DfT faces fresh risks over rail franchising, NAO warns

24 Nov 15

The Department for Transport has improved its management of rail franchises following the collapse of West Coast intercity deal in 2012, but new risks are emerging due to delays and the rising costs of upgrades, auditors have found.

In a probe of the department’s work since the award of the West Coast mainline franchises was cancelled due to civil service errors, the National Audit Office said concerns raised had been addressed.

The NAO reported in 2012 that the project had lacked proper management oversight, and governance was confused.

Following this, the DfT has strengthened its leadership as well as boosting its franchise management capacity and capability, the watchdog said.

Since the franchising programme was restarted in 2013 the DfT has awarded three franchises through competition, with operators contracted to pay higher returns than Whitehall estimates of what would have been paid under previous franchise terms.

However, there have also been 10 direct awards to existing franchises as part of an effort to ensure a staggered schedule of competitions in future.
Although this was a sensible temporary measure, auditors said it created risks that opportunities to maximise value for money could be missed.

In addition, resources may be stretched if, as planned, there are four franchise awards to be made between February and November 2017, which could overburden the market.

However, it was also likely that the scale and complexity of planned infrastructure work across the network, which includes electrification of a number of key lines, would require the DfT to reconsider how to protect value for money.

Options include delaying competitions until there is greater certainty about infrastructure plans on lines such as the Trans Pennine Express and Great Western routes, or using management contracts or franchise awards.

Auditor general Amyas Morse said risks remained to the rail franchising programme, which provided £1.2bn in net payments to the DfT in 2014/15.

“There is considerable uncertainty and volatility around the rail infrastructure improvement programme. And there are risks to effective competition should market interest decline,” he said.

“The department recognises these challenges and is taking steps to address them.”

Responding to the report, a DfT spokesman said: “We welcome the NAO’s findings that we are delivering improvements for passengers, increasing value for money for taxpayers and improving the confidence of the rail industry in franchising.

“We are clear that franchising provides the best way to run rail services. Since privatisation, the rail industry has been transformed from an industry once in decline to a real success story, with passenger journeys more than doubling over the past 20 years. However we are not complacent. We listen to passengers and recognise there are challenges to overcome. We continue working hard to address them.”

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