INFORMED SOURCES e-Preview November 2012
You can imagine that it has been a hectic past three weeks, triggered by the late night phone calls on 2 October from Transport Secretary Patrick McLoughlin telling the Intercity West Coast (ICWC) franchise bidders that the competition had been cancelled. So for the second month running the column is dominated by the West Coast.
Franchise Armageddon
Intercity West Coast - Virgin vindicated.
A culture of incompetence
ICWC – what happens now?
e-Voyager binned?
But before getting into the ICWC fiasco, I set the scene with an overview of where franchising had got to before the biggest shambles to hit the railway since the demise of Railtrack. There’s a table of the aborted, or ‘paused’ in DfT speak, franchise replacement programme. Another table lists which Train Operators are currently receiving revenue support under Cap & Collar.
While First Group based its growth forecasts for ICWC on Trans-Pennine Express, a better indication of how the Intercity rail market is performing is provided by Government-run East Coast which helpfully published its Report & Accounts for 2011-12 just before the balloon went up.
The accounts are given the usual Informed Sources analysis. One conclusion is that if East Coast were a TOC eligible for Cap & Collar it would be qualifying for the maximum 80% revenue support.
Don’t overlook the third little Table which compares the premia NEXC committed to pay, the service payments which DfT thought East Coast could pay and what has really happened. I have also converted these service payments into a profile graph. No prizes for guessing what it looks like!
ICWC - DfT ‘100% guilty’
Trying to nail down this column when fresh revelations on the ICWC franchise replacement metashambles were emerging by the hour has been, to put it mildly, fun. Fortunately, the dénouement came hours before we went to press and the news that DfT is now negotiating a 9 to 13 month extension of Virgin Rail’s West Coast franchise just made it into the magazine.
When Mr McLoughlin spoke to Sir Brian Souter just after 23.30 on 2 October, he recalled that the Stagecoach chief had once described DfT as ‘dysfunctional’. No need to repeat here what happened after the ICWC competition was cancelled, which most subscribers will have been following in real time. But for me the ‘smoking gun’ is that when accountants PricewaterhpuseCoopers (PwC) were reviewing DfT’s response to Virgin’s High Court Case (Informed Sources October) they found that the calculations on which the franchise award decision had been based were not available.
They had either been lost, not been saved or deleted. And when PwC re-ran the numbers, like Virgin and another unsuccessful bidder, they could not replicate the outputs. Given that billions of pounds were at stake, this loss of data is inexplicable.
You may remember in last month’s column I explained why I always prefer to use cash, or ‘real’ figures for analysis, rather than Net Present Value or ‘Nominal. There are reports that in evaluating the ICWC bids DfT confused real and nominal values.
Lots of questions to be asked and the initial findings of the ‘independent’ Review of the debacle, led by DfT non Executive Director Sam Laidlaw is due to be delivered on 26 October – the day Modern Railways appears on the bookstalls.
Meanwhile, the Department’s proposals for what happens next on West Coast defy ridicule.
Having agreed an extension with Virgin, DfT plans to use the time to invite bids for a short (two year) interim franchise). Then, during this interim franchise bidding starts for a new long term franchise.
Let’s say four companies bid for the interim franchise – that’s £20 million in bidding costs and I bet DfT won’t spare the consultants, so add another £3-5 million of our money. Then there’s serious bidding for the long term franchise. Say £30 million in bidding costs. And this is the same DfT that keeps reminding us of Sir Roy McNulty’s claims that the railway costs too much!
Ministers missed precursors
In the May 2012 column I wrote this:
”For some time now, this column’s default assumption has been that the Department for Transport is dysfunctional. This has shown up in the repeated corrections Aviation & Rail Minister Theresa Villiers has had to make after misleading the House of Commons with incorrect answers to written questions. And sometimes, blatant errors have not been corrected (this column passim)”.
Misleading Parliament is, supposedly, a serious offence. Minsters who have done so usually apologise to the House when issuing the ensuing correction.
As you will have noted in past columns, DfT, and former Transport Minister Theresa Villiers have had to publish several correction to her written answers which contained blatant errors. What puzzled me was why Theresa never seemed to twig that she was regularly issuing corrections.
In her shoes, the first correction would have resulted in a bollocking for the official who had provided the incorrect answer. After that a repeat would have produced a rapid move out of the Department, with a ministerial reprimand on the individual’s civil service record.
Apologists claim that it would be unreasonable to expect Minister to have checked the calculations behind the ICWC franchise award. But any minister should have noticed that they were having to correct misleading information generated by their department and done something about it.
By letting this sloppiness continue, ministers were, in aviation safety-speak, ‘normalising deviance’. And if civil servants couldn’t get simple things right, like the track access charges for IEP, what chance did the Department stand of managing something really complex like a franchising model?
As I say, the Laidlaw Review should be reporting as the magazine goes on sale. But here are some questions I would have expected to have been asked. And note that as of 17 October the Laidlaw team had not spoken to either to First or Virgin Rail.
Key questions
Given that at least two of the franchise models run by bidders highlighted the flaws in the DfT’s model exposed by PwC, what did First’s modelling show?
Did DfT officials apply subjective judgement to inputs and outputs? Did bid teams discuss the crucial Subordinate Loan Facility – the hedge against long term risk – with bidders?
Is there documentary evidence in bid team files that Virgin raised queries on the bidding process? Did DfT respond? Remember that then Transport Secretary Justine Greening said on 31 August ‘Virgin raised no concerns with process until it emerged that they had lost the bid’.
What next for ICWC?
Well, we know, sort of. But this section of the column, though in part overtaken by time, remains relevant because the halt to franchise replacement means that the same situation will be faced by the ‘paused’ franchises – Essex Thameside (c2c) Great Western and Thameslink. What happens when these, like Virgin West Coast expire? And East Coast was also supposed to be re-let in 2013
DfT has Directly Operated Railways (
Mobilisation is not cheap. The
With DfT hiring head hunters to search for suitably qualified rail managers, it was clear that
Instead we had a franchise coming to an end with no replacement appointed. Even worse, the current agreements for the four franchises due to be let in 2013 will also expire. And Great Western and Thameslink vie for this column’s soubriquet of ‘franchise of death’ because of their extensive upgrades. If
Civil servants have been telling ministers that you can’t just extend franchise once you have already exploited the seven reporting period extensions in all franchise agreements. Under EC law you have to put the extension out to tender – or else let
Let’s apply a commonsense test to the
So, two year management contracts all round, say I, with an additional half a percent of revenue above an agreed income line to encourage a commercial attitude.
Work on e-Voyager halted
Informed Sources was an early proponent of the proposal to add a pantograph car to a Class 220 Voyager DEMU to create a dual mode train able to run under electric power under the wires. The last progress report was in the August Informed Sources, after it emerged that Bombardier, which had promoted e-Voyager as a way to preserve ‘British jobs’ at Derby, was planning to import the new electrical equipment from its works in Sweden, thus threatening jobs at Alstom’s Preston plant.
Alstom was invited to bid after all. And then it all went quiet until, early in October, Informed Sources reported that work on e-Voyager had been ‘quietly dropped’ back in mid September.
This was due to a combination of factors which mean that a business case acceptable to DfT can no longer be made.
Apart from the cost of the extra cars and modifying the existing vehicles, the expanding electrification programme means that it will be possible to cover more Voyager-type duties with straight EMUs. In its ICWC bid Virgin proposed replacing Voyagers with Baby Pendolinos.
With the franchise debacle likely to put back the Baby Pendolino proposals, plus additional EMUs for C2C for a couple of years, the
Roger’s blog.
September ended with the Modern Railways Golden Anniversary Railtour to
What the late, great Cecil J Allen might have called some ‘determined driving’ followed, as the old lady lifted up her skirts and flew. My view has always been that preserved kit like cars, planes and trains, should be used as intended. I have never forgotten the 1977 Jubilee Duxford air display where a fully restored Spitfire was demonstrated by the World Aerobatics Champion.
Phil Verster, Network Rail’s new Route Director for East Coast has clearly got his patch under control. As we creamed along at 100 mile/h I was struck by the ambience of our Mk 1 coach on some very good track.
Even in the vestibules it was quiet and, encouraged by the silky ride, I tried the £1 coin ride meter. It sat there on edge on the table while Mr Miles photographed this demonstration of Commonwealth bogie performance.
At the
There was plenty of time to mingle and chat with readers old and new afterwards. And even, following my holiday reading, to try and understand how a steam locomotive works. However, I ended up taking some chums through the working
On the way back we were hauled by the recently named 66745. After dinner I started off down the train as promised. With so many people to chat with I managed only three coaches before I had to go back to collect my stuff to get off at
The following week, there was another celebration, when two long standing Virgin PR chums, Steve Knight and Allan McLean, had invited the railway press to a ‘retirement breakfast’ in a Pendolino at Euston. The day before Patrick McLoughlin had made his fateful announcement so some reminiscing over a relaxed meal was a welcome break.
Last week I escaped from the office and had a day out at Siemens’ Northam depot outside
That evening I went to a Railway Engineers Forum meeting in
Although electrification is now seen as a good thing, I was quite forthright in the question session. But before I report on the RTS in print I will have had a session with Network Rail’s Director of Engineering Steve Yianni who has led its development. More next month.
This coming week I’m hoping to get to the Railway Industry Association annual General Meeting. And October ends with the Guardian’s Bradshaw Lecture where the keynote speaker is Tim O’Toole, which could be fun. And next morning there’s a ride on the Network Measurement Train.
After than there’s the Rail Research
Finally, on 28 November there’s an IMechE Railway Division conference on energy, where I hope to drop in for at least the morning session.
But first, I must order 16 spanners from my local motor factor!
Roger