Franchise under pressure: an SWR Class 159/158 combo passes through Raynes Park with an Exeter St David's to Waterloo service on 20 January 2020.
Rail franchising has ended, say UK Government ministers, as Emergency Recovery Management Agreements (ERMAs) have succeeded the Emergency Measures Agreements (EMAs) introduced in March at the onset of the coronavirus pandemic.
The Department for Transport described the ERMAs as ‘transitional contracts to prepare the ground for the new railway’. It says the new management agreements have ‘tougher performance targets and lower management fees’, the latter being set at a maximum of 1.5% of the cost base of the franchise before the pandemic began, compared to the 2% maximum with the EMAs, but with a stronger weighting towards performance delivery. According to FirstGroup, the DfT intends to begin discussions with operators to transition to new directly awarded contracts for the longer-term, which would come into effect at the end of the ERMAs.
The EMAs were introduced in March and saw Government take revenue and cost risk rather than train operators due to the fall in demand caused by the pandemic. Most ran out on 20 September. Government says the announcement of ERMAs has the full support of Keith Williams, who led the as yet unpublished Rail Review, with the promise of a white paper responding to Mr Williams’ recommendations to be published ‘when the course of the pandemic becomes clearer’.
According to a regulatory announcement from FirstGroup, by mid-December this year the ERMAs require operators to agree with DfT whether, and if so, how much parent company support or other payments are required to terminate the pre-existing franchise agreements, the object being to determine ‘how much parent company support (PCS) or other sums would have been payable had the pandemic not occurred’. Amounts will be based on ‘the financial status of each franchise prior to the pandemic and the DfT’s assessment, acting reasonably, of their potential trajectory for the remainder of the franchise term under those pre-existing agreements in the absence of the pandemic’.
If a termination sum is agreed, it would fall due at the end of the ERMA term, at which point the franchise contract would also terminate by agreement. If the termination sum for an operator cannot be agreed by mid-December DfT has the right to terminate the ERMA early, with the operator reverting to ‘substantially all of the pre-existing franchise terms, from mid-January 2021’.
The ERMA for FirstGroup’s West Coast Partnership franchise will run to the end of March 2022, while those for South Western Railway and TransPennine Express will run to the end of March 2021, with the potential for TPE’s ERMA to be extended to September 2021 if the termination assessment indicates no default would have taken place over the franchise term. All three include options to extend their duration by a further half-year at DfT’s discretion. First’s Great Western Railway franchise will continue to run under an EMA until at least June 2021.
Govia Thameslink Railway will operate under an ERMA until the end of its contract term in September 2021, with the potential for a further extension. Govia’s other franchise, Southeastern, will continue under an EMA until October 2021, or March 2022 if extended.
Abellio’s ERMAs for its Greater Anglia and West Midlands Trains franchises run until September 2021, with that for East Midlands Railway expiring in March 2022. The ERMA for the Chiltern franchise, operated by Arriva, runs until that franchise expires in December 2021. Arriva’s other franchised operation, CrossCountry, had a longer initial EMA period until 18 October, concurrent with the end of its direct award franchise agreement, and negotiations with DfT regarding a future arrangement are ongoing. Lastly, c2c, owned by Trenitalia, has an ERMA running until March 2021.
The Scottish Government confirmed on Friday 18 September that the EMAs for the ScotRail and Caledonian Sleeper franchises, which were also due to expire on 20 September, will continue until 10 January 2021. Scottish Cabinet Secretary for Transport, Infrastructure & Connectivity Michael Mathieson confirmed discussions with both operators regarding a longer-term plan for contractual arrangements after this date were to commence ‘immediately’. Mr Mathieson said under the new EMAs the payment of management fees to either operator would ‘depend entirely upon achieving satisfactory performance metrics’.
The EMA for the Transport for Wales franchise, funded by the Welsh Government, runs until the end of November, having been announced at the end of May, although prior to this the Government covered 80% of the franchise’s losses.
Both LNER and Northern are operated by DfT's Operator Last Resort and are therefore not subject to emergency agreements. Merseyrail, let by Merseytravel as a concession to a joint venture of Serco and Abellio, has not benefited from any contractual change and continues to operate under pre-Covid terms. The London Overground and Crossrail concessions let by Transport for London to Arriva and MTR respectively have TfL taking revenue risk rather than the operator and therefore the operators were not exposed to the sudden fall in demand prompted by the pandemic in the same way as traditional franchises.