Thameslink and the NAO: part 3: All’s well that ends well?
This article, following on from part 1 and part 2 of articles on the report from the National Audit Office (NAO), was intended to be very short and mainly deal with the limited NAO comments on Thameslink and franchising. Since then the deal to purchase Siemens trains was announced so we will have a brief look at that before continuing.
It came as quite a surprise, and a pleasant one for most people, when on the last working day before two years had elapsed since Siemens had been announced as preferred bidder, the DfT announced that agreement had been reached with Siemens. Others, notably Roger Ford of Modern Railways, who are used to the DfT suddenly getting orders out to pre-empt embarrassing anniversaries, may have been half-expecting it.
…that which we call a close by any other name would smell as sweet
The announcement does mean that we can reduce the speculation and have an idea what to expect. The order is for 1140 carriages. This is slightly fewer than the generally publicly quoted “around 1200” but within the expected range. Nowadays the aim is generally to have contracts specifying performance requirements and leave it to the manufacturer to decide how to meet them. As an example, he may be shown the timetable that he is expected to provide trains for and it is up to him to decide how many extra trains he needs for maintenance to meet this target. For this reason alone the order would never have been definitive in specifying the exact number of carriages.
Currently there is no suggestion that the deadline will not be met so it appears that Siemens believe that they can achieve this. The NAO states that it is only after the contract has been let that it will be possible for Network Rail, or the DfT, to ask questions about other issues that may be critical in meeting that deadline. So presumably, as soon as the mandatory ten day grace period is over, these questions will now be asked.
Siemens have the challenging, but certainly not impossible, task of producing all the trains ready for service in December 2018. What may turn out to be more critical is how quickly they can produce and deliver their first trains. This will not only be critical to Siemens in order to establish any problems that there may be as soon as possible but will also be critical to others – especially as the core section of Thameslink will rely on an Automatic Train Operation (ATO) which, as far as we are aware, is not some off the shelf system that can be relied upon to work in the Thameslink tunnels without modification.
Siemens – Tied Up or Buoyed Up?
A further issue raised by readers is whether this means that Siemens will be out of the running for the soon to be announced additional train order for 25 4-car units with a subsequent option for further 28 units. It may be that Siemens has too many committed orders to even consider bidding. Conversely, they may think that, having got this order, they are in a good position to get that order too and will do what is necessary to fulfil both.
If they decide not to bid that will be a blow for the DfT, especially as it will be seen as a consequence the late resolution of the main Thameslink order. What would be irksome for the DfT is if Siemens were to announce in advance that they did not intend to bid which would somewhat reduce the competitive nature of it. It remains to be seen if Alstom or Hitachi or any Eastern European or Chinese companies show an interest.
The Important Franchising issue
The largely forgotten issue of Thameslink is the need to get an appropriate franchise in place. Readers will probably be relieved to learn that, on this occasion, the National Audit Office limited their comments on franchising to a few paragraphs.
Project managers always fear the external factors over which they have no control. In the case of Thameslink this has come from the fiasco over franchising caused by failures in awarding the West Coast Main Line franchise which only came to light after Richard Branson and Brian Souter decided to take the DfT to court. It may have been an external factor for the DfT Thameslink Project team but certainly was not for the DfT as a whole.
The NAO report on the West Coast Main Line (WCML) franchise does not make easy reading, unless you are the sort of person who feels comfortable with terms like “subordinated loan facility”. In simple terms the problem appears to be that First Group put in a very optimistic bid for the WCML which promised large payments to the DfT in the later years of the franchise, whereas in the first few years First Group would probably make large profits. The issue in essence was this – what was a reasonable amount of money for First Group to put up in order to ensure that they didn’t just walk away after a few years of easy profit?
The Brown Report
The government commissioned a report into what went wrong with the WCML franchise. This was the Laidlaw Report. Of more relevance to future franchising was the Brown Report. This concluded that franchising was not fundamentally flawed but it did expose a number of problems. So the DfT could continue with the franchise programme but Thameslink in particular would be a problem because who in their right mind would agree to a franchise with so many unknowns.
There was a vital paragraph in the Brown Report that offered the DfT at least a partial way out of the mess.
4.42 There is a rather better case for management contracts where a franchisee is facing major and sustained disruption because of infrastructure works, and where revenue growth will be less important than maintaining services through the disruption. This situation requires the franchisee to be more of a delivery partner, working closely with Network Rail and others to minimise the impact of the disruption on passengers, and helping ensure on-time and within budget delivery of the investment programme.
Thameslink seemed to fit the bill perfectly. Indeed elsewhere Brown states:
The upcoming Thameslink, Southern, and Great Northern (TSGN) franchise is likely to be most suitable for such a management contract arrangement.
The DfT naturally picked up on this and the NAO report states that:
17 The Department plans to transfer a lower level of risk to the Thameslink franchisee for the next seven years to incentivise the operator to support the programme’s delivery. The Department feels that an arrangement such as a management-style contract, which transfers lower risk to the franchisee, may be appropriate. This is because the new franchisee will have to successfully deliver major changes to its service, caused by the planned infrastructure works and also work closely with the train provider to bring the new trains into service. This will be the first time that the Department has let competitively a management-style contract.
The Department will need to consider:
- how to incentivise the franchisee to maintain performance for passengers, grow revenue and support the delivery of the programme; and
- how to set the level and terms of any management fee.
In a management contract the franchisee effectively becomes the agent of the DfT for running the railway according the client’s requirements. For this they are paid a fee which is generally fixed or has only a small variable element and crucially all revenue is passed on to the DfT.
The NAO point out that this would be the first time that the DfT would have let a contract of this style. The implications is that there are a lot of unknowns. It is rather surprising that they do not mention that TfL have a lot of experience in this area and that the DLR, London Overground and Tramlink are all run on this basis – and most people would argue that this appears to work well.
Are the NAO and DfT overlooking something?
So that’s all sorted out then. We have a management style franchise for the enhanced Thameslink franchise for around seven years. That will take us to around 2020/2021 whilst there is a lot of disruption and there are a lot of unknowns. This also neatly gets over the issue of the Thameslink franchise being too big to fail and too big for even a large company to take on because it would carry too much risk.
By 2019 Thameslink should be complete and potential bidders should know exactly what they are getting. The bidding for a conventional franchise can then continue …except… around then, on current plans, Network Rail are planning to do a lot of work at East Croydon and the junctions to the north of the station.
One could not expect the NAO to know, and probably not expect the DfT to tell them, but there are likely to be some extremely disruptive works at East Croydon in the early part of the 2020s. There are no published definitive plans but the signs are it is going to happen. For those familiar with the changes at Reading think of it as half a Reading.
Project completion and life is back to normal – it’s not like that
People should not be surprised at this for two reasons. First of all on projects like Crossrail and Thameslink it is not really a case that the project completes on a certain date and stability comes to the railway. There are always the knock-on ripple effects which are either further opportunities in light of operating experience of the new setup, or minor issues that need to be resolved and did not come to light in the duration of the project.
Secondly, it is always the case with big projects that other work has to be postponed and await its completion. This can be due to projects getting in the way of each other, or the thought that it is too much disruption for the passengers in one go, or simply that it is too expensive to run and finance both projects at the same time.
When will it ever end?
At the moment Network Rail is conducting a review of services from Sussex to London. We don’t know what that outcome will be but if it involves a lot of further disruption it may be that that awarding a conventional Thameslink franchise is going to take rather a long time – even by DfT standards.
So it looks as if the physical aspects of the Thameslink Programme may well turn out fine. Though, to severely paraphrase the alleged quote of the Duke of Wellington, it looks like being a damn close run thing. What now seems less certain is just when, if ever, there will be conventional franchise to run it.
The NAO final report
The NAO have made it clear that this is not the end of the matter and that they will be issuing a later report. Going back to our original analogy in part 1, this report is more like a half-term report when what really counts is the end of year final report.
Refreshingly the NAO appears to be avoiding the trap of defining a load of criteria to judge the project and then find that, by and large, the criteria have been met but the ordinary man in the street can see the project is obviously not a success. Older readers may remember an episode from the original Yes, Minister series called The Compassionate Society where a new hospital met all the civil service criteria for judging a hospital to be considered successful. The only problem was it didn’t have any patients. We wouldn’t want the analogous situation where the NAO judged the project a success, but overlooked the fact that the new trains weren’t delivered.
With that in mind it is refreshing to read in the summary that accompanies the report that:
The Department has a clear case for investment in the programme: to increase capacity on an already overcrowded route, which it expects to deliver net present benefits of £2.9 billion. It is too early for us to conclude on value for money, which cannot be demonstrated until after 2021 when the new Thameslink service is running. The Department has so far done well to contain the infrastructure costs within the original budget. However, the delays in agreeing the contract to buy new trains mean that delivering value for money from the programme as a whole is at greater risk than we would have expected at this stage.
In other words, when we see trains up and running and the service working as it should do then we can start to decide if the project offers value for money. The clear implication is that until it is up and running properly issues of value for money are irrelevant.
The above statement also gives the feeling that the School of National Audit’s half-term report is not happy with young Master DfT’s progress so far. But, if at the end of term, he completes all his project assignments and does well in the subsequent exam then the “wobbles” that occurred during term time will be overlooked and Master DfT will be given a good grade. All’s well that ends well? – if it does? Maybe.