1.16 We looked at two aspects of the costs of the franchise process: the direct procurement costs incurred by the Department, and the costs incurred by bidders.
1.17 The Department's costs are lower than those of its predecessor (Figure 6). The level of franchise activity varies from year to year, and some are more complex than others, making comparisons difficult.6 Figure 7 overleaf shows the total external costs (on advisers and other bought-in items) for each franchise. The Department does not record staff costs for each individual franchise process.
1.18 We were unable to gather reliable data on the direct costs to bidders of the franchising process. As an alternative, we interviewed train operating companies, examined their public statements on costs, and reviewed the length of bidding documents as a proxy for direct costs of bidding.
1.19 Some train operating companies said that bidding costs for franchises are too high, querying the amount of detail required, the quality and availability of accurate data, and the expense involved.v In its evidence before the House of Commons Transport Select Committee in 2006, the Association of Train Operating Companies estimated that it cost each bidder between £3 million and £5 million to bid for a franchise.vi If this estimate is accurate, and assuming four bidders for a franchise, then bidding costs would represent about three per cent of the average annual running cost of a franchise (£505 million based on the first year running costs of the eight franchises examined). Over a typical franchise life, this amounts to less than half of one per cent of total running costs.
1.20 The Department is seeking to reduce the administrative burden of bidding. For example, for the South Western franchise, it had specified a limit of 3,500 pages to bid submissions but has since decided that future bids should be restricted to between 1,000 to 1,500 pages. Train operators have told us that this change is unlikely to reduce the costs that they incur although DfT costs will reduce.
7 | External specifcation and procurement costs by franchise (£000) | ||||||||||||
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Summary project costs | Specification | Procurement | Total | ||||||||||
Inter city East coast (let by the SRA to GNER) | N/A | 2,362 | 2,362 | ||||||||||
Integrated Kent Franchise (incl. Depots and Rolling Stock)1 | 2612 | 10,699 | 10,960 | ||||||||||
Thameslink/Great Northern | 8262 | 2,122 | 2,948 | ||||||||||
Greater Western | 5932 | 2,181 | 2,774 | ||||||||||
South Western | 999 | 1,278 | 2,277 | ||||||||||
central Trains Remapping Project (for 3 Midlands franchises) | 2,093 | N/A | 2,093 | ||||||||||
West Midlands | 656 | 1,886 | 2,542 | ||||||||||
East Midlands | 541 | 1,610 | 2,151 | ||||||||||
New cross country | 689 | 1,991 | 2,680 | ||||||||||
Inter city East coast (let to National Express) | 212 | 1,047 | 1,259 | ||||||||||
Source: Department for Transport | |||||||||||||
NOTES 1 The figures for the Integrated Kent Franchise are large because expenditure on infrastructure and rolling stock projects in the Kent area, which includes a new high speed domestic service, were included in the relevant cost centre in the SRA accounts, but are non-standard costs in franchise procurement. 2 Specification costs incurred by the SRA. | |||||||||||||
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6 Four franchises were awarded in 03-04, two in 04-05, four in 05-06, one in 06-07 and four in 07-08.