3.21 The number of bids the Department has received under the current franchising programme is lower than the historic trend. For each of the first three competitions (taking the InterCity East Coast competition to be the first) the Department has received three bids, which is the minimum the Department considers is necessary to ensure good quality bids. The previous ten competitions received four bids on average. The Department considers that this is partly due to its publication of the schedule, which allows owning groups to plan which competitions to bid for.
3.22 The Department has analysed the state of the market and identified a number of potential reasons for the decreasing levels of competition. For example:
• there are increasing opportunities for transport owning groups in other countries - particularly in Europe. A number of operators told us that barriers to entry, including the cost of bidding in these markets tend to be lower than in the UK;
• owning groups have interest in other transport modes, including buses. According to the Department's analysis, the cost of bidding for rail franchises is high compared with bus operations, while profits are lower; and
• bidders are required to provide financial guarantees from parent companies for each competition. Some operators are concerned that, as they win franchises and have more capital at risk in the UK rail market, owning groups could be discouraged from approving bids for future UK franchises.
3.23 The Department is taking steps to reduce the cost of bids and barriers to entry to the UK market, including:
• reviewing the number and size of franchises on the network;
• reviewing the level of parent company support required from operators; and
• a 'PQQ passport' which the Department launched in September to reduce the administrative burden and cost of bidding, and to encourage new entrants to the UK market. Rather than having to complete a pre-qualification questionnaire (PQQ) each time they want to bid for a franchise, bidders who have demonstrated managerial competence and a strong track record will be awarded a 'PQQ passport'. This will allow them to express an interest in a franchise without having to repeat a managerial competency test. Views from existing operators varied about the impact this would have on bid costs.
3.24 It remains to be seen how successful these measures will be. We have not seen any plans showing how the Department will adjust its approach to procurement to help drive a better deal, if levels of interest fall below those required to ensure intense competition, high-quality bids and value for money. These plans could involve introducing more negotiation and dialogue with bidders between the bid evaluation and award of the contract.