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Monday essay: A new era?

THE Department for Transport has awarded a three year contract to Arriva to continue running CrossCountry until October 2023, and this new deal will not include significant commercial risk. Sim Harris asks if this is the way forward.

THE reform of the passenger railway was supposed to await the publication of Keith Williams’ review of the railway industry, which is now running almost a year late and is still discreetly stored inside a Whitehall cupoard. But the Covid-19 pandemic has forced the Department for Transport’s hand, so that the English franchises were replaced at a stroke by Emergency Measures Agreements in March this year.

The EMAs meant an end of risk taking, by the operators at least. The DfT now collects the revenue and pays the bills, and pays each operator a management fee.

The EMAs were set to last until 20 September when – just possibly – the franchise contracts could have been restored. But Covid-19 remained a stumbling-block, and as these words are written tighter controls are reappearing in parts of the country. Running public transport will continue to be a challenge, especially financially, for some time yet.

When the EMAs ran out, they were replaced in September by ERMAs – Emergency Recovery Measures Agreements – which pay the operators 25 per cent less and could last for up to 18 months. (The Scottish franchises have a similar arrangement, but it currently lasts only until the end of this year.)

The situation appeared to be stable, up to a point, but the franchise which Arriva had held to run CrossCountry ran out this month.

The DfT has chosen to take a different direction, by replacing the CrossCountry franchise with a new contract which will last for three years.

As with the ERMAs, commercial risk is virtually absent. The DfT will pay the bills and collect the revenue, and pay Arriva something which it is rather coyly describing as a ‘performance-linked’ fee. There are no further details.

This new deal is essentially a type of management contract, and these have been awarded a number of times since the early 2000s, usually when a conventional franchise toppled for one reason or another. Holders of such contracts have included GNER, Virgin West Coast and National Express East Coast.

But management contracts have usually been deployed to rescue a struggling franchise, and CrossCountry was not struggling any more than the other holders of ERMAs.

We cannot know if the new contract – however it is described – offers terms which are better or worse than Arriva would have received under an ERMA. Perhaps the terms are the same.

What is not clear is what we should be calling this new deal. Even the DfT does not seem sure. 

Its written statement to Parliament dated 16 October is called: ‘Direct award of the Cross Country rail franchise to Arriva until October 2023’, and in the statement transport secretary Grant Shapps says: ‘The new agreement means Arriva CrossCountry, which has run the service since 2007, will continue to operate the franchise for three more years … The contract will see the Government take on the revenue and cost risk associated with the franchise and pay Arriva a performance-linked fee to operate the service,  incentivising the company to deliver improvements to operational performance, passenger experience and service quality.’

So it is a ‘franchise’, although unlike all its predecessors dating back to 1996 (management contracts excepted) it includes virtually no commercial risk for the operator.

But here is rail minister Chris Heaton-Harris, as quoted in the parallel press release: ‘The deal announced today reaffirms our commitment to ending the complicated franchise system …’.

So it isn’t a franchise? Or, at least, not a ‘complicated’ franchise? Is this the future?

In short, we need the advice of Keith Williams more than ever. High time to unlock that cupboard.

The current print edition of Railnews, RN284, was published on 1 October. The new edition and some previous issues can be obtained by calling 01438 281200 from UK numbers or +44 1438 281200 internationally, and selecting Option 2.

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