10 The Department's decision to let 'direct awards' to incumbent operators was a sensible temporary measure. Although competitive tension is an important driver of improved returns and service quality, the Department has contained risks to value for money from these non-competed contracts by limiting the number and duration of direct awards, with most lasting between two and three years. Richard Brown recommended that the Department limit the number of competitions that take place in any one year. The pause in letting franchises following the cancellation of the InterCity West Coast competition added to congestion in the existing schedule of competitions and options for temporarily extending existing contracts had largely been exhausted. The Department therefore had few alternatives.
11 On the Great Western franchise, the Department will not benefit from the potential higher returns resulting from competition for up to six and a half years longer than originally planned. There have been two direct awards for the Great Western franchise which could last as long as six and a half years in total. The second of these will last between three and a half and four and a half years. The Department awarded it because it judged that the work to electrify the route, and the introduction of new trains, would create too much uncertainty to carry out an effective competition.
12 The Department may have missed opportunities to get better value from direct awards because the benchmark it used in the early direct awards was too low. It was important for the Department to let the first direct awards quickly. The Department used the only benchmarking tool it had available, which had been designed to inform its overall budget and included contingency to protect it from the risk of overspending. From April 2014, the Department replaced this conservative benchmark with a more ambitious one to use in negotiations. For all the direct awards, the Department achieved leverage to help drive value for money by using the threat of bringing forward the open competition (which it did in the case of the South Western franchise) or bringing in the publicly-owned company 'Directly Operated Railways' to run the franchise, should the incumbent's proposals not meet the Department's expectations. The Department also used staff with strong commercial skills and experience to work on direct award negotiations.