Transport secretary Lord Adonis has today announced that future rail franchises will be let for a minimum of 10 years with even longer contracts of up to 22 years possible in return for additional investment.
He added that train operators will be allowed more scope for innovation, stronger incentives for performance and maximising passenger growth but declared that they will face higher penalties if they decide to walk away from their contracts.
“Franchise length is about striking a balance between securing investment from bidders - which comes from longer franchises - and testing the market regularly to ensure best value for taxpayers - which comes from shorter contracts,” said Adonis.
Currently the majority of rail franchises are let for around eight years. The Department for Transport said that for furture, longer franchises it would introduce tougher performance measures to ensure that poor-performing operators can be stripped of their franchises.
“Recent events have also shown how vital it is that we make it harder for operators to walk away from their franchises, so performance bonds will rise and we will expect much larger guarantees from parent companies,” he added.
Franchisees will also be required to pay larger deposits - known as performance bonds - to make it much harder for them to walk away from their franchises when revenues decline and parent companies will continue to be required to provide financial guarantees.
The proposals are set out in the Government’s Future of Franchising’ paper, which will inform the forthcoming consultations on new franchises for InterCity East Coast, Greater Anglia and Essex Thameside.