The Committee says it is encouraged that since 2012 the Department for Transport has strengthened its capability to let franchises, "but there are still gaps in its ability to then manage the contracts effectively".
The Committee assesses the progress and limitations of the Department’s consideration of passenger experience when awarding franchises, concluding it is "not clear" when rail users will see promised improvements in service quality. It also finds more must be done "to develop partnerships with operators that facilitate innovation and improve services for passengers".
"Risk to value for money"
The Committee expresses concern about the Department’s competition-led approach to franchising, warning there is "a real risk to value for money" if market interest in the programme declines further.
It highlights the impact the "scale and uncertainty" of planned infrastructure work has on franchise competitions, contracts and costs.
More broadly, it concludes the Department lacks a coherent strategic vision for the rail system—presenting "a risk that it will make decisions now that prove costly in the future".
Meg Hillier MP, Chair of the PAC, said:
"It was clear from the events of 2012 that radical change was needed in the way the Department for Transport managed rail franchising.
It failed to apply basic processes properly and its attempts to save money by cutting corners resulted in significant extra costs. Plain common sense was forgotten.
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.
We are particularly concerned about the effects of declining competition within the programme. 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.
All of this must be considered as part of the wider challenge facing the Department—that of setting out and implementing a clear strategic plan for what is a crucial element of our national transport network.
We accept this is a complex area but it is precisely because of this complexity that the Department must show strong leadership and vision.
Our Report urges action in a number of priority areas and we will be expecting the Department to update us on its progress in the months ahead."
The Department for Transport is responsible for awarding franchises in England and Wales to private sector companies to run passenger rail services.
In October 2012, the Department cancelled its competition for the InterCity West Coast franchise, having discovered errors in the procurement process. The Department also paused three further franchise competitions.
Serious failings identified
The Committee’s subsequent Report identified serious failings in the Department for Transport’s management of the process, and made recommendations for the Department to implement to protect value for money.
The Department also commissioned its own inquiry into the collapse of the West Coast competition, as well as the Brown Review—a wider review of passenger rail franchising.
In March 2013 it launched a revised rail franchising programme of 15 competitions over an eight-year period. To maintain the provision of train services and to facilitate a staggered programme of competitions, the Department also planned to make 2 short-term, single tender actions (‘direct awards’).
Since the launch of the programme the Department has awarded 5 franchises through competitions and has made 11 direct awards.
The last time we discussed rail franchising was in 2012, in the wake of the collapsed competition for the InterCity West Coast franchise.
We are encouraged that, since then, the Department for Transport has strengthened its capability to let franchises, but there are still gaps in its ability to then manage the contracts effectively.
The Department’s increased focus on the passenger experience is also welcome, but it is unclear when passengers themselves will actually see the benefits. Furthermore, the Department has not yet developed the partnerships with operators that are required to support innovation, improve efficiency and improve services for passengers.
Current participants "may drop out"
Successful rail franchising depends on strong interest from the market and effective competition but there are barriers to entry to the UK market and the possibility that current participants in the market may drop out. Any reduction to the current level of competition is a major risk to securing value for money for the taxpayer.
Perhaps the biggest challenge facing the Department is to manage the complex interdependencies between passenger rail franchises, the infrastructure that train services run on and the introduction of new fleets of trains to the network.
Uncertainty results in delays
Uncertainty about infrastructure work has resulted in delays to franchise competitions and the Department will have to rely on potentially expensive changes to franchises during the life of contracts.
The Department’s role is to provide a strategic lead for the complex rail system but it has not yet shown that it has embraced this role. It needs to provide a coherent strategic vision and stronger leadership to ensure that the investment decisions it makes now do not result in increased costs in the long term