Out-Law News 2 min. read

Hart: rail franchising reform needs further thought

Rail operators in England and Wales are to be moved onto new contracts in what the UK government called the "first step" towards ending the current rail franchising model.

The Department for Transport (DfT) announced on Monday that rail operators would transition to "Emergency Recovery Measures Agreements (ERMAs)", which it said would contain "more demanding" provisions than the franchising agreements in place currently.

The new management contracts "have tougher performance targets and lower management fees" and require strong collaboration by operators in order to drive down costs, DfT said.

Infrastructure expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law, said, though, that the long-term model for how the railways in Britain will be operated remains unclear.

Hart Jonathan

Jonathan Hart


The ERMAs may be seen as a stop gap measure whilst it is decided what the new model might look like

Hart said: "Given the government’s current priorities, we are unlikely to see a complete end to the rail franchise system and involvement of private operators any time soon – Monday's proposals announce a form of management contract for rail companies that take back economic risks seen in many of the existing franchise arrangements. This is not unusual and we have seen a number of these kinds of agreements in the past as a way to roll over end of franchise terms, where a new replacement franchise operator has not been appointed. What is new is the blanket way in which these have been applied across the whole network, which reflects the desperately low level of ridership since the outbreak of the pandemic and reference to winding up liabilities under the franchises in the existing form." 

"Whilst the objective to achieve a more effective model is to be applauded, we are a long way down the track in understanding when this might happen and what this new model might look like. Rather, the industry will be left scratching its head questioning what this might mean in practice and the role that the eagerly anticipated Williams Review might have in helping to shape what a new operating model might look like. The ERMAs may be seen as a stop gap measure whilst it is decided what the new model might look like. With ridership levels down and only a fraction of people currently travelling on trains, the government needs to focus on what customer demand and the sector might look like post-Covid. Until we get some idea around this, it is going to be hard to come up with any structure that is fit for purpose," he said.

Rail franchising has been in place in Britain since the mid-1990s following the privatisation of British Rail. Under the franchising system, private sector companies are awarded contracts to operate rail passenger services across Britain after a competitive tender and bid process. The UK government oversees the rail franchising system in England and Wales, while the Scottish government is responsible for awarding the franchising contract in Scotland. A different operating model is used for the rail network in Northern Ireland.

Transport secretary for England, Grant Shapps, said: "The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working. Our new deal for rail demands more for passengers. It will simplify people’s journeys, ending the uncertainty and confusion about whether you are using the right ticket or the right train company. It will keep the best elements of the private sector, including competition and investment, that have helped to drive growth, but deliver strategic direction, leadership and accountability."

The UK government is expected to outline more details of what rail franchising reform will look like later this when it publishes a white paper in response to an independent review of the railway sector carried out by former British Airways chief executive Keith Williams. In initial proposals previously published, Williams backed a move away from the system of franchising to a new commercial model for running the railways.

Earlier this year, the government brought the Northern Rail franchise under public control

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