Headlines
THE FIRSTGROUP has agreed to new management contracts with the Department for Transport for two of the franchises in which it is the majority shareholder – Avanti West Coast and South Western Railway. As the existing Emergency Recovery Measures Agreements run out SWR will move to the new deal at the end of March this year, while Avanti West Coast will follow at the end of March 2022.
This follows the effective abandonment of the previous franchising system in March 2020 due to the coronavirus pandemic, when the Government assumed the financial risk. The original Emergency Measures Agreements were subsequently replaced by the ERMAs last September requiring tighter performance and with the fee paid to operators reduced by 25%. First Group’s deal for Avanti West Coast has agreed that no payment is warranted to terminate the old franchise agreement. However, a figure of £33.2m has been agreed for
SWR, representing First’s parent company support and other funding commitments under the franchise agreement.
First Group’s management contracts will run until at least April 1, 2023 for SWR and April 1, 2026 for Avanti West Coast, both with possible two-year extensions. With the DFT assuming practically all financial risk, it will also have full control over the two operators. Meanwhile, the group’s other two railway interests, Trans Pennine Express and Great Western Railway, are expected to follow suit shortly. First expects a deal for TPE by the end of January and GWR in June; the latter’s ERMA has an extension until then.
First Group CEO Matthew Gregory said: “We welcome this agreement, which marks a further evolution of the contractual framework for our SWR and Avanti train operating companies, both in the context of providing resilient services throughout the coronavirus pandemic and also a more sustainable long-term approach. These new directly awarded management contracts will focus on passengers and operational performance, with a more appropriate balance of risk and reward. We look forward to working constructively with the DFT to make this a reality, and to use our expertise and understanding of the needs of our customers to deliver improvements that we know passengers want.”
However, other Train Operating Companies are voicing concern at the process and some are reportedly considering their legal options. The original deadline for the discussions was December 14, 2020 but this has been extended until mid-January. The problem they have is Secretary of State for Transport Grant Shapps could terminate the ERMAs and revert back to the original franchise financial terms, which due to COVID-19 and reduced fares income could not sustain them, leading to almost immediate financial collapse.
The main issue is with how any terminating sum has been estimated – the DFT’s calculation of the total losses incurred by each franchise that would have been payable at the end of the franchise period had COVID-19 not intervened and the contract had run its course. Under the ERMA terms, the calculated amount needs to be paid within seven days of notification. A lack of transparency is being cited, with many TOCs wary of the figures being presented. However, the DFT has pointed out the TOCs ‘voluntarily’ agreed to this process when they signed the ERMA contracts, something the TOCs reject, claiming they were effectively given no option.
The various owning groups were given until mid-December 2020 to make their final representations and the DFT will inform them of the relevant termination sum on January 22, with the money to be paid by January 29 if the ERMA is to remain in place.