6 The Department has addressed the issues that contributed to the cancellation of the InterCity West Coast franchise competition in 2012 and has made progress in rebuilding its reputation within the rail industry. In particular, the Department has established a Passenger Services team to focus on franchise letting and management; improved the transparency, consistency and clarity of information provided to bidders and the public; and strengthened the assurance and governance of franchising. To continue to improve the programme the Department has started to apply lessons learned from completed competitions and feedback from bidders.
7 The Department has placed more emphasis on the experience of passengers, but it is too early in the life of the programme to see what impact this will have. The Department has always required bidders to demonstrate how they will deliver punctual and reliable train services and limit crowding on trains. This includes specifying the train fleet that they propose to use and how trains will be configured to meet demand. In the current programme the Department is incentivising bidders to improve additional elements of the passenger experience, such as levels of customer service from staff on trains and at stations. The Department has recently started to look at contracted passenger service benefits on the franchises it has let so far, but does not currently plan to look in detail at the costs of specific measures alongside benefits.
8 The competitively awarded franchises, if managed well, could increase returns to the taxpayer. Overall, for the three completed franchise competitions, operators are contracted to pay the Department 82% more than the Department's estimate of what would have been paid under the terms of the previous franchises. This does not necessarily mean that it will achieve similar returns in all future competitions. To mitigate the risk that franchises fail because operators' bids are overambitious, the Department challenges bidders' assumptions about forecast costs and revenues. The Department also requires bidders to provide guarantees in the form of parent company support that returns to the taxpayer will be protected if costs turn out higher and revenues lower than forecast.
9 The Department is only now beginning to address Richard Brown's recommendations to strengthen its franchise management capability. The Brown Review recommended that the Department and the franchisee need to develop a partnership relationship to bring about ongoing improvements in financial and operational performance. Transport owning groups told us, however, that the large number of committed obligations in franchise contracts results in a rigid approach to contract management which can be inefficient and limit innovation. They also noted that the Department's capability to manage franchise contracts has not yet noticeably improved. The Department has appointed a Head of Franchise Contract Management and is reviewing its franchise management capacity and capability.