Turbulence ahead for West Coast bidders

To say the Department for Transport has set a major challenge with the next West Coast franchise is a gross understatement.
The winning bidder will need to take over today’s long-distance services from London Euston, run them punctually on a busy mixed-traffic route, providing modern facilities at stations, while also finding space on the trains for more seats and more space for luggage, prams, wheelchairs and bicycles. It will also need to work with HS2 to launch and initially run London-Birmingham high-speed services, before extending them to Crewe, while reshaping remaining classic services.
That’s a huge challenge. Equally challenged will be DfT itself. It has a poor record in franchising and will be glad it’s not fined for delays in the way it fines operators. Take the most recent version of its franchise timetable from last July. This schedule said West Coast bidders would receive their invitation to tender in November 2017. It finally landed in their inboxes in late March 2017. The new franchise was to start in April 2019. It is now scheduled for September 2019.
The last time the DfT tried to franchise West Coast, it ended in embarrassment. It awarded the contract to First Group in 2012 but found itself on the receiving end of legal action from Virgin and Stagecoach which forced it to reverse its decision. Virgin/Stagecoach has been running the route ever since and is now in line for another extension. The pair’s extensions are now as long as most normal franchises.
Glance over at the other Anglo-Scottish main line. Here DfT signed a deal with Stagecoach and Virgin that was crippled from day one because DfT had not accounted for changes in the economy. That’s hardly a good record from ministers and civil servants in Whitehall. Now they’re presiding over attempts to let the most complex deal UK rail has ever seen.
The winning bidder will take over just as Britain crashes out/leaves gracefully/stays in* the European Union (* – delete according to your view). Whichever option you chose, no-one can confidently predict the effect on the economy. And it’s the economy that has more effect on train operator finances than anything else.
The DfT appears to think Britain will be booming. Buried deep within its West Coast invitation to tender (ITT) is a table of what the DfT’s calls ‘baseline payments’. Essentially, they are the minimum it expects to see from bidders and will be adjusted by the effect of bidders’ plans. They start at £125m for the franchise’s first few months to March 2020, kick-up to £229m for its first full year and then jump to £402m for the final year before HS2 operations start in 2016. By my reckoning that’s a compound annual growth rate of almost 12%. OK, inflation will blunt some of that rise but it’s what BBC’s Yes, Minister might have labelled ‘brave’. For context, Office of Rail and Road statistics report that long-distance passenger revenue has grown 3% since 2012.
The winner must also contend with Euston station being demolished around it. This has real potential to divert passengers for Scotland to King’s Cross and the East Coast route. Passengers for the West Midlands have the option of switching to Marylebone for Chiltern’s line to Moor Street. Planning a franchise to bring considerable growth during disruption will not be easy.
In essence, the next West Coast franchise will be two. The first is a conventional franchise, the second is a concession to run HS2 services with DfT taking the revenue risk. This DfT decision is sensible. If it’s hard to predict the next eight years to 2026, then predicting how passengers will react to HS2 is impossible from here.
In asking for bidders’ ‘Shadow Operator’ plans for HS2, DfT is looking for how they will apply their experience to creating and staffing high-speed services and in advising HS2 in procuring its fleet. (All three bidders have partners with experience of high-speed rail.) This is possibly the wooliest section of the ITT, not least because it refers to a franchise agreement that DfT has not published. Nevertheless, it’s an area bidders must get right because it’s worth a third of the total quality score available.
By contrast, bidders’ plans for taking over and running existing West Coast services run to 44% of the total available. DfT is placing increased emphasis on plans compared with previous competitions. It scores bids on a combination of the premium bidders offer and the quality score (maximum 13) it gives their plans. It adds the premium measured in millions to the quality score multiplied by a factor. This factor is called ’n’. For West Coast, n is 250. In 2016’s East Anglia competition it was 33 and in 2014’s for East Coast it was 25. This means that it’s easier for a good plan to trump a premium. It seems DfT has listened to criticism that it’s only interested in money and was taking shaky bids on the basis that they promised impressive cash sums.
The bidders – First/Trenitalia, MTR/Guangshen and Stagecoach/Virgin/SNCF – now face a frenetic couple of months pulling their plans together before DfT’s July 13 deadline. I don’t envy them!

This article first appeared in RAIL 850, published on April 11 2018.

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Philip Haigh

Freelance railway writer, former deputy editor at RAIL magazine - news, views and analysis of today's railway.

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