Commuters organised protests last year over the poor service put on by the Southern Rail franchise ©PA Images
Commuters organised protests last year over the poor service put on by the Southern Rail franchise ©PA Images

DfT told to rethink how it enforces rail contracts

7 February 2017

The way rail franchise contracts have been managed by the Department for Transport (DfT) has been criticised by a group of MPs.

A report by the Transport Committee criticised DfT for capping performance penalties, recommended contract enforcement and monitoring powers be transferred to an independent regulator such as the Office of Road and Rail, and said in future franchises should be smaller.

The report follows a string of troubled franchises including the failed West Coast Main Line tender in 2012 and, more recently, the embattled Southern Rail services that have seen regular delays and cancellation due to staffing problems and strike action.

MPs said they were “concerned” the Southern Southern franchise had earned its operator Govia Thameslink Railway a net payment in its first year despite the service missing contract targets and losing DfT an estimated £38m in revenue.

The report said said capping performance penalties “disincentivises performance once it has deteriorated beyond breach level”. It said performance penalties should be proportionate to the revenue that rail operators obtain through franchises.

“We question whether it is effective for one of the commercial partners of a franchise [the DfT] to also be the enforcement authority,” the report added.

“As an immediate priority, we recommend [DfT] considers new ways of enforcing the contract terms of a franchise… [It] should consider contracting for the reallocation of capacity to an alternative operator in the even of sustained poor performance,” the report said.

It also said future tendering processes should be made less expensive for bidders to increase competition, and told DfT to consider smaller but longer-term franchises where appropriate.

The report questioned the business case for combining the West Coast Main Line contract with the new HS2 line into one franchise and said there were “competition and planning risks associated with operating a franchise of this magnitude and complexity”.

It also questioned DfT’s capacity to run all seven of the tenders it has scheduled over the next two years as, despite efforts to improve, sufficient progress has not been made since the 2012 West Coast Main Line experience.

In 2012 the government cancelled the tender of the West Coast Main Line franchise after Virgin Trains started legal proceedings against DfT because the department had failed to calculate risk correctly, including mistakes in the way inflation and passenger numbers were calculated.

The report is the result of an inquiry by the Transport Committee on the success of DfT's franchise policies, and is part of a series of inquiries into the future of rail in the UK.

DfT has not responded to a request for comment.

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