Page last updated at 02:18 GMT, Wednesday, 20 January 2010

Length of rail franchises increased by government

By Richard Scott
Transport correspondent, BBC News

Rail passengers
The duration of railway franchise contracts is being increased

Future rail franchises will run for a minimum of 10 years with the chance to extend them to up to 22 years, the government has said.

But train companies will also have to meet tougher performance criteria to avoid being stripped of a franchise.

And companies which walk away from a franchise because it is not profitable will face bigger financial penalties.

The move has been welcomed by the rail industry, which says it will give companies more incentive to invest.

Most rail franchises are currently let for seven or eight years.

The Association of Train Operating Companies (Atoc) has previously called for franchises to have a standard length of double that, arguing the three companies with the highest customer satisfaction and performance ratings all have franchises of at least 15 years.

The government has opted instead for a standard franchise length of 10 years with the option to extend it to more than 20 years.

Chiltern Railways has just had its 20 year franchise confirmed in return for extra investment between London and Birmingham.

Longer franchises would give train companies a greater stake in the railways, encouraging them to bring increasing amounts of private sector investment to the network at a time when public finances are stretched
Michael Roberts, Atoc chief executive

Ministers say there will be tougher performance tests to go along with these longer franchises.

These will look at punctuality, delays and cancellations, and companies can lose their franchise if they do not perform well enough.

"Ten year franchises, with the possibility of longer contracts should bidders make sensible and affordable proposals, will allow operators to invest and suggest new innovations," said the Transport Secretary, Andrew Adonis.

"However, having longer franchises means that we will need to introduce tougher performance measures and more potential contract break points to ensure bad operators can be removed."

Company commitment

And after the problems with National Express when it gave up its East Coast franchise last year, the government says companies will also have to put up bigger deposits - called performance bonds.

That will make it more costly for them to walk away as the deposit will be lost. That part might not appeal to train companies since they will have to find more money up front.

National Express's problems came from having paid too much for the franchise. Recession saw passenger numbers drop and running the operation was no longer profitable.

To address this, the government is also proposing linking franchise payments to the economy.

If the economy is doing well, a company which pays for its franchise might see those payments increase. If there is a recession the payments could fall.

The industry has broadly welcomed the moves.

"Today's announcement marks a step change in the government's thinking on passenger rail," said Michael Roberts, chief executive of Atoc.

"Longer franchises would give train companies a greater stake in the railways, encouraging them to bring increasing amounts of private sector investment to the network at a time when public finances are stretched."



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