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1996-10-23 NAO-001
National Audit Office

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Office of Passenger Rail Franchising (OPRAF): The award of the first three passenger rail franchises


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National Audit Office

Office of Passenger Rail Franchising (OPRAF): The award of the first three passenger rail franchises
_______________________________________________________________


date
23 October 1996
source National Audit Office
type Press release



Sir John Bourn, head of the National Audit Office, told Parliament today that the Office of Passenger Rail Franchising (OPRAF) had been able to generate a good level of competition for the first three passenger rail franchises which had been awarded to the bidders requiring the lowest levels of subsidy.

Sir John said that the value for money of the franchising process as a whole was dependent upon wider matters such as the degree to which the restructured rail industry was able to secure improved efficiency and higher quality of service in the longer term.

The Franchising Director, Roger Salmon announced the award of the first three franchises in December 1995. These covered services provided by Great Western Trains Limited, London, Tilbury and Southend (LTS) Rail Limited and South West Trains Limited (see Notes for Editors).
The National Audit Office found that OPRAF were not able to meet the Secretary of State's target of selling six franchises by the end of 1995, having awarded three by that date. This was because more time than expected was needed for the development of new and complex contractual relationships within the wider rail industry. Since the end of 1995 a further 10 franchises have been awarded.
Of the three franchises examined in detail in the report, the Great Western Trains franchise was awarded to Great Western Holdings, a management buyout team, for ten years at an average annual subsidy of £40.1 million; the LTS Rail franchise was awarded to Prism Rail plc for 15 years at an average annual subsidy of £18.4 million and the South West Trains franchise was awarded to Stagecoach Holdings plc for seven years at an average annual subsidy of £49.0 million. The Great Western Trains and LTS Rail franchises were awarded for franchise lengths longer than seven years conditional on the introduction of new or improved rolling stock. All three successful bidders offered a declining subsidy profile over the life of each franchise.

The franchises were due to commence operations in February 1996 but in the event the LTS Rail franchise was not completed because of allegations of ticketing and settlement irregularities. It was re-tendered in March 1996 and awarded in May 1996 to Prism Rail plc. The other two franchises commenced operations as planned.

The Franchising Director did not invite British Rail to bid for any of the franchises because he judged that their exclusion was desirable to encourage new private sector entrants and management and employee buyout teams to bid for franchises.

The Secretary of State instructed the Franchising Director that any changes from the existing pattern of services should be made gradually and that he should specify minimum service levels (in the form of Passenger Service Requirements included in franchise agreements) to be based on those provided by the British Rail immediately prior to franchising. He was also instructed to develop criteria to enable him to evaluate the benefits to be obtained from the provision of loss making services.

The three franchisees are contractually committed to making quality of service improvements without drawing upon additional public funds. The Franchising Director has also put in place arrangements whereby franchisees will receive a higher level of subsidy where they are able to demonstrate significantly better performance and will pay penalties for performance below specified levels.

The costs of advisers appointed by OPRAF following their establishment in November 1993 to March 1996 were £39.6 million (excluding VAT) of which some £6.6 million related directly to the award of the first three franchises.

OPRAF did not set budgets for advisers' costs from the outset of the franchising process because they considered that it was not possible to estimate the nature and extent of the advice they were likely to need or how long the process would take.

The National Audit Office recommend that in carrying forward the franchising programme OPRAF should:

o review the operation of the fares regulation system once it is fully in place to check whether regulation is protecting passengers against excessive fares increases;

o publish the criteria which the Secretary of State has instructed them to develop to enable them to evaluate the benefits to be obtained from the provision of loss making services;
o continue the practice they have adopted after the first awards of setting budgets for advisers' costs for each franchise.

Notes for Editors

Great Western Trains run rail services from Paddington to Wales and the West Country while South West Train's services cover routes to the South and South West of London including commuter lines to Guildford, Basingstoke and Southampton. LTS Rail run services between London and Southend via Tilbury.

The Committee of Public Accounts are expected to take evidence on this report on Monday 28 October 1996.

The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office employing some 750 staff. He and the National Audit Office are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Press Notice 69/96
All enquiries to NAO Press Office: + 44 (0) 20 7798 7400

Office of Passenger Rail Franchising (OPRAF): The award of the first three passenger rail franchises
Report by the Comptroller and Auditor General
HC 701 1995/96
23 October 1996
ISBN: 0102914966
Price: £10.75


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