4.3 The Department builds on arrangements introduced in 2004 by the SRA to ensure that each train operator delivers its contractual obligations. These include: committed investment obligations (see paragraph 3.6 and Appendix 5); agreed performance improvements (paragraph 3.8); and agreed service quality (paragraph 3.7). The Department follows a risk-based approach on:
i committed investment obligations: The Department requires train operators to 'self certify' that lower risk obligations have been delivered and, for those judged to have a higher risk, provide supporting evidence of delivery, for example photographs, purchase orders or invoices. In some cases, if a commitment is delivered late or not in full, the train operator must deliver the commitment and may need to make a payment to the Department.
ii performance improvements: The train operator reports each month on its performance. If it falls short of contractual benchmark, it must develop, agree with the Department, and then implement a 'remedial plan' to get back on course. Non compliance may lead to an enforcement order and, if there is further non compliance, to an event of default. Earlier franchises under OPRAF and the SRA had attached financial penalties and rewards to a train operator's performance. The Department has not done so because there were penalties and rewards flowing in both directions and experience showed that the net amounts were too small to influence behaviour. Instead, it incentivises train operators by making the last two to three years of the franchise dependent on the franchise meeting performance benchmarks.
iii service quality: The Department does not attach financial penalties or rewards to service quality performance and does not undertake direct monitoring. Instead, the train operator must put in place arrangements to monitor service quality, which the Department approves. The train operator reports regularly on the outcome of these audits and if targets are missed, it must develop and implement a remedial plan.
4.4 The Department's approach has helped bring savings in its franchise management and monitoring costs, from around £7.3 million in 2004-05 to £5.75 million in 2007-08, with fewer staff needed. In June 2008, the Rail Service Delivery (RSD) Directorate, responsible for franchise management and monitoring, had 72 staff-in-post, down from 100 staff in the equivalent parts of the SRA in early 2005.
4.5 There are two potential issues with this contract management approach:
i self-certification of lower risk obligations places reliance on train operators' systems. Following a review of self-certification in early 2007, the Department found a lack of consistency in systems and in information provided by train operators. This raised concerns that some train operators' self-certification processes were not robust enough to give full assurance on compliance. One franchise team found an isolated case of errors of fact in the compliance evidence that had initially been accepted as assurance by the train operator. As a consequence, the Department carries out checks on train operators' data to test their consistency.
ii there is limited transparency for passengers: "Adopt a station" initiatives involve passengers in ongoing monitoring of service quality. They can increase the intelligence available to the Department for franchise management and monitoring. However, currently Passenger Focus and London Travelwatch do not have access to the service quality audits carried out by train operators. And the Department has not fully explored with Passenger Focus how it might help.