Q151 Stephen Barclay: What was it that the report gave weight to that led to your change of approach?
Philip Rutnam: Are you talking about the change of approach in relation to franchising generally, or in relation to Thameslink in particular?
Q152 Chair: Thameslink, because what is interesting about Thameslink is that you are trying the new model that you had rejected less than a year ago.
Philip Rutnam: As I recall, there were two key factors. The first was putting more weight on the need when there is a very significant infrastructure change such as this going on-my colleagues on either side of me might be able to give some examples of the sort of impact that will have on the franchisee-to work very collaboratively with the franchisee during that period, to work through the infrastructure works. The other key element was that we needed the franchisee to take very direct responsibility for the introduction of the new trains and the way those are integrated with the infrastructure. So it was a very practical set of decisions about the practical circumstances we were facing.
Q153 Stephen Barclay: It is tying the franchisee in more to the risk around the train delivery?
Q154 Chair: You could have seen that in 2011, or before July 2012.
David Higgins: I think the most important thing is that the Department consulted widely. I was involved in the Rail Delivery Group, and I know that there was a lot of discussion-initially fragmented-within the rail industry, which originally did not think that this was the right way to go, but eventually consensus emerged in the submission put into Richard Brown. There are two things to consider. First, the biggest risk in the next seven years is the £3 billion-worth of capital works and making that work. If we blow this out by 10%, the profit on the franchise will be wiped out in that process. Secondly, if you let a 15-year contract on Thameslink next year, whoever bids for it will say, "There is a risky period here for seven years; we don't know how that is going to emerge, so we will build that into the basis," and then they will get the second seven years. If you re-let the franchise back on the original, 2011 concept in seven years' time, you will get a much higher premium, because the risk will be much lower and conditions will be known. That is therefore a very logical time to let a 15-year contract.
Q155 Chair: Do you have a question, Amyas?
Amyas Morse: I just want to make sure that I understand that. I am not trying to be critical of the decision you made, but I am interested in understanding what led up to it and perhaps helping the Committee on this.
I can see that you have a very complicated deal structure for rolling stock, with what is essentially an availability contract. I am familiar with that from seeing something like it in the defence industry, where you say, "It's too complicated for us to get involved. We expect you to have something available for use and we will pay you for having it available for use," and you set it up like that. At the same time as setting all that up and trying to get a contract like that in place, trying to put a franchise in place is just very difficult. Who gets what bit of risk? Just from my bit of experience with negotiating deals, I would have thought that all that stuff must be unbelievably difficult when you are doing the deal. I can see that, so I am not criticising it, but I do feel slightly that we have been talking about a series of decisions made in moderately short order. They have all probably made this more deliverable and made the critical path less complicated, but I think it is fair to challenge whether some of those decisions could not be improved. This really looks to me like a series of decisions to keep going, which we commend, on a fairly ad hoc basis, rather than a deep-laid plan. Wouldn't you say that some of these could have been anticipated a bit more than they were?
Michael Hurn: I am firmly of the view that the management contract is the right way forward in terms of the construction of London Bridge station- a five-year construction period, with very intensive disruption throughout those five years on a rolling basis and train operating companies changing over those five years. Bringing in a fleet of trains is also a very big undertaking, so it is entirely appropriate for a management contract to be in place for the next five years. Then, as Mr Higgins says, beyond that, when the project is finished-
Q156 Chair: You haven't answered the question. Just answer the question.
Amyas Morse: I do agree with you, though.
Chair: Yes, but we are trying to get on with things.
Amyas Morse: I am just asking whether, having said all that, we couldn't have anticipated more of this, rather than made what looks like a series of good but scrambling and relatively short-term decisions.
Michael Hurn: Absolutely. There is always scope for learning and for better planning and thinking ahead. That is one example.
Q157 Chair: You could have made that judgment- whoever was in charge of franchising-in 2010 or 2011, and you didn't, did you?
Michael Hurn: We had to look at the policy considerations. In hindsight, we should have made that call earlier.
Q158 Chair: Thank you. One final question on franchising, and then I will call Jackie, who wants to come back on project management issues. You have not done a management-staff contract before. As a Department, you do not have a happy record on managing franchises. What confidence can you give us that you will do this one properly, Mr Rutnam?
Philip Rutnam: First, we recognise the challenge. We know that we have not done a management contract before. It is really related to the changes that we have made to the way in which we run our whole business of franchising since the end of last year. There are very clear responsibilities. We are very clear that we are using external advisers where appropriate, and therefore taking, for example, financial advice-not failing to take it, as with west coast-and bringing the expertise that we need into the Department in order to address the issues.
One of my very first acts was to bring in, on an interim basis, a director of franchising who has very extensive industry experience and has worked on both running train companies and advising them in bidding for franchises. He has experience of a wide range of different franchising models, he understands the issues in depth and it is his job to lead this activity. He has started to assemble around and underneath him a team of people who understand the issues and have clear responsibilities to him. It is part of a wider programme of rebooting franchising, getting the franchising programme going again and recognising-I was trying to make the point earlier-that this is quite a diverse set of activities, and one size does not fit all.
Q159 Chair: The SRO will not be the new woman who is taking over from Mr Hurn?
Philip Rutnam: No.
Q160 Chair: It will be somebody else who is in post?
Philip Rutnam: Yes, he is in post at the moment.