Q111 Mr Bacon: What is the value of the bond in each case, does it vary?
Mr Payne: It does. It depends on the value of the franchise but it is usually 5% of costs.
Q112 Mr Bacon: 5% of costs. What does that mean, operating costs?
Mr Payne: Yes.
Q113 Mr Bacon: 5% of annual operating costs.
Mr Payne: Correct.
Mr Bacon: Can you send us a little schedule showing the value of the bond for each of the train operators?6 That is it, thank you, Chairman.
Chairman: Thank you Mr Bacon. Phil Wilson.
Q114 Phil Wilson: The Report is pretty good really. Paragraph 4: "The Department's service specifications are generally well thought through . . ." Paragraph 6: "The Department has been successful in stimulating keen competition for franchises." Paragraph 7: "The Department has been successful in letting franchises to the timescale initially established." The Report goes on to talk about value for money for taxpayers et cetera in paragraph 18. With all that being true why do we still have problems with customer satisfaction? We know that with a lot of the trains there are too many people using them but how are we going to change that over the coming years knowing that we are going to be waiting for 1300 new carriages for example? What can you impose on the people you have given these franchises to to actually improve their customer services and how do you monitor customer satisfaction? Is it independent, is there a way of doing it which is separate and independent from the franchises?
Mr Paine: Initially when we send out what is called "OJEU" notice to encourage people to bid for a franchise we have introduced more recently quite strict quality assessment evaluation processes, so we are looking for companies to align what is known as the business excellence model. This does not happen overnight; usually the model takes about three to five years to work but we have, since moving to the Department, introduced that business excellence model as a criteria for train operating companies. Many of the companies are now aligned with that, they are investing money in sending managers on the appropriate courses, but I would emphasise that turning quality standards around does take time. They are on the pathway, however, and that contributes to their score when we evaluate their bids.
Q115 Phil Wilson: I mentioned about being successful in there being keen competition for the franchises, for example; has there been a problem with actually trying to attract the overseas bidders?
Mr Paine: I do not think there is a problem. We have what we call our commercial stakeholder strategy where we promote and try and publicise as much as we possibly can the opportunities within transport as a whole in the UK. More recently we focused that on the rail franchising exercise; there has been a lot of interest from France, there has been interest from Germany, Dr Mitchell has already alluded to Nedrail for example from the Netherlands. They maintain their interest but they are well aware that the bidding fraternity in the UK is very strong and it does cost money to bid, and that is a commercial decision for a new entrant to decide whether it is worth that risk or not. We do run what we call an open door policy for potential suppliers and we brief them as much as we possibly can, but it is fair to say, for example, that it is a commercial decision for the company concerned. Some have crossed the Rubicon and made their presence known, Nedrail for example, but we are constantly promoting the opportunity.
Q116 Phil Wilson: In paragraph 1.6 which is on page 11 it talks about "Most potential improvements are only agreed if they pass a cost benefit analysis" so how do you decide which improvements that have failed the test are to be adopted?
Mr Paine: I did not quite understand the last part of that question.
Q117 Phil Wilson: In the paragraph it says "Most potential improvements are only agreed if they pass a cost benefit analysis, although some of the security and safety measures proposed may be adopted even if they show net costs."
Mr Paine: Safety and security are of paramount interest for the industry. Sometimes such measures are not fully cost benefit positive; we make a conscious decision to failsafe positive in that case. Where it is a purely commercial undertaking then we have to make sure that passes the cost benefit test.
Q118 Phil Wilson: In paragraph 5 where the Report talks about the involvement of local bodies, why do you not involve local bodies in bid evaluation?
Mr Paine: Why do we not?
Q119 Phil Wilson: You have local PTEs, which other organisations should be involved?
Mr Paine: To be quite candid no one has ever asked me if they can be involved.
Q120 Phil Wilson: Why wait for them to ask, why not just involve them?
Mr Paine: What we have done is when the initial overture from public bodies was to take more part in the consultation process we welcomed them into that process. We have developed that, it is working. I have spoken to a number of contacts and we would welcome in properly qualified people who were comfortable to sign up to our confidentiality undertakings, so the door is open if people wish to come in but it is not something, I admit, that we have readily undertaken previous to this Report; however it is one of the recommendations and Dr Mitchell has charged me with exploring that.
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