TOCs 2010-2012: Pauses and Reviews

Passenger Rail Franchising Companies in Great Britain (TOCs)

The coalition government elected in May 2010 paused re-franchising pending a review, which was published in January 2011. As a result, they reformed the system further to increase operators' flexibility, with greater incentives for cost reduction by operators, and franchise terms dealt with on a case-by-case approach. They extended the standard franchise term to between 15 and 22.5 years (with shorter terms where expedient), ending the Cap and Collar approach to risk which provided for risk-sharing with government regarding future demand, and introducing profit sharing and review points. The new system, to be applied first with the InterCity West Coast bid, also took a less prescriptive approach to service specification and introduced measures to tackle crowding and changes to the way quality measurement was approached. Because of the increased future risks carried by operators, the government required a large financial surety to discourage early contract default.

In 2012 the franchising system essentially collapsed in the wake of the West Coast controversy (see below). As a result of the crisis, the government commissioned two inquiries, an inquiry to look into the cause of the West Coast failure, undertaken by Sam Laidlaw, and a review undertaken by Richard Brown of the wider franchise system. The Laidlaw report was published in December 2012, and found the DfT to be primarily responsible for the West Coast failure, having made several errors in its financial modelling. All three outstanding franchise competitions: Great Western, Essex Thameside and Thameslink, were paused pending the outcome of the Brown review. It was published in January 2013, and concluded there were no fundamental flaws in the system, but made 11 recommendations on how it could be improved. One recommendation was to spread out the re-franchising schedule to avoid bunching, which the government acted upon in committing to holding no more than four competitions per year, and staggering the East and West coast awards. Another of Brown's recommendations was the breaking up of the standard franchise period into two terms: an initial term of between 7 and 10 years, followed by an automatic extension of a further 3 to 5 years, should performance criteria have been met (but also possibly being granted if they weren't, to dissuade abuse by under-performing TOCs). It also recommended further transfer of powers to local and devolved administrations.

The West Coast controversy led to the introduction of the Direct Award concept, whereby the government can award a franchise that is up for renewal directly to the incumbent rather than through a tendering process, but only if the operator's proposed terms match the government's projected expectations of future performance based on its past record. If a reasonable contract cannot be drawn up through negotiation, the franchise is then re-let as normal. In the following few years, most franchises were renewed as Direct Awards, in part to achieve the smoothing-out of the schedule recommended by Brown.