LAST October Britain's franchising system was thrown into chaos after significant errors were uncovered in the bidding process for the Inter-City West Coast (ICWC) franchise, most notably around the model used to determine the level of risk capital required to guard against the risk of default.
Following two separate inquiries into the fiasco, the Department for Transport (DfT) launched a process to reform the franchise system and in March issued a revised timetable for the franchising, setting out in detail how and when contracts will be tendered over the next eight years.
As the dust settles and franchising resumes, months of turbulence have unquestionably shaken the foundations of Britain's passenger railway and led many to question both the DfT's ability to manage the procurement process, and the risks this complex system places on bidders.
One of the companies closely watching franchising developments is Keolis, which has played an active role in the operation of Britain's railways since the 1990s. Through its Govia partnership with Go-Ahead it operates the Southern, Southeastern, and London Midland franchises and also runs TransPennine Express in partnership with FirstGroup. Now Keolis is seeking to run franchises on its own, and it refuses to rule anything out.
"We're interested in all of them, and we can come up with good reasons to bid for any franchise," says Mr Alistair Gordon, CEO of Keolis UK. "We'll look at each one, consider whether we should bid alone or what our partners could bring to a bid, and decide whether it is attractive."
Gordon is upbeat about the government's response to ICWC and its adoption of the recommendations of the franchising review headed by former Eurostar chairman Mr Richard Brown. "I believe the report will lead to improvements and I'm encouraged by how swiftly the DfT has reacted," he says. "Since West Coast the DfT has been very clear on what it intends to do and when it intends to do it, and it's delivered on every single commitment so far."
Gordon dismisses the suggestion that the failure of the ICWC contest will have any long-term impact on bidder confidence in franchising. "It was certainly unpleasant at the time, but I think the issue has been dealt with in the right way and now we can move on," he says. "It's clear that the DfT has learnt lessons from this."
Under the DfT's new franchise procurement timetable, a maximum of three-to-four franchises will be tendered each year and tendering of the two main long-distance franchises, East Coast and West Coast, will be staggered so they will not be let at the same point in the economic cycle. The Brown Review recommends a 7-10 year initial term for most franchises with an option for a 3-5 year extension, based on performance during the initial term.
"The new franchising timetable allows bidders to plan with a fair degree of certainty, which reduces the risk involved in the process," says Gordon. "It's vital that the DfT sticks to the schedule it has laid out, bidders need the DfT to demonstrate it will not allow the timetable to slip."
A commonly-voiced criticism of the franchising process is the considerable cost incurred by operators bidding for contracts. Gordon argues that competition will be vital to sustaining ridership growth, but warns that the cost and complexity of bidding creates challenging conditions for new entrants. "The objective of privatisation in the 1990s was to introduce competition into the market, and we need to encourage competitive bidding if franchising is to be successful in the future," he says.
"If you're new to the market, £5-10m is an awful lot of money to spend on a bid. A lot of that is down to the detail bidders are required to include in their submission, which has certainly expanded a lot over the last six or seven years. I think the planning we have to build into bids is sometimes too onerous. Parts of the bidding process, such as preparing prequalification documents, showing how you will manage the business, and drawing up quality documentation have almost become an industry in their own right."
With the emphasis on reducing operating costs in the wake of Sir Roy McNulty's Value for Money study, Gordon is also calling on the government to allow franchisees more freedom in how they plan and operate their services.
"Giving train operators more flexibility in their franchises is one way to reduce costs, and it's important to have a balanced service level specification," he says. "When we bid on ICWC this was still quite prescriptive. Naturally politicians want to be clear on what the government is buying, but franchisees need to be allowed to provide the service demand warrants."
