, is also positive, as is the call for enhanced localism."

"It remains to be seen how, and how quickly, the Government responds to this. After the West Coast Main Line furore, the recommendation of the boosting of the team at DfT will no doubt be welcomed by the hard-pressed DfT team responsible for delivering on the franchise programme and the other stakeholders waiting to see the programme recommenced as soon as possible," he said.

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