I find the ways this is being labelled rather odd. It's not really renationalisation to transfer the service (and staff) to a new management team (I understand they are consultants and contractors, not
DfT» staff), and
SWR» have been in talks about wanting to change the contract for over a year. So I read the latest stage as SWR/First saying enough is enough - if they don't get the changes they want, the contract gets it. It's a threat ... of sorts.
I couldn't find a report on the forum of the contract issue, so here's an old one
from Railnews:
Posted 14th November 2018 ...
In its latest statement to the Stock Exchange for the six months to 30 September this year, First warns that the forecast profits from SWR are now ‘uncertain’, while SWR is also continuing its efforts to improve performance and settle the continuing dispute over on-train staffing with the RMT▸ . This dispute makes its own contribution to reducing performance levels when services are disrupted by strikes.
However, it is the Central London Employment mechanism which appears to be causing much of the current concern. The CLE clause is intended to share the risks equably between the DfT and franchisees, but SWR is the second franchise to question its effectiveness within a few weeks, because Greater Anglia is also unhappy for the same reason.
First says: ‘There is uncertainty regarding the outcomes of this mechanism over the remaining franchise term, which has the potential to significantly impact the profitability of the franchise. We are reviewing the effectiveness of this mechanism and whether it is functioning as originally intended by both parties.’...
Moreover, when Grayling told
MPs▸ what he'd finally done about VTEC, in May 2018, he said this:
However, as I explained in February, Stagecoach and Virgin Trains got their bid wrong and they are now paying a price. They will have lost nearly £200 million meeting their contracted commitments.
This means taxpayers have not lost out because revenues are lower than predicted: only Virgin Trains East Coast and its parent companies have made losses at this time.
As the Brown review said in 2013, in an effective railway industry, franchises can occasionally fail. But we do not expect companies to hold unlimited liabilities when they take on franchises, they would not bid for them if they had to. This will mean sometimes franchises will fail. That is why it was a Conservative government that created the structures for the Operator of Last Resort – to ensure we can always guarantee passengers’ services if franchises cannot continue.
I was surprised at the time no-one picked up on that, as it is the clearest statement I'd seen that neither DfT nor any
TOC▸ understood the franchise to require the whole premium to be paid no matter how big a loss the operator was making. In effect the premium is just another kind of profit share; but having tried other splits they have ended up with this rather extreme variety with a fixed sum.
Contracts have been made with operating subsidiaries (or JVs) backed by TOCs, and with a guarantee (or bond) which sets a minimum level of loss before a TOC can get out. In practice they will lose a lot more than that, as it takes time even to go bust. But I can see that is this how it has be, or as the man said no TOC would sign one.
Which leads us back to the question ... why did First/MTR sign a contract with that CLE in it if it was going to work so badly for them? Or
GA▸ come to that, recently reported to also be getting more worked up about it (though they were reported as being Dutch civil servants).
Click on the map to explore geographics
