Adonis’s warning
Former Transport Secretary Andrew Adonis urges caution over calls to reform rail franchising system.
FORMER Secretary of State for Transport Lord Adonis has warned MPs on the Transport Select Committee of the dangers of radical reform of the franchising system.
Asked by TSC Chairman Lilian Greenwood how sustainable the current franchising model is, during the TSC hearing into the InterCity East Coast franchise on May 21, Adonis replied: “In 2009, I was told that it was on its last legs and about to collapse. It is still there, and railways on many measures are more successful than they have ever been.
“I would caution very seriously against throwing the whole thing up in the air when, at the moment, it basically appears to be working fine - with some problems caused by operators not doing a good enough job, such as Southern.
“Let us be clear: there have been problems because an operator has not been doing a good enough job, and there has been a default on one out of 16 franchises, which does not represent the entire system collapsing.”
Adonis was backed by Elaine Holt, the former chairman of East Coast and chief executive of Directly Operated Railways, which ran the franchise from 2009 to 2014.
“Some tweaks need to be made, particularly in the case of East Coast,” she said.
“There has been overbidding on several occasions, it appears. It is a question of going back and looking at the risk, and how to cope with change. Changes happen. What is the change mechanism in the franchise agreement? That needs to be looked at. Fundamentally, the franchise process has delivered a lot of good things.”
Adonis laid the blame for the failure of Virgin Trains East Coast on Stagecoach and Virgin, saying: “Sir Richard Branson and Sir Brian Souter signed the franchise, and they are two of the most brilliant business people in the world. They do not enter into contracts lightly. They entered into this contract completely freely. They messed up. It is their fault.”
Adonis also raised concerns about how the proposed East Coast Partnership franchise could work, pointing out that the intercity operation is in the minority on the East Coast Main Line and that if a particular train operator controls the track, it “will see that all the decisions that are made prioritise its services, including decisions on engineering works and the phasing of investment. The Department will have to wrestle with the fact that we will inevitably get sucked into that, and the only way to deal with it is to have all the companies that come into King’s Cross as part of the public-private partnership.”
He described the decision to strip the Stagecoach and Virgin joint-venture as a “bail out”, and called for it to be “forbidden” from bidding for future contracts.
However, he also acknowledged that if he had been in his former role when judging the bid: “I do not think any responsible Secretary of State in that situation would have thought it unreasonable to accept the bid, accepting always that the private operators are taking risk.”
Asked about whether the Department for Transport has changed its approach to assessing the risk of franchise bids, TBI Consulting Director Iryna Terlecky said: “The fact that there was a large additional parental guarantee [from Virgin and Stagecoach] would have supported the robustness evaluation of the ambitious revenues.
“Clearly that has gone wrong. It seems to me that the Department has decided that it needs to take a more prudent and cautious approach. One of the ways it has done that is by damping down bidders’ ability to overbid revenue.”
Asked whether infrastructure upgrade programmes should be more closely aligned with passenger franchises, Terlecky replied: “The only answer is yes. I personally find it rather odd that the DfT is doing franchise specifications and Invitations to Tender.
“DfT - the Government - owns Network Rail. The people sit in the same building. Why the two things are not absolutely aligned is beyond me.”