Boxwood says Train Operators face lose - lose situation under new franchise rules

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Fresh thinking needed to incentivise operating companies

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Some fresh thinking is needed to incentivise train operating companies, and if the solution is a shot in the arm for infrastructure investment then so much the better.

Boxwood, the award-winning management consultancy, is asking the industry to consider if rail franchise profits could hold the key to future infrastructure funding.

Following the Government’s announcement, reiterated again last month, that Cap and Collar procedures will not feature in the forthcoming round of franchising, they simultaneously left the door open to recoup any “excessive profits”. While this may lower the Government’s risk it just passes a further burden back to Train Operating Companies who will factor more risk premium into their bids.

This means a lose / lose situation for train companies. They lose if the passenger experience innovations they built into their original franchise tenders fail to attract more customers and they lose if those innovations are too successful and lead to “excess profits”. As rules stand the franchisee can also walk away at any time they want - albeit they will forfeit their original financial guarantees made to the DfT.

Boxwood suggests a far more innovative solution would be if franchisees were mandated to add any ‘excessive’ profits to the financial guarantee made to the DfT (thus making it even harder for a successful operator to walk away). This money could then be used by government to help kick start some much needed rail infrastructure projects and then returned to franchisees upon successful completion of the franchise.

Commenting on the suggestion Amish Patel from Boxwood Transport team said: “While this may seem a simplistic idea, some fresh thinking is needed to incentivise train operating companies, and if the solution is a shot in the arm for infrastructure investment then so much the better. Given that the new franchises could be up to fifteen years this would create a significant pot of much needed investment cash to improve Britain’s railways, while at the same time encouraging innovation and an all round better customer experience.”

ENDS

For further information:

Christian Mahne / Lindsay Vetch
Vetch Mahne Ltd: 020 3488 3100 / boxwood(at)vetchmahne(dot)com

Notes to editors:

About Boxwood
Boxwood (http://www.boxwood.com/) works with carefully selected organisations to design and implement business transformation programmes that deliver sustainable bottom line results. We achieve this by bringing together our extensive industry knowledge and functional expertise with our partner’s in-depth knowledge of their business. Our approach is to work in joint teams with our clients from the outset, building internal capability to ensure that business performance continues to improve long after we have departed. Boxwood’s work has been recognised by prestigious industry awards eight times in the past ten years, most recently the Boxwood Transport team were highly commended in the 2013 Management Consultancy Awards for their work with Tube Lines.

The Boxwood Transport team is part of the wider Infrastructure Group. Led by Toby Ashong, this team of experienced Boxwood consultants is focused on helping businesses from all areas of infrastructure; construction, property, transport, energy and utilities. To read more views from the consultants please visit http://blog.boxwood.com

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