Rail franchising: risks to DfT achieving value for money

Virgin Trains 390039 at Carlisle on July 20 2015. RICHARD CLINNICK.

There are emerging risks to the Department for Transport achieving value for money as the rail franchising programme develops, the National Audit Office said today (November 24).

The NAO highlights uncertainty, delays and cost increases on major infrastructure programmes, the risk of reduced competition, and potentially stretched bidder and departmental resources.

However, it added that DfT is better placed to deliver value for money than it was in 2012.

NAO found that since the cancellation of the InterCity West Coast competition in 2012, DfT “has now largely addressed the recommendations in reports by the NAO, the Committee of Public Accounts, and Sam Laidlaw . Those reports highlighted significant weaknesses in the Department’s management and oversight of the franchise competition. The Department has taken steps to improve its capability and has strengthened its leadership. It is also taking steps to strengthen its franchise management capacity and capability.”

It added: “Since the restart of the franchising programme in 2013 the Department has awarded three franchises through competition and made ten ‘Direct Awards’ .

“Overall, for the three completed franchise competitions, operators are contracted to pay the Department higher returns than the Department’s estimate of what would have been paid under the terms of the previous franchises.

“The Department’s decision to let ‘Direct Awards’ to incumbent operators was a sensible temporary measure, but it may have missed opportunities to maximise value for money in the early Direct Awards because the benchmark used was too low and not designed for the purpose. The Department has contained risks to value for money from these non-competed contracts by limiting the number and duration of Direct Awards, with most lasting between two and three years.”

Amyas Morse, head of the National Audit Office, said today: “Since the collapse of the West Coast Main Line franchise competition, the Department has improved its management of rail franchising. Results of early franchise competitions indicate that returns to taxpayers could be higher than in the past.

“However, important risks remain. There is considerable uncertainty and volatility around the rail infrastructure improvement programme. And there are risks to effective competition should market interest decline. The Department recognises these challenges and is taking steps to address them.”

  • For more on this, read RAIL 789, published on December 9.

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