Rail Franchises, Competition and Public Service

Publication Date01 January 2018
AuthorLuke Butler,Tony Prosser
DOIhttp://doi.org/10.1111/1468-2230.12315
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Rail Franchises, Competition and Public Service
Tony Prosser and Luke Butler
The use of franchises to deliver rail services has raised major problems. Franchises restrict
competition in the market, whilst competitive bidding for franchises has met with difficulties,
notably in relation to risk transfer and the recent use of short-term contracts that have not been
awarded competitively. Further, franchise agreements are detailed and highly stipulative and do
not achieve the flexibility and opportunities for innovation originally intended. This reflects an
underlying lack of trust resulting from the arrangements adopted on privatisation. By contrast,
in Sweden regional services have been procured through contracts with limited risk transfer,
and in Italy provision of services has been entrusted to a dominant operator with comparatively
limited detailed service specifications; both seem to have been more successful. For the future
in the UK, possibilities include greater use of competition, a return to public ownership,
regionalisation, and the use of concessions with limited risk transfer to secure stability.
INTRODUCTION
The use of contracts has now become not only a central means for the delivery
of public services but has at last attracted the academic attention it deserves.1
However, there has been limited discussion in the legal literature of one field
of such contracting which has both a high public profile and has proved highly
controversial, that of the franchising of rail ser vices.2Another theme that has
been rather neglected in the UK debates is comparison with the legal regimes
of Continental Europe, which have well-established legal instruments for the
delegation of the performance of public service tasks through concessions and
other contractual devices. The aim of this article is to fill both these gaps by
assessing the use of rail franchises in the UK and comparing it to the use of
contractual tools in two other European nations. In this way we hope both
to contribute to current debates on the future of franchising and to reflect on
franchising as a mode of regulation.
RAIL FRANCHISES: THEIR ORIGINS AND PURPOSES
Rail franchises were an integral part of the fragmentation and privatisation of
the British railway system under the Railways Act 1993. The idea had come
University of Bristol Law School and Birmingham Law School repectively. We are most grateful
for the invaluable help wehave received from Professor Paola Chirulli, Dr Michela Giachetti Fantini
and Dr Vincenzo Dei Giudici at the University of Rome ‘La Sapienza’, and from our colleague Akis
Psygkas.
1 See, for example, H. Collins, Regulating Contracts (Oxford: OUP, 1999) ch 13: P. Vincent-Jones,
The New Public Contracting: Regulation, Responsiveness, Relationality (Oxford: OUP, 2006); A.
Davies, The Public Law of Government Contracts (Oxford: OUP, 2008) esp ch 3.
2 For exceptions to this neglect, see C. Harlow and R. Rawlings, Law and Administration
(Cambridge: CUP, 3rd ed, 2009) 402-413: Davies, ibid, 20-23.
C2018 The Author. The Modern Law Review C2018 The Modern Law Review Limited. (2018) 81(1) MLR 23–50
Published by John Wiley& Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
Rail Franchises, Competition and Public Service
from a number of sources, notably the Adam Smith Institute, when it was
proving difficult to develop workable schemes for the introduction of private
capital into British Rail.3The provision of the rail infrastructure was to be
separated from the operation of services; operators would compete for the right
to provide such services, in some but not all cases for the same traffic flows.
The 1992 White Paper, New Opportunities for the Railways, which set out the
privatisation plans, described the role of franchises in nine paragraphs, stating
that there would be no standard template for them nor any standard duration.
Franchises would be awarded through an open competition by a Franchising
Authority on the government’s behalf and would specify obligations such as
minimum frequencies and the quality of service in a franchise agreement.
Where possible, franchises would be designed to provide scope for competition
between competing services from different franchise holders.4No attempt
appears to have been made to examine in any depth the natureof these contracts
nor experience in other nations where, as we shall see, there was already
extensive use of contracts for the provision of rail services.
What is franchising for?5The franchise holders (the train operating compa-
nies or TOCs), despite being the public face of the railway, have a surprisingly
restricted role; they do not typically own their rolling stock (normally leased
from specialist leasing companies) nor the track, signalling nor major stations.
Our answer to this question would be to suggest that franchising performs two
linked purposes. The first is to bundle commercially profitable services with
the unprofitable ones required for public service reasons, requiring franchise
holders to provide both. The role of the franchise here is to ensure that the
public service requirements are met. The inevitable result is that there are se-
vere restrictions on competition within the franchise area; as we shall see below,
contrary to the plans in the White Paper, TOCs are given near-exclusive rights.
Competition is for the award of the franchise (which may include profitable
opportunities), not generally in the direct provision of the service to consumers.
The second purpose is to provide specification of the required services neces-
sary to meet a public service demand. Franchising thus offers an alter native to
other means of ensuring that public services are provided in a way which meets
social as well as competitive goals, for example the use of universal service
funds for which competing companies can bid to provide socially necessary
services at the lowest cost. If this is the most plausible understanding of the role
of rail franchising, it raises issues which are at the heart of the current debates
concerning contractual governance. In particular, it raises the issue of trust in
relation to the provision of public services.
The use of franchises is a response to a lack of trust in the ability of the
privatised operators to maximise returns for shareholders whilst at the same
3 See T. Gourvish, British Rail 1974-97: From Integration to Privatisation (Oxford: OUP, 2002)
368-369; K. Irvine, The Right Lines (London: Adam Smith Institute, 1987).
4 Secretary of State for Transport, New Opportunities for the Railways: the Privatisation of British Rail
Cm 2012 (1992) paras 25-33.
5 This has become known in railway circles as the ‘Christian Wolmar’ question, named after the
distinguished rail journalist who has repeatedly posed it: see, for example, C. Wolmar, ‘RSA
Speech: What is franchising not for?’ 12 December 2014 at http://www.christianwolmar.co.uk/
2014/12/rsa-speech-what-is-franchising-not-for/ (last accessed 12 June 2017).
24 C2018 The Author. The Modern Law Review C2018 The Modern Law Review Limited.
(2018) 81(1) MLR 23–50

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