PAC warns of waning interest in rail franchises

12 Feb 16

MPs have warned that value for public money could be at risk if bidder interest in the government’s rail franchise programme continues to decline.

In an examination of the government’s franchise programme, the Public Accounts Committee highlighted that the number of bids for franchises had declined from four to three since the Department for Transport had restarted the franchise programme in 2013 following the collapse of a West Coast mainline contract award.

There are a total of nine transport companies that operate franchises across the country, and the committee said the DfT acknowledges the risk that some of these firms may drop out of the market.

However, MPs said the department was unclear about how it plans to retain their interest, and did not have a plan to adjust its procurement approach in the event of bids falling to a level where competition would be ineffective.

The Reform of the rail franchising programme stated that lower interest now represented a real risk to taxpayer value for money.

The department must therefore develop alternative commercial approaches that could be used, including considering models from other markets, such as energy.

PAC chair Meg Hillier said that the decline was particularly concerning.

“Our report states that by its own measure, the department requires at least three bids per competition to increase the likelihood of receiving high quality bids. Yet last week it was announced that only two companies will compete to run the South Western franchise from June next year.

“This hardly inspires confidence and highlights the urgent need for the department to develop new approaches it can draw on when there is a risk competition will not deliver the result rail users and the wider public deserve.”

She said that the committee accepted this was a complex area, which was precisely why the DfT needed to show strong leadership and vision.

The committee also warned that although the department had improved its capability to let franchises following 2012’s botched West Coast mainline award that cost taxpayers £50m, gaps remained in its ability to then manage contracts effectively.

The lack of a coherent strategic vision for the rail system created the risk “that it will make decisions now that prove costly in the future”, Hillier warned.

“It was clear from the events of 2012 that radical change was needed in the way the Department for Transport managed rail franchising.

“While we welcome steps taken by the department since then, it is vital more work is done to ensure the franchising system delivers promised service improvements to passengers, and value for money to taxpayers.”

Responding to the report, a Department for Transport spokeswoman said: “We welcome this report from the PAC, which confirms the significant progress we have made in improving franchising and the benefits that it has brought to passengers. Since privatisation, the rail industry has been transformed, 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 have already started work to take forward the committee’s recommendations and will respond to them formally in due course.”

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