Q141 Chair: Why?
Philip Rutnam: Because we had learned that these things are very difficult to get right, and perhaps were putting a bit more weight on that.
Q142 Chair: As opposed to what?
Philip Rutnam: The previous policy was against having management contracts.
Q143 Chair: Why?
Philip Rutnam: Because the previous policy was more strongly in favour of transferring revenue risk to the private sector-or an appropriate share of revenue risk. The policy as it has developed has put more weight on dealing with the particular set of circumstances that we face in particular franchises, recognising that they can be very different-that there is no one-size-fits-all in terms of the level of risk that one should be trying to transfer.
Q144 Ian Swales: Did you have any discussions with potential franchisees during the period to which the Chair is referring?
Philip Rutnam: Sorry, which period?
Q145 Ian Swales: The period when the decision changed. You had one policy and then a different policy-did you have any discussions with potential franchisees?
Philip Rutnam: Richard Brown, who was asked by the Secretary of State to do a review of franchising in the light of the west coast situation, had very extensive discussions with franchisees on exactly these sorts of points.
Q146 Ian Swales: So is the real reason that you thought you would have to pay too much for the risk?
Philip Rutnam: No. The railway is a very diverse and heterogeneous place. A whole range of different products are provided-there are inter-city lines, commuter lines, lines going through infrastructure upgrades and lines that are relatively stable. We need to have a policy that reflects that diversity and helps us to deal with it, rather then supposing that there is always one template that can be applied time and time again to each set of circumstances. That is the underlying change, if you like, in outlook.
Q147 Ian Swales: May I just concentrate on value for the taxpayer and the policy change? Something must have happened that told you that the new policy would be better value for the taxpayer. How would you describe the difference? Why is this now better value when it was not before?
Philip Rutnam: Some quantitative analysis was done, but I do not think that that is really at the heart of it. At the heart of it is making a judgment qualitatively about how to deal with such a wide range of different circumstances-how to deal pragmatically with the particular-
Q148 Ian Swales: We are talking about dealing with this circumstance. You had one view of it and you now have a different view. I am just trying to see what the financial aspects of that were.
Philip Rutnam: I have to say that I'm not sure whether we tried to do a financial analysis, because there would be so many different assumptions involved of revenue-risk transfer on the Thameslink franchise versus not transferring revenue risk. However, the qualitative analysis that we did pointed strongly towards a management contract as the better way of dealing with the uncertainties that are inherent in the transformation programme that will be happening in this period.
Q149 Ian Swales: So you're saying that the change of policy had no quantitative analysis attached to it? Did you say that?
Philip Rutnam: No, I didn't say that. I said that I don't think that there was a particular analysis on this particular one. The Richard Brown report was the key document, and his report sets out a very good analysis of the range of different factors that you should take into account in deciding how to go about constructing the sort of commercial proposition that we offer in a franchise.
Q150 Stephen Barclay: I may be being a bit slower than my colleagues, but I was quite confused by your answers to both the Chair and Mr Swales. Were you saying that a piece of research was done and that was sufficiently substantive to have influenced a change of approach, or that a piece of research was done and it did not play a substantive part in changing; or were you saying that substantive research wasn't really done, but you changed your approach for reasons that are slightly unclear?
Philip Rutnam: We changed our approach on the basis of a detailed review of policy towards franchising undertaken for the Secretary of State by Richard Brown, which involved extensive research, extensive discussions with the industry, and extensive inputs, both quantitative and qualitative, which was delivered to the Department, on which the Department then reflected and did further analysis and work and on the basis of which the Secretary of State then made decisions.