West Coast Main Line franchise shambles - possible impact on Great Western franchise?

[whole diary]

[Andy W]

Probably far better off leaving Firstgroup to run it as a management contract until such time as the bidding process is able to be restarted. That way the trains will continue to run using management skills learn't during the past Umpteen years of First operating trains out of Paddington. Rather than some bunch of no hopers recruited out of an old folks home or something.

I thought all operational staff would be TUPE^▸ (The Transfer of Undertakings (Protection of Employment) Regulations 2006.)'d across so I can't really see why there should be such an issue. Surely the only change may be to HR^▸ (Human Resources), Finance etc. There will be little strategic development until electrification is completed which is where any new franchise should put in their effort.

First handed the keys in early (iaw the T & C's of the franchise) to avoid paying in their view an excessive fee.

First handed back the keys early to avoid paying the fee that they bid to win the franchise . If it is excessive they only have themselves to blame - and it looks like they were pulling the same stunt to win the WCML^▸ (West Coast Main Line).

[John R]

First are not handing in the keys early - they are not exercising a legal option given to them to continue for a further three years beyond the original expiry date. There's a huge difference, but one that is lost on most people. The WC^▸ (Wiltshire Council (Unitary Authority)) franchise didn't contain such an option, and if First had subsequently chosen to exit early that would be a default, so a completely different position.

 

[paul7575]

I thought all operational staff would be TUPE^▸ (The Transfer of Undertakings (Protection of Employment) Regulations 2006.)'d across so I can't really see why there should be such an issue. Surely the only change may be to HR^▸ (Human Resources), Finance etc.

HR and finance staff should also be TUPEd across to a new TOC^▸ (Train Operating Company).  There's no significant difference - if you are salaried staff you are entitled to TUPE protection, it isn't just operational staff.

(Although some people even erroneously think TU stands for trade union - I'm assuming you don't...)

Paul

[Andy W]

First are not handing in the keys early - they are not exercising a legal option given to them to continue for a further three years beyond the original expiry date. There's a huge difference, but one that is lost on most people. The WC^▸ (Wiltshire Council (Unitary Authority)) franchise didn't contain such an option, and if First had subsequently chosen to exit early that would be a default, so a completely different position. 

Sorry John that is factually incorrect. They are exercising a legal break to terminate the contract early. There is no extension in the contract merely an option (unilateral I might add) for early termination.
This was discussed in an earlier thread. The contract was bid over the full term and not the forshortened period. Read the contract (appendix 18 if memory serves me correctly) if you don't believe me.

I thought all operational staff would be TUPE^▸ (The Transfer of Undertakings (Protection of Employment) Regulations 2006.)'d across so I can't really see why there should be such an issue. Surely the only change may be to HR^▸ (Human Resources), Finance etc.

HR and finance staff should also be TUPEd across to a new TOC^▸ (Train Operating Company).  There's no significant difference - if you are salaried staff you are entitled to TUPE protection, it isn't just operational staff.

(Although some people even erroneously think TU stands for trade union - I'm assuming you don't...)

Paul

Hi Paul thanks for that - I realise TUPE is nothing to do with trades unions.

[mjones]

Exercising a legal break in the contract is not the same as handing the keys early. The contract allowed for them to return the keys at that stage.

[John R]

Exactly - handing the keys in early is breaking a contract, exercising an option to terminate it is not.

Andy W - I'll admit I haven't read the contract, but whether it is written as a 10 year contract with an option to terminate at 7 years or a 7 year contract with an option to extend for 3 years makes not a jot of difference legally - it's exactly the same thing, (and I think we agree on that).  I expect there are practical reasons why it is written as the former.

If the DfT^» (Department for Transport - about) were stupid enough to give the franchisee the option to terminate early, they can't complain if they take up the option (and to be fair I haven't heard any comment that says that they regard First's action in any way underhand or inappropriate).

[Andy W]

Andy W - I'll admit I haven't read the contract, but whether it is written as a 10 year contract with an option to terminate at 7 years or a 7 year contract with an option to extend for 3 years makes not a jot of difference legally - it's exactly the same thing, (and I think we agree on that).  I expect there are practical reasons why it is written as the former.

Hi John, sorry I don't agree. First tendered for a 10 year contract with a fee of (approx) ^1billion. That is the full term contract. They did not bid for a 7 year contract for a fee of (approx) 200 million with an extension of 3 years for ^800 million.

If the DfT^» (Department for Transport - about) were stupid enough to give the franchisee the option to terminate early, they can't complain if they take up the option (and to be fair I haven't heard any comment that says that they regard First's action in any way underhand or inappropriate).

I am complaining as a tax payer (which I presume most people who read this forum are) that First have got out of paying over ^800 million THAT THEY BID TO WIN THE CONTRACT That is over ^10 for every man woman and child in the country!
DfT are demonstrably out of their depth (as you say stupid) - frankly not fit for purpose - but First may well be legal but are also wholly immoral in this respect (IMHO^▸ (in my humble opinion)). And we pick up the bill!!!

[Super Guard]

On the other hand, whether you think it is immoral or not, could Firsts' Directors have been deemed legally negligent, if they'd approved the extension to the franchise and put the Group in a worse financial position because of it?

[grahame]

Andy W - I'll admit I haven't read the contract, but whether it is written as a 10 year contract with an option to terminate at 7 years or a 7 year contract with an option to extend for 3 years makes not a jot of difference legally - it's exactly the same thing, (and I think we agree on that).  I expect there are practical reasons why it is written as the former.

Hi John, sorry I don't agree. First tendered for a 10 year contract with a fee of (approx) ^1billion. That is the full term contract. They did not bid for a 7 year contract for a fee of (approx) 200 million with an extension of 3 years for ^800 million.

Surely where a contract is written such that it can end in a planned way after either 7 years or 10 years, it's up to all parties who are signatories to that contract that they're happy with the terms whichever of the two end points is the one that comes about.  So First needed to be happy with the deal for their shareholders, and the DfT^» (Department for Transport - about) happy with the deal for the government and taxpayer.

A slight qualification to that ... if one (or indeed) both parties can / could unilaterally select the shorter contract, then I don't see that the party/ies with the option of calling halt at the earlier date needed to be happy with the terms, conditions, fees of the potential longer contract.

[Trowres]

I believe that unilateral termination by FGW^▸ (First Great Western) was allowed. In this respect, the current franchise differed from other of the period (eg SWT^▸ (South West Trains)). Why, I do not know.

[Andy W]

On the other hand, whether you think it is immoral or not, could Firsts' Directors have been deemed legally negligent, if they'd approved the extension to the franchise and put the Group in a worse financial position because of it?

Hi SG you're probably correct in which case it never was a 10 year franchise in reality.

A slight qualification to that ... if one (or indeed) both parties can / could unilaterally select the shorter contract, then I don't see that the party/ies with the option of calling halt at the earlier date needed to be happy with the terms, conditions, fees of the potential longer contract.

Interestingly it is bilateral if DfT^» (Department for Transport - about) wanted early termination after 7 years  (on the grounds of poor performance) but unilateral if First terminated at the 7 year point!!! It really beggars belief the way the contract was drawn up. Were all of the other bidders offered these terms I wonder?

However what's done is done - but given that termination is now in effect I see no reason whatsoever why First should have any involvement after that date hence my suggestion that is is run by DOR while the new franchise is negotiated, electrification is completed etc.

[IndustryInsider]

Were all of the other bidders offered these terms I wonder?

That would be my question as well!

[swrural]

Were nearly all prvious contracts the same?

Yes, nearly all had (have) the chance to walk away.  This is due to the backloading element where they would hand over big bonus to the DFT^▸ (Department for Transport) if the last years of the franchise produced the immense growth that they predicted that enabled them to get the contract in the first place.  This is why the GNER^▸ (Great North Eastern Railways) people walked away and why First did the same here.

If they have all tried it on again this time, clearly the DFT will require new bids on a new basis, under whatever arrangements the Inquiry comes up with.   Of course I assume that will cost the taxpayer because the bidders will rightly claim their time has been wasted until now by the DFT.

That's if they bother.

 

[Southern Stag]

This is why the GNER^▸ (Great North Eastern Railways) people walked away and why First did the same here.

The GNER situation was quite different. The parent company, Sea Containers were in financial trouble and they couldn't back the franchise any more, AFAIK^▸ (as far as I know) the government asked them to surrender the franchise because they were basically going bankrupt.

[Andy W]

Yes, nearly all had (have) the chance to walk away.  This is due to the backloading element where they would hand over big bonus to the DFT^▸ (Department for Transport) if the last years of the franchise produced the immense growth that they predicted that enabled them to get the contract in the first place.  This is why the GNER^▸ (Great North Eastern Railways) people walked away and why First did the same here. So Branson was spot on in his complaint.

So to be very clear what you are saying is that most bids are backloaded. The TOC^▸ (Train Operating Company) is fully aware this is the case and (nearly) all franchises have an option to terminate the franchise in order to avoid paying the fee that they tendered.
While I find it very hard to believe - (Paul you seem to be very knowledgeable is this accurate?) then Super Guard's point is very valid

On the other hand, whether you think it is immoral or not, could Firsts' Directors have been deemed legally negligent, if they'd approved the extension to the franchise and put the Group in a worse financial position because of it?

So is there a claim that the directors of other TOCs have been negligent to their shareholders in not terminating contracts early?
Finally -

This is why the GNER people walked away and why First did the same here.

The GNER situation was quite different. The parent company, Sea Containers were in financial trouble and they couldn't back the franchise any more, AFAIK^▸ (as far as I know) the government asked them to surrender the franchise because they were basically going bankrupt.

spot on GNER surrendered their franchise because Sea Containers were basically bust!