THE BROWN REVIEW - IMPLICATIONS FOR RAIL CIOS AND FRANCHISE BID LEADS
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THE BROWN REVIEW –
IMPLICATIONS FOR RAIL CIOS
AND FRANCHISE BID LEADS
Transportation Perspective
In October 2012, following the cancellation of the award of the InterCity
INCUMBENT
West Coast rail franchise to FirstGroup by the United Kingdom’s
FRANCHISEES WHO
Department for Transport, the Transport Secretary commissioned Richard
Brown, Chair of Eurostar International Limited, to conduct an independent ARE CLOSE TO THE END
review of the implications of this failure for the future of the UK rail OF THEIR FRANCHISE
franchising model. The Brown Review of the Rail Franchising Program, CONTRACTS NEED
submitted in December 2012, concluded that the franchising model was the CLARITY ON THEIR
correct approach but provided specific advice on improvements, including REMAINING TERM
recommendations that will change the way technology supports bidding
TO UNDERSTAND
for, and running, rail franchises.
WHAT, IF ANY,
In the wake of the cancellation of the West Coast franchise award, the INVESTMENTS WOULD
government announced that Virgin Trains will continue to run the InterCity BE APPROPRIATE.
West Coast service until 9 November 2014. On 31 January 2013, the
government announced plans to resume two other bidding competitions
– for the Essex Thameside and Thameslink/Great Northern/Southern
franchises – and cancel the Great Western bid.In the wake of the cancellation of the West Coast franchise award, the
government announced that Virgin Trains will continue to run the InterCity
West Coast service until 9 November 2014. On 31 January 2013, the
government announced plans to resume two other bidding competitions
– for the Essex Thameside and Thameslink/Great Northern/Southern
franchises – and cancel the Great Western bid.
With the announcement of the restart of the franchise program, train
operating companies (TOCs) and transport owning groups await final
decisions on which Brown recommendations will be adopted and how those
new guidelines will affect the nature of future franchise competitions.
The next key milestone will be the release of the timetable for future
franchise competitions – expected from the DfT in Spring 2013, which will
provide much needed clarity for bidders.
KEY CONCLUSIONS AND INSIGHTS FOR RAIL CIOS
AND FRANCHISEBID LEADS:
Our transportation consultants have analysed the Brown Review for
those recommendations that touch on technology – either as a support
component to the bidding competition or in current rail franchise
operations. Below are the findings we believe are of the greatest relevance
for Technology and Franchise Bid leaders within TOCs and Transport
Owning Groups.
1 FINDING #1: The present rail franchising system is not broken and
should be restarted as soon as possible.
Implications: Incumbent franchisees who are close to the end of their
franchise contracts need clarity on their remaining term to understand
what, if any, investments would be appropriate. Bidders should be planning
how and when they restart their bid process, and with several competitions
beginning in close succession, there will probably will be strong demand
for experienced, high quality bid team members.
2 FINDING #2: Before resuming competition, the DfT must strengthen
its organisation by bringing in a number of senior,commercially
experienced people to manage the process.
Implications: Recruiting senior, commercially experienced experts will
mean a greater understanding of, and appetite for, technology-enabled
change within the DfT. In an industry that is increasingly reliant on
2 North Highland Transportation Perspectivetechnology, bidders can be more comfortable explaining their technology
strategy, innovation approach and complex technology-enabled solutions
and be confident that the DfT will understand what makes their bid truly
innovative.
3 FINDING #3: The opportunity to devolve some franchise management
and decisions to local bodies.
Implications: Devolution of the specification and management of
franchises to local authorities (or, more likely, Passenger Transport COPING WITH
Executives (PTEs)) closest to their communities may improve the ability ACCELERATED
of operators to meet local customer needs. However, situations involving CHANGES IN
competing solutions may arise when local authorities /PTEs and operators TECHNOLOGY,
express preferences for specific solutions. For instance, where a PTE runs CONSUMER
a regional smart card scheme and a franchise owning group has invested in
EXPECTATIONS AND
its own, branded solution with commercial benefits to utilizing this solution
across the group. Devolving these decisions to the local level could risk
REVENUE MODELS
further fragmentation of approach, unless there is an overarching industry REQUIRES NEW
agreement on basic principles such as settlement and management of INTERNAL FUNCTIONS,
customer data. Also, issues may arise where local authorities/PTEs PROCESSES, AND
wish to implement local, or regional, fare options (such as a zonal fare SKILLSETS.
structure), which conflicts with national or inter-regional schemes.
4 FINDING #4: The ability to maintain and improve levels of customer
service should be given more weight during bid evaluation, and bids
should be explicitly scored on their proposals for improving service
quality for passengers.
Implications: Until now, price has been the only significant criterion used
in the assessment of franchise bids, with quality and deliverability used
to effectively vary the price of the bid. This new emphasis on customer
service will enable bidders to differentiate their passenger service through
innovative use of technologies with the potential to make rail travel better,
smarter and more reliable.
5 FINDING #5: The franchise term should be determined by the
circumstances and size of each individual franchise and not just
conform to a standard 15 years.
Implications: Shorter terms will make it easier for companies to
better align the technology lifecycle to that of the franchise, so that the
approximate lifetime of new software/technology can be expected to last
the length of the contract. A shorter planning horizon will enable bidders
3 North Highland Transportation Perspectiveto re-assess technology that can support their businesses more frequently,
ensuring that they are adopting new technology rather than adhering
to an outdated plan. Coupled with the Residual Value proposal (below),
franchisees can invest more confidently throughout the duration of a
franchise with an expectation of some return for latter-year investment.
6 FINDING #6: To encourage investment across the (shorter) lifetime of
a franchise, the DfT should issue guidance on the circumstances in
which it will offer RESIDUAL VALUE to operators and the mechanisms
it would use to calculate this at franchise end.
Implications: The introduction of clear guidelines on residual value
calculations would remove an element of risk from investments –
particularly those that either require a large initial investment or payback
over longer time horizons. This would enable franchisees to continue to
invest in hardware and software over the life of the franchise and result
in a more balanced capital investment portfolio. This would also provide
additional clarity for an outgoing TOC on what investments are recoverable
(for instance, development costs and software licenses), which is frequently
a point of disagreement during franchise transfers.
7 FINDING #7: Fewer specifications should be attached to franchise
contracts, enabling both the government and the franchisee to adapt
the model if a better solution is identified.
Implications: With the pace of change of technology advancements, it
is difficult for franchisees to predict what technologies may be needed,
or even available, in the later years of a contract. Attaching fewer
specifications to franchise contracts would allow franchisees to seek out
and implement new technology outside the original proposal. Bids would
be judged on the franchisee’s ability to predict and react to change as well
as the initial proposal.
8 FINDING #8: Franchises should be broken up into several smaller lots
and not merged.
Implications: Having a range of scale of franchises may encourage
operators to attempt some innovations in a perceived “lower risk”
environment. However, many innovations may only be commercially viable
when implemented on a large scale. Breaking up the larger franchises into
several smaller lots could suppress innovation and limit capital investment
on projects that could ultimately benefit the entire industry.
4 North Highland Transportation Perspective9 FINDING #9: Every franchise should be unique and have a specific set
of objectives that reflect the needs and challenges of that franchise.
Implications: Gone are the days when you could just dust off your last bid
and, with relatively few changes, resubmit it for the latest competition.
Companies will need to fully grasp the scope and nature of each individual
franchise they plan to bid for, tailor their bids and differentiate themselves
from a technology perspective in their approach to meet franchise-specific
objectives.
10 FINDING #10: Franchise competitions should follow a 24-month
schedule, allowing ample time for planning and clarification.
Implications: During this period, the burden will be largely on the DfT to
efficiently plan the competition; carry out quality assurance; ensure all
parties have the necessary information; and clarify any remaining issues.
The challenge for franchise bidders will be to prepare their bids for much
deeper scrutiny and discussion, during a longer bid evaluation period.
Longer mobilisation periods may also mean there is the possibility of DURING THIS PERIOD,
making a greater level of change to ‘day one’ operations, following the THE BURDEN WILL BE
franchise award. However, the longer bidding process may mean an LARGELY ON THE DFT
increase in overall bidding costs, so owning groups will need to be more
TO EFFICIENTLY PLAN
selective in the franchises they bid for.
THE COMPETITION;
CARRY OUT QUALITY
11 FINDING #11: The DfT should establish four credible teams with the ASSURANCE; ENSURE
capacity to conduct four franchise competitions simultaneously.
ALL PARTIES HAVE
Implications: The race is on for expertise. Recruiting enough commercially
THE NECESSARY
experienced individuals for these teams presents a huge challenge to the INFORMATION;
DfT. For bidders, the challenge will be in managing, tracking and financing AND CLARIFY ANY
several simultaneous bids, while ensuring best practice and innovative REMAINING ISSUES.
technology initiatives are shared between bid teams. Bidders, too, may be
taxed to recruit sufficient, high quality, experienced bid team members.
Owning Groups may opt to maintain a permanent pool of experts to support
planning for, and participation in, bids and mobilizations.
5 North Highland Transportation PerspectiveABOUT NORTH HIGHLAND For more information,
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