4.4 The Department has to make assumptions about infrastructure work and the introduction of new rolling stock when designing franchise specifications. Changes to infrastructure specifications, construction and maintenance schedules or rolling stock plans are likely to require alterations to train services. These could increase costs to operators or reduce their revenues, and could also reduce the level of service for passengers. Changes during the life of a franchise can be costly if not managed effectively, because the price of change is not driven down by competition.
4.5 The costs of such changes fall mainly to the Department. Franchise agreements include mechanisms to control the costs:
• contractual clauses known as Secretary of State Risk Assumptions (SoSRAs) explain that the Department bears the risk of additional costs related to specific infrastructure or rolling stock projects; and
• there is a mechanism designed to deal with changes to the Department's assumptions. This includes an agreed basis for discussions about the cost of change, and clauses that specify that the Department has open access to information about operators' costs and revenues. This should enable the Department to reduce the risk that operators profit excessively from changes.
4.6 The Department's underlying assumptions about some franchises have already changed since the new franchise programme was launched, partly because some franchise competitions began before detailed infrastructure requirements had been finalised (for example, Box 2). Further change is likely, since the programme is being rolled out during a period of major improvement works to infrastructure and replacement of rolling stock. There is currently considerable uncertainty and volatility around Network Rail's infrastructure improvement programme. In addition, work on High Speed 2 is scheduled to begin during the next phase of franchises. This volume of activity on the rail network creates complex interdependencies with rail franchises which need to be managed.