Franchises

click on links for related documents or more information

Most passenger operating contracts in the British railway industry were known as 'franchises' between 1996 and 2020. A franchise was a contract between a government body (often but not necessarily the Department for Transport) and a train operator, to run services on specified routes, calling at named stations, using specified rolling stock and observing a minimum timetable, for an agreed period.

Bidding for a franchise was complicated and expensive and could cost £10 million or more, a sum which the bidders had to write off. When the franchise competition for Intercity West Coast had to be cancelled because of official errors in 2012, refunding the expenses of the four shortlisted bidders cost the Department for Transport at least £40 million.

An essential feature of a rail franchise in Britain was that most of the commercial risk rested with the franchisee. The infrastructure was also owned by a private sector company Railtrack plc , between 1996 and 2001/02.

Most of the franchises listed outside Leeds
station in 2002 were first-generation contracts

Railtrack did not survive and was replaced by Network Rail in October 2002. NR was a 'not for dividend' company but became a government body in the public sector on 1 September 2014.

Its debts are the responsibility of Government.

Passenger franchises continued until 2020. The core of a franchise agreement was the 'profile' of premium or subsidy payments. The franchisee had to earn enough revenue from fares and other income (such as station car park charges) to fund its operation, including payroll, fuel and office costs as well as such payments as might be required to government (premiums), rolling stock leasing companies (leasing charges) and Network Rail (track, station and depot access charges).

In return for taking much of the commercial risk, a franchisee had some freedom as well, being able to apply its own branding, offer special tariffs and make other marketing decisions within a framework of limitations which, for example, controlled certain ('regulated') fares.

The degree of freedom arguably narrowed in the later years of franchising, with the Department for Transport being accused of 'micro-managing' such matters as timetable details and rolling stock characteristics.

Franchise owners who breached their agreements could lose their contracts. Examples of early termination were Connex South Central (poor performance), Connex South Eastern (financial problems), GNER (second contract)(financial problems), National Express East Coast (financial problems) and Virgin Trains East Coast (financial problems).

Franchise territories could be ‘remapped’ in the light of experience, so that some contracts (such as Cardiff Valleys, Central Trains, Silverlink and Wales & West) were not renewed, with their routes being transferred to other franchises, some of which were new.

In 2020 franchises were replaced by other forms of contracts, and the remaining private sector passenger operators are now being progressively renationalised. Direct awards replaced the old franchises in some cases, and a direct award to Arriva for CrossCountry in October 2020 was described as a ‘direct award franchise agreement’, although it did not include significant commercial risk for the operator.

Concessions

A concession involves much less commercial risk than a franchise. It also involves a partnership between a private sector operator and a public authority, but on more rigid terms.

A concessionaire is paid agreed fees to provide a service which is tightly specified in the contract. Concessionaire's branding, for example, is likely to be minimal and may be virtually absent; fares will probably be precisely controlled (sometimes to maintain consistency with related modes of transport), as will be timetables and the fleet which is to be used. Indeed, most passengers may not realise that the service is being operated by a third party at all.

London Overground

Concessions include London Overground, Docklands Light Railway, the Elizabeth Line and most tram systems, such as Manchester Metrolink.

A 25-year operating contract for Merseyrail was awarded by Merseyside PTE (now Merseytravel) to Serco/NedRail (NedRail became Abellio and is now part of Transport UK Group). This contract started in 2003.