Normally when franchises are extended, they need to be put out to tender for companies to bid, but the government can issue a direct award contract to the incumbent to extend the existing agreement.
Great Western Railway has been awarded a direct award for 3 years, extendable to 4 years, while Southeastern has also been awarded a direct award for up to 2 years.
Southeastern’s 65% parent owner, Go-Ahead said that the new arrangement is a management contract, similar to the London Overground model, and the one that was imposed on the industry as a coronavirus emergency measure last week. The management fee will be set at a maximum of 2% of Southeastern’s cost base before the pandemic began.
GWR’s owner FirstGroup has a different arrangement, and will remain a conventional franchise operation, with amendments to the revenue share with the government designed to ensure that revenue risk to GWR from falling ticket sales is minimised, and the government picks up the surplus if ticket sales rise.
As part of the extension agreements, the two companies are committing to increasing capacity at peak times, providing more front-line staff and more fares trials for passengers, such as discounted part-time season tickets and the extension of paperless pay-as-you-go schemes.
Naturally, the changes won’t happen until after the current coronavirus situation calms down.
These agreements will run concurrently with the emergency measures agreements announced last week which saw the government temporarily take on the revenue and cost risk associated with individual franchises.