The Government is set to almost double its earnings under the latest round of franchising deals, although concerns remain over a declining market, the National Audit office has revealed.
NAO head Sir Amyas Morse said the Department for Transport (DfT) had improved its management of rail franchising since 2012 and the problematic InterCity West Coast franchise competition of that year.
The NAO found that across the three franchises awarded since 2012 – Essex Thameside, InterCity East Coast and Thameslink, Southern and Great Northern – operators were due to pay the DfT 82% more than if the previous franchises had continued. The calculation is based on the DfT’s long-term forecast model.
Sir Amyas said: ‘Results of early franchise competitions indicate that returns to taxpayers could be higher than in the past.'
However the NAO probe also warned that franchising’s value for money could be affected by uncertainty over infrastructure enhancements and the construction schedule for HS2, as well as an apparent declining interest from the market to bid for the tenders.
Franchises awarded since 2012 have each attracted only three bids, which the DfT’s own measure says is the minimum required to ensure value for money. The previous 10 competitions attracted four bids each on average.
The NAO gives several potential reasons for this, including the increasing opportunities for transport operators overseas, where barriers to entry and bidding costs are lower.
Sir Amyas added: ‘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.’
The DfT is trying to encourage new entrants, for example by simplifying the pre-qualification process, but has not yet decided how it would adjust procurement to protect value for money if market interest falls, said the NAO.
