Version /09/2014. Commissioning and Managing. the. West Midlands Railway OUR PROPOSITION

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1 Version /09/2014 Commissioning and Managing the West Midlands Railway OUR PROPOSITION

2 The WMR Proposition Contents Preface Why Local? Supporting Devolution Our Strategies and Policies Supporting Economic Growth Re-mapping the Network Accountable, Capable Governance What We Want to Do The Financial Structure Renewal and enhancement Working with Our Stakeholders Procurement and Programme Managing the Risks of Change Five Stage Business Case Summary Page 2

3 Our Vision Championing the needs of passengers and business, West Midlands Rail will manage local rail services as part of an integrated public transport network, directing future investment at increasing our economic performance Preface Commissioning and Managing the West Midlands Railway The West Midlands local rail network is a key economic asset for the region and connects the 14 transport authorities that support this proposal. Experience from across the country demonstrates that better outcomes for passengers and taxpayers can be achieved with local control of rail services. We believe the West Midlands has a strong case for a transfer of responsibility from central to local government with wide-ranging benefits for government, taxpayers and, most importantly, passengers. Working together as West Midlands Rail, Partner Authorities wish to take responsibility for specifying and managing local rail services in the region from 2017 in line with the Department for Transport s refranchising programme for London Midland. Our proposition outlines how we wish to do this and describes the significant benefits we believe will flow from local control of local rail services and the associated remapping of services. We are seeking Department for Transport s (DfT) agreement to this proposal in order that WMR can commence joint working with DfT to develop the proposed franchises and the associated legal and funding frameworks over the coming months. We look forward to actively working with government over the coming months to develop our proposals further. Councillor???? Councillor???? Chair Vice Chair West Midlands Leaders Rail Group West Midlands Leaders Rail Group Page 3

4 1. Why Local? 1.1 The rail network matters most to local people and businesses, and should be commissioned to meet their changing needs, be affordable and easy to use, and attract people to the West Midlands. 1.2 As has been proven elsewhere, decision-making close to people and businesses who use West Midlands rail services would maximise the benefits from national and local investment in the existing network and HS WMR reflects a substantial part of economic geography of the West Midlands Travel to Work area, enabling specification, management and investment in rail services to directly align with local economic, social, environmental and connectivity objectives. 1.4 WMR proposes therefore democratic local control of the West Midlands rail network, by taking direct responsibility for investment in its development and growth as a vital asset for the region s economy, communities and environment. WMR would act as a focus to champion local passenger needs. 1.5 Devolving responsibility would offer many advantages over a centrally-led franchise: Local - a locally-directed organisation for delivering a locally-developed Rail Vision Agile - swifter and more flexible in responding to changing local market conditions and investment priorities Connected - directly engaged in active partnerships with local people, passengers groups, businesses, local authorities and Local Enterprise Partnerships (LEPs) Informed - closely understanding the patterns of demand for local travel to meet and stimulate economic development and delivery of new housing and business capacity Integrated - direct local capability to integrate rail, metro, buses, bicycles, pedestrians and roads in partnerships with local authorities, LEPs and the private sector Balanced - understanding the local links between fares, service levels and passenger facilities with economic development Targeted - rail investment closely integrated with wider economic and infrastructure development led by LEPs through their Strategic Investment Plans (SEPs) Demanding - locally setting and scrutinising the highest commercial, operational, service quality and performance standards of the Contract Operator Focused - a Contract Operator focused on the success and performance of local services 1.6 WMR believes it can, over the longer term, add even greater value as the body best able to understand and influence the patterns of local economic change, movement between communities and passenger demand; this may be a key lever in the transformative power of devolution. WMR is therefore seeking a long-term commitment from Government for rail devolution covering not only the 2017 contracts, but also subsequent contracts. Page 4

5 2. Supporting Devolution 2.1 WMR supports the Government s aspirations to decentralise decision making to local communities. Our proposition is our response to the Department for Transport s invitation to devolve West Midlands rail services. 2.2 The Government s approach to devolved responsibility has been set out in a number of reports and policies : The Coalition Agreement (2010) - We will promote decentralisation and democratic engagement and we will end the era of top-down government by giving new powers to local councils (and) communities. McNulty Report Realising the Potential of GB Rail (2011) specifically noted: The advantages of greater local engagement in the regional railway are: better able to match demand and integrate with the local public transport network; more local market focus to target greater passenger numbers while reducing costs; stronger political and local enthusiasm for maintaining services that have been locally procured rather than the future being determined centrally and remotely; and greater encouragement of innovation in the type and nature of services to be provided. The White Paper Reforming our Railways (2012) - The devolution of more decisionmaking powers from central to local government would give local, democratically accountable bodies a greater say over local services, allowing a stronger input from local passengers than may occur with central and more remote decision-making.. Deployed in the right place, devolution could enable better planning of investment. The Brown franchising review (2012)- the specification and oversight of franchises should be managed by authorities that are closest to their communities and local economies (with specific reference to re-mapping the LM franchise along the lines of our proposition). The Brown review also recommended that the DfT should look at opportunities to create smaller franchises as WMR proposes, commenting that More, smaller franchises will be more attractive to the market than fewer, larger franchises. Smaller franchises in particular are likely to be more attractive to new entrants. And most of the current owning groups would prefer a small portfolio of franchises, since this reduces the impact of failing to win a particular competition and spreads their risk. Page 5

6 3. Our Strategies and Policies 3.1 WMR wishes to take responsibility for specification of the key things that matter to passengers the timetable, fares, stations and car parks, trains, service quality and reliability (which we have described at Section 7 of this Proposition) 3.2 In A Rail Vision for the West Midlands, published by the West Midlands Regional Rail Forum on behalf of all the local authorities in the West Midlands Travel to Work Area, we set out an action plan bringing together the strategies and policies that support our growing railway. The high level objectives outlined in the Rail Vision document are: Improving connectivity Providing passenger and freight capacity Effective local rail franchise governance, more closely aligned to regional priorities Maximising regional benefits of HS2 3.3 Whilst devolution is only one element of a wider strategy for making the Rail Vision a reality, it is as an important mechanism that will help facilitate the delivery of these objectives. 3.4 The Rail Vision includes 12 key attributes for the local commissioning and delivery of rail services in the region: Passenger experience - offering West Midlands people and businesses a visible, recognisable, reliable, value for money rail service they will want to use again and again Clear objectives - using the rail network to actively support the regional economy and a sustainable environment Connectivity - ensuring rail services connect between the right places locally, to the most relevant developing economies across the UK, and take the opportunities created by HS2 High Speed 2 - preparing to maximise accessibility for passengers between the local WMR network and the proposed Curzon Street and Birmingham Interchange HS2 stations New Stations - improving access to rail services via regional Parkway stations serving the Travel to Work area, and new local stations within the region s urban areas Better Interchanges developing services and stations to maximise connectivity between rail and rail, and rail and bus, metro, cycles, cars and pedestrians Better Journey Times - developing opportunities with Network Rail to reduce journey times beneficial to West Midlands local and regional connectivity Sunday and Earlier/Later Services providing services enabling more people to work in the developing 7 day/24 hour economy and at facilities such as Birmingham Airport New Services - assessing the potential of services on existing or re-opened local routes as set out in the West Midlands Rail Vision London - seeking viable direct services for economic hubs such as Walsall, Telford and Shrewsbury, and faster, more frequent services for cities such as Worcester and Hereford Capacity - working with industry and investing partners and LEPs to enhance the value of DfT/NR commitments, provide new capacity and address significant constraints Page 6

7 Accessibility - setting the right standards to make rail services and stations as easy as possible to access for all passengers, and to make sure all operators meet these standards 3.5 WMR rail devolution proposals also support the work WMR Partner Authorities are undertaking to develop the case for long-term investment in transport in the region. The Midlands Connect initiative demonstrates the need to develop transport links that are focused on meeting the economic needs of the region, and that improved rail services will be at the heart of a future investment strategy. WMR believes that a locally specified and controlled rail contract will enable the changes flowing from the Midlands Connect strategy to be more effectively delivered and will allow better alignment of the associated investment programmes with a service development strategy for WMRC and WCC. Page 7

8 4. Supporting Economic Growth 4.1 The link between transport provision and economic growth is well recognised. The aim of the WMR Proposition is to make the management of rail service provision in the West Midlands more accountable to local stakeholders and more responsive to the requirements of regional businesses in order to maximise those economic benefits, which a well-specified, high-quality rail service has the potential to deliver. 4.3 The Government and WMR have the shared objectives of: Supporting economic growth by delivering more capacity and better connectivity; Delivering a better service for passengers, encouraging modal shift and reducing carbon emissions; Delivering a more efficient railway which is better value for the tax payer; Unlocking the potential of HS2; and Making the West Midlands rail network more accountable to local people. 4.4 WMR s case for devolution is premised on delivering rail service improvements which will generate improved economic outcomes. Strong local specification and management will ensure that high level policy objectives are delivered in the most efficient and effective way for the West Midlands so maximising the economic benefits for the region. 4.5 The Strategic Economic Plans (SEPs) developed by the seven Local Enterprise Partnerships (LEPs) that cover the region all recognise the important role that transport and connectivity play in generating economic growth for the West Midlands. This proposition places WMR in a central role for ensuring that rail connectivity is optimised to support these economic growth plans. WMR will be able to ensure that LEP funding is efficiently and effectively targeted at the local schemes which will generate the maximum value for money. 4.6 It is difficult to quantify all of the economic benefits that will result from the devolution of rail services because the WMR proposition would lead to a change of management approach and ethos, rather than a physical enhancement to the rail network. However, WMR will have a clear remit to focus on the delivery of regional economic and social objectives, arguably absent from the current franchising structure. WMR will also have direct access to local rail performance and financial data which will enable the region to make more informed decisions in respect of both rail service delivery and future investment. Furthermore, being managed by people using the local rail network on a daily basis will bring a firsthand passenger focus to the day-to-day decision-making process. 4.7 In the Economic Case of the accompanying Business Case, we have provided examples and analysis to illustrate the scale and scope of the net positive economic impacts that local franchise management could deliver. Some of the ways in which improved economic outcomes can be achieved include: Page 8

9 Meeting the specific local requirements of passengers, employees and businesses through, for example, revising train service specifications to meet the changing needs of major business districts, retail centres, tourist destinations and other centres of economic activity; More effective management of change: Local knowledge and experience would make changes to service easier and better value for money including, for example WMR s understanding of industrial relations issues that could be a barrier to change; More effective integration of rail services with bus, metro and other transport modes, so making better use of the region s wider transport network as a whole, encouraging multimodal journeys leading to a reduction in road congestion; A zonal fares structure covering the entire region, coupled with smart ticketing, making journeys easier and encouraging modal shift; Unlocking the wider regional potential of HS2 through improved access to the new West Midlands high speed station hubs and the maximising the local value of released capacity on the existing network; Using WMR s long-term interest to develop innovative commercial options for funding rolling stock, enhancements to stations and network capability to deliver improved service quality and capacity for growth in movement of employees and expansion of workforce catchments required to support growing business sectors; Maximising the benefits of LEP investment in both the transport network and other local infrastructure; Using local knowledge and working closely with the train operator to deliver more effective off-peak marketing of local rail services, driving modal shift, and increasing revenue. 4.8 Evidence from other regions where devolution of local rail services is already a reality, such as Greater London, and Merseyside, demonstrates that the delivery of such benefits is a realistic expectation. The ability to align the specification and delivery of local rail services more closely with local stakeholder and business requirements will enable the local rail network to play a substantially greater role in meeting wider regional economic and social objectives. Page 9

10 5. Re-mapping the Network 5.1 Our proposition prosecutes the re-mapping of the London Midland franchise to create two new franchises focused on different markets which we have termed: West Midlands Rail Contract (WMRC) - local services in the West Midlands West Coast Connect (WCC) - London commuter and regional West Coast Main Line services, including those operating within the West Midlands 5.2 This market focus will enable each business to be exploited to its full potential, bringing down costs to the taxpayer. Market testing of this proposal suggests that rail operators would welcome such an initiative. 5.3 The existing London Midland services and routes are shown in Figure 3.1 and the proposed WMRC and WCC services are shown in Figure WMRC would include passenger services on the following routes: Shrewsbury - Telford - Birmingham New Street Wolverhampton - Birmingham New Street - Walsall - Rugeley Trent Valley Birmingham New Street - Birmingham International Nuneaton - Coventry (plus Coventry - Kenilworth - Leamington Spa from December 2016) Redditch - Bromsgrove - Birmingham New Street - Lichfield Trent Valley Hereford - Worcester - Birmingham New Street Great Malvern - Worcester - Birmingham Snow Hill - Leamington Spa- Stratford-u-Avon Stourbridge Junction - Stourbridge Town 5.5 WCC would include services on the following routes within the West Midlands: Birmingham New Street - Coventry - Rugby - Northampton - London Euston Birmingham New Street - Stafford - Liverpool Stafford - Nuneaton Rugby Page 10 West Midlands Rail Contract Would: Provide services to 13 out of 14 WMR authorities Operate 112 stations, serving a further 15 Run over 650 trains per day (excl. Stourbridge Town branch) Provide approx. 50% of all services into Birmingham West Coast Connect Franchise Would: Provide services to 9 out of 14 WMR authorities Operate 37 stations, serving a further 34 Provide approx. 13% of all services into Birmingham Operate a fleet of approximately 300 carriages

11 Operate a fleet of approximately 250 carriages Circa 30 Million Passenger Journeys 160M operations cost 56M passenger revenue 37M other revenue Run from 2017 to 2024 (ready for HS2) Circa 28 Million Passenger Journeys 190M operations cost 170M passenger revenue 30M other revenue Run from 2017 to 2024 (ready for HS2) 5.6 WMR s proposed role is different in each: WMRC joint WMR-DfT specification, letting and management of the contract with incremental progress to full WMR devolved responsibility. The December 2017 timetable would form the WMR-DfT base WMRC specification. WCC - direct agreement with DfT on specification of Birmingham-Northampton and Birmingham-Stafford portions of WCC services. 5.7 WMR s proposition seeks to promote WMR rail stations as a community hub, providing interchange and integration between modes and a new customer centred environment. WMR therefore wishes to examine alternative delivery models which use its long-term interest to take a greater future role in WMRC and other operators West Midlands stations to enhance service quality, consistency and multi-modal integration. 5.8 Located at the heart of the UK, WMR would not be a network in isolation. Devolved responsibility would facilitate better integration of operations, investment and marketing of a cohesive local railway forming an active part of the National Rail Network and HS2. To this end WMR commit to continued partnership working with DfT Rail Executive. Franchise Length The assumed timescales for WMR s proposal are for a seven year franchise as recommended in the Brown review (with suitable extension options). This would allow for a subsequent contract to become operational in advance of the significant passenger service enhancements related to the HS2 Connectivity Package and freed up capacity on the existing network from The 2024 date is therefore subject to review and change but referenced as a notional end date throughout this document. Page 11

12 Watford North Garston Bricket Wood How Wood Park Street Fenny Stratford Bow Brickhill Woburn Sands Apsley Guise Ridgmont Lidlington Millbrook Stewartby Kempston Hardwick Bedford St Johns Bedford Berkswell Tile Hill Canley The Hawthorns Jewellery Quarter Wellington Oakengates Telford Central Shifnal Cosford Albrighton Codsall Bilbrook Liverpool South Pky Runcorn Acton Bridge Hartford Winsford Liverpool Lime St Crewe Stafford Alsager Kidsgrove Stoke on Trent Stone London Midland Service London Midland Station Shrewsbury Colwall Ledbury Hereford Stourbridge Town Kidderminster Droitwich Spa Worcester Foregate St Malvern Link Great Malvern Rowley Regis Old Hill Cradley Heath Hagley Blakedown Hartlebury Worcester Shrub Hill Bromsgrove Penkridge Wolverhampton Coseley Tipton Dudley Port Sandwell & Dudley Smethwick Galton Bridge Langley Green Lye Stourbridge Jn Bloxwich North Bloxwich Walsall Bescot Stadium Tame Bridge Pky New St Smethwick Rolfe St Birmingham Moor St Five Ways University Selly Oak Bournville Kings Norton Northfield Longbridge Barnt Green Alvechurch Redditch Hamstead Witton Perry Barr Birmingham Snow Hill Rugeley Trent Valley Rugeley Town Hednesford Cannock Lichfield City Landywood Shenstone Blake Street Spring Road Hall Green Yardley Wood Shirley Whitlocks End Wythall Earlswood The Lakes Wood End Danzey Henley-in-Arden Wootton Wawen Wilmcote Butlers Lane Four Oaks Sutton Coldfield Tamworth Wylde Green Chester Road Polesworth Erdington Wilnecote Atherstone Gravelly Hill Coleshill Pky Nuneaton Aston Water Orton Duddeston Adderley Park Bermuda Park (opens 2015/16) Stechford Lea Hall Bedworth Bordesley Small Heath Marston Green Tyseley Birmingham International Acocks Green Coventry Arena (opens 2015/16) Olton Hampton-i-A Coventry Rugby Solihull Long Buckby Widney Manor Northampton Dorridge Lapworth Kenilworth ( opens 2016) Bearley Stratford-upon-Avon Lichfield Trent Valley Claverdon Hatton Warwick Parkway Stratford-upon-Avon Parkway Warwick Leamington Spa Wolverton Milton Keynes Central Bletchley Leighton Buzzard Cheddington Tring Berkhamsted Hemel Hempstead Apsley Kings Langley Watford Junction Harrow and Wealdstone Wembley Central London Euston St Albans Abbey Figure 5.1 Existing London Midland franchise

13 Watford North Garston Bricket Wood How Wood Park Street Fenny Stratford Bow Brickhill Woburn Sands Apsley Guise Ridgmont Lidlington Millbrook Stewartby Kempston Hardwick Bedford St Johns Bedford Berkswell Tile Hill Canley The Hawthorns Jewellery Quarter Wellington Oakengates Telford Central Shifnal Cosford Albrighton Codsall Bilbrook Liverpool South Pky Runcorn Acton Bridge Hartford Winsford Shrewsbury Colwall Ledbury Hereford Stourbridge Town Kidderminster Droitwich Spa Worcester Foregate St Malvern Link Great Malvern Liverpool Lime St Rowley Regis Old Hill Cradley Heath Hagley Blakedown Hartlebury Worcester Shrub Hill Bromsgrove Penkridge Wolverhampton Coseley Tipton Dudley Port Sandwell & Dudley Smethwick Galton Bridge Langley Green Lye Stourbridge Jn Crewe Bloxwich North Bloxwich Walsall Bescot Stadium Tame Bridge Pky New St Smethwick Rolfe St Birmingham Moor St Five Ways University Selly Oak Bournville Kings Norton Northfield Longbridge Barnt Green Alvechurch Redditch Stafford Alsager Kidsgrove Stoke on Trent Stone Hamstead Witton Perry Barr Birmingham Snow Hill Rugeley Trent Valley Rugeley Town Hednesford Cannock Landywood Lichfield City Shenstone Blake Street Spring Road Hall Green Yardley Wood Shirley Whitlocks End Wythall Earlswood The Lakes Wood End Danzey Henley-in-Arden Wootton Wawen Wilmcote Butlers Lane Four Oaks Sutton Coldfield Tamworth Wylde Green Chester Road Polesworth Erdington Wilnecote Atherstone Gravelly Hill Coleshill Pky Nuneaton Aston Water Orton Duddeston Adderley Park Stechford Lea Hall Bedworth Bordesley Small Heath Marston Green Tyseley Birmingham International Acocks Green Coventry Arena (opens 2015/16) Olton Hampton-i-A Coventry Rugby Solihull Long Buckby Widney Manor Northampton Dorridge Lapworth Kenilworth ( opens 2016) Bearley Stratford-upon-Avon Lichfield Trent Valley Claverdon Hatton Warwick Parkway Stratford-upon-Avon Parkway Warwick West Midlands Rail Contract (WMRC) Service West Coast Connect (WCC) Service: Jointly specified by DfT and WMR Specified by DfT WMRC Station WCC Station Bermuda Park (opens 2015/16) Leamington Spa Wolverton Milton Keynes Central Bletchley Leighton Buzzard Cheddington Tring Berkhamsted Hemel Hempstead Apsley Kings Langley Watford Junction Harrow and Wealdstone Wembley Central London Euston St Albans Abbey Figure 5.2 Proposed West Midlands Rail Contract and West Coast Connect franchises Page 13

14 6. Accountable, Capable Governance 6.1 WMR s governance structure, bringing together partner authorities in the Rail Contract area, is inclusive, democratic and flexible, enabling phased evolution from a joint DfT-WMR specification and letting of the first 2017 WMRC contract to a fully devolved arrangement for subsequent contracts. Table West Midlands Rail: Constituent Local Authorities Metropolitan Authorities Birmingham City Council Coventry City Council Dudley Metropolitan Borough Council Sandwell Metropolitan Borough Council Solihull Metropolitan Borough Council Walsall Metropolitan Borough Council Wolverhampton City Council Shire and Unitary Authorities Herefordshire Council Northamptonshire County Council Shropshire Council Staffordshire County Council Telford and Wrekin Council Warwickshire County Council Worcestershire County Council 6.2 WMR s governance structure comprises of two groups to ensure that decisions can be made effectively with democratic accountability: Leaders Rail Group setting strategic policy and providing democratic accountability West Midland Rail Limited (WMR Ltd) specifying, letting and managing the rail contract through a small, focussed delivery team Furthermore, this governance structure will ensure there is the right capacity within WMR to manage the financial responsibilities and manage risk. 6.3 There are seven principles underpinning WMR s governance, giving flexibility over how each authority wishes to be exposed to the risks/rewards of franchise management: Effective, transparent, democratically accountable decision making Robust financial management Agility to deliver early benefits and respond to changing circumstances A minimum service baseline agreed between all WMR local authorities Flexibility for WMR authorities to develop and fund enhancements above the baseline Active co-ordination with other transport modes, franchises and innovations Active integrated investment with Local Enterprise Partnerships and the private sector 6.4 During 2015, partner authorities will formally establish West Midlands Rail Limited and the Leaders Rail Group. This will enable WMR to fully engage with the DfT franchise programme for WMRC, including consultation, specification and bid evaluation 6.5 In addition, WMR s governance structure is structured to facilitate phased, incremental devolution of responsibility between 2017 and WMR would oversee: Joint specification of the WMRC

15 Terms of the Management Agreement between DfT and WMR A formal early review between WMR and the DfT which will determine the approach to further devolution during and beyond the first franchise term Joint DfT-WMR specification of West Coast Connect local services in the West Midlands and ongoing influence through a side agreement 6.6 WMR would also seek comfort from the DfT over the provision of subsidy for subsequent contracts and also confirmation that investment in WMR services would continue in national funding programmes (HLOS, etc) 6.7 Should the principle of this proposition be accepted by the Secretary of State, WMR will establish the formal Governance Structure, focussing local democratic input to the specification programmes for WMRC and WCC. The Leaders Rail Group have already met in shadow form to formally endorse this Proposition for submission to Government in autumn Experienced Transport Authorities 6.8 West Midlands authorities have extensive experience of contract management, consortium procurement, innovative rail and metro enhancement schemes, prioritisation and making sometimes difficult choices, examples including: Midland Metro Centro Phase 1 development; Contract management; Phase 2 development Car Parks Centro - operation and enhancement of 38 rail station Park and Ride car parks Route upgrades Centro - Jewellery Line development Birmingham-Smethwick Jnc. Centro/Coventry CC/Warwickshire CC - Nuneaton-Coventry upgrade (NUCKLE 1) Centro/Staffordshire CC/Cannock Chase DC/Network Rail Chase Line upgrade New Street Station Gateway Centro with Birmingham City Council, Network Rail, DfT and Department for Business, Innovation & Skills (BIS) New stations Centro/Worcestershire CC - Bromsgrove Warwickshire CC - Warwick Parkway, Coleshill Parkway, Stratford Parkway, Kenilworth Centro/Coventry CC/Warwickshire CC - Arena, Bermuda Park (NUCKLE 1) Station enhancements Centro - ticket offices, Customer Information Systems, Access for All Telford & Wrekin Telford Station upgrade Worcestershire CC - Worcester Foregate St, Malvern Link upgrades Herefordshire Council - Hereford and Leominster Access for All Northamptonshire CC Northampton Station upgrade Coventry CC Coventry Station upgrade Partnerships - Warwickshire Quality Rail Partnership - County Council, Network Rail and TOCs Page 15

16 Centro - Transforming Rail Travel partnerships with TOCs Central Trains Franchise ( ) Centro - Franchise co-signatory bearing some revenue risk with responsibility for fare setting, marketing, monitoring performance, operating incentive regimes, implementing new services, etc. 6.9 WMR would provide the key opportunity and structure for such enterprise, innovation and investment to be combined in an integrated manner in partnership with LEPs and other third parties across the West Midlands Travel to Work Area, an opportunity WMR s constituent authorities are determined to take. Page 16

17 7. What We Want to Do 7.1 Within the phased process from shared DfT/WMR franchise procurement and management between , to full devolution, WMR seeks to progressively: Take responsibility for operation and planning of the West Midlands Rail Contract through being a joint signatory to the contract. Become a key partner with DfT in delivery of the West Coast Connect franchise Take control of the levers driving rail s input to the region s economy and environment 7.2 Through devolution of the local rail network, WMR will seek agreement the DfT bring improvements in the following areas: Passenger Rail Services - specify service levels and enhancements linked to passenger growth and increased economic performance Fares, Ticketing and Marketing - specify fares; drive innovation in multi-modal ticketing technology; pro-actively market rail as part of integrated high quality public transport network; extend Network West Midlands Zonal system across the WMR region. Stations and Car Parks take advantage of WMR s long term interest in stations to consider innovative business models to drive up standards, deliver enhancements, car park capacity, commercial value, third party investment, and widen the role of stations as prime community assets. Provision, Maintenance and Procurement of Rolling Stock - ensure that the Contract Operator delivers a strategy for rolling stock provision that meets timetabling and capacity requirements and delivers good value for money. Investigate new approaches to procure rolling stock, taking advantage of WMR s long-term interest. Safety - continue to deliver a safe railway in partnership between WMR, Network Rail, the Contract Operator, other TOCs, ORR, Rail Safety Standards Board and passenger groups; safety is and must be a basic assumption of all who use the rail network. Performance - provide direct local oversight and scrutiny of WMRC and WCC performance, supported by Service Quality and Revenue Protection regimes incentivising the highest standards for passengers every day. Infrastructure Maintenance and Management - act as a principal regional customer for Network Rail, providing local visibility, focus on performance and value for money Network Enhancements sponsor network enhancement and investment in partnership with the region s 7 LEPs, including potential new routes and services, route regeneration, new stations and local capacity schemes. Other Future Franchises - work with DfT and Welsh Government on specification of other franchises serving the West Midlands including: West Coast (2017); Wales & Borders (2018); Cross Country (2019); Chiltern (2021). High Speed 2 be a key regional client for HS2, and an active partner with DfT, HS2, Network Rail and the LEPs in determining how to unlock the full potential of HS2 and the released national, regional and local capacity in the West Midlands. Page 17

18 7.3 In partnership with the DfT, WMR would seek to be both leader and coordinator of the inputs and outputs of the region s local rail network, with a strongly collaborative approach with Network Rail and other TOCs as well as its constituent authorities, LEPs and third parties. Market Interest 7.4 Financial consultants Grant Thornton have undertaken a Market-Testing exercise on behalf of WMR in order to understand how bidders might react to the creation of the WMRC and WCC franchises and devolved local control. In summary Grant Thornton concluded that: The market concurred with WMR s belief that a smaller West Midlands focus would generate benefits from the increased focus and clearer market when compared to the current London Midland franchise. Although costs were noted...the market still thought that efficiencies could be generated, and moreover, by splitting into two franchises it was likely that the revenue forecasts proposed by bidders would be higher for the two franchises than for the re-letting of another equivalent to London Midland. 7.5 The market testing was undertaken with nine organisations representing potential bidders, including a potential new entrant to the market. Respondents were asked questions relating to both the remapping and devolution. Key findings were: The market can see benefits from re-mapping the current London Midland franchise with a closer market focus, and these are likely to outweigh the costs There will be market interest in both the WMRC and WCC franchises Bidders will be willing to look at future alternative commercial models Bidders would be comfortable contracting with WMR Ltd as long as it had appropriate financial backing and appropriate competence and expertise Bidders could see opportunities for WMR authorities to integrate transport more effectively under a devolved contract. Page 18

19 8. The Financial Structure Revenue, Cost and Subsidy Overview 8.1 Using available data WMR has estimated the split of costs, revenues and subsidy between the West Midlands Rail and West Coast Connect contracts, shown at Table 8.1. Table 8.1 Current Franchise m pa WMRC West Coast Connect m pa m pa Passenger Revenue Other revenue Total Revenue Costs Subsidy/Premium The indicative figures for WMRC subsidy and WCC premium illustrate the different market characteristics of each franchise and shows the potential advantages of franchise remapping which would enable each contract to focus on its own market with better customer and taxpayer outcomes. WMRC - focused attention to the subsidy-dependent part of the current LM franchise WCC - greater incentives and attention to innovation and passenger volume growth while managing the impacts of the HS2 project. WMR Franchise Financial Management 8.3 WMR has assessed the principal franchise model in which operators hold revenue risk, risk sharing models such as Merseyrail and ScotRail, and successful commissioner-risk bearing models such as LOROL, Docklands Light Railway and Tyne and Wear Metro. 8.4 We recognise that to support development of WMR s governance and capability and limit initial risk to partner authorities and the DfT, the award of the Rail Contract will be on a Net Cost basis with revenue risk held by the operator. 8.5 Consistent with this approach, WMR would expect to share in some revenue upside potential, which would be invested directly back into enhance passenger service provision. 8.6 WMR is seeking day-to-day responsibility for the management of the WMRC from Day 1. Financial responsibilities could include payment to the operator, and approval of operator Customer and Communities Improvement Fund and Innovation Fund applications where WMR s local knowledge would be particularly beneficial. Page 19

20 8.7 WMR is keen to ensure that it provides a strong regional leadership and will be a focal point for investment in the local network. As such, WMR would expect to be fully involved in discussions relating to Network Rail Control Period 6 ( ) investment in the region and beyond. 8.8 A mid-franchise review between WMR and the DfT will determine what additional financial responsibilities will be devolved to local control for the remainder of the franchise term 8.9 Any funding agreement between WMR and DfT would need to: Cover the operator subsidy for an agreed defined minimum level of service, including the impact of committed investment schemes (e.g. electrification) Support WMR s appropriate management costs Maintain DfT s Rail Investment Strategy, growth funding and project specific funding (e.g. National Stations Improvement Project, Access for All) Share risks appropriately between DfT and WMR (e.g. national policy, regulation and charges risks remain with DfT) 8.10 Once WMR has further experience and strengthened its capacity relating to franchising and risk, WMR would review the commercial model for subsequent contracts, including different approaches to holding revenue risk. Potential benefits of adopting a different model could include: Full local control of passenger service specification Full local control of fares, ticketing and technology Full local flexibility to change services and fares swiftly to match developing markets Full local specification of facilities, operating hours and staffing levels Close, direct attention to revenue protection and ticketless travel Rail Contract Operator incentivised and focused upon effective cost management Simplified contract bidding, avoiding complex premiums for operator risk-bearing 8.11 WMR would seek comfort from DfT over the long-term availability of funding to support WM rail services irrespective of the commercial framework adopted in subsequent contracts. Page 20

21 9. Renewal and enhancement Maintenance and Renewals 9.1 Network Rail will welcome WMR as a regional focal point, and will be a key partnership to develop. WMR will take a long term view of the regional rail network so will be keen to fully participate in the Long Term Planning process. This partnership will also seek to build on the experience of Network Rail-TOC Local Delivery Groups to use all parties maintenance and renewal resources in a jointly-planned, integrated manner, maximising value for money and avoiding duplication and poor programming. Enhancements 9.2 Through its relationship with Network Rail and the Contract Operator, WMR would be an informed bidder for DfT s CP5 investment funds (and future CP6/7 funds) defined and prioritised via evolution of the regional rail vision A Rail Vision for the West Midlands (Summer 2014) and through Network Rail s imminent route study process. 9.3 WMR will bring together its enhancement aspirations set out in the Rail Vision with those of the Local Enterprise Partnerships to maximise the benefit of joint planning and investment across the whole West Midlands Travel to Work Area, for example developing a joint strategic plan for new and enhanced Parkway/Park and Ride stations. Current Train Fleet 9.4 High quality trains will continue to be required for the West Midlands to meet passenger expectations of quality and accessibility, and to attract and stimulate patronage growth. 9.5 WMR will seek to work closely with DfT and the operator to support the development of a rolling stock strategy to meet the capacity and quality requirements of the West Midlands that delivers improving value for money. For example, urgent investment will be needed to ensure that the fleet complies with accessibility standards the end of Working with the DfT and the operator, WMR would seek to support the development of a Rolling Stock Strategy, which would be owned by the operator, which would determine: A defined fleet of WMR trains A depot, stabling and maintenance plan A cascade plan for rolling stock released by regional or national electrification schemes A plan for catering for growth A plan for resourcing service development proposals Page 21

22 10. Working with Our Stakeholders 10.1 WMR would fit within a wide set of relationships with national, regional and local bodies in the public and private sectors, as well as across the rail and public transport industry As a principal driver of the development of the West Midlands Rail Network, WMR would seek to develop active, innovative industry relationships and partnerships with: DfT - in respect of services in the West Midlands provided by : - The West Midlands Rail Contract and West Coast Connect - The West Coast, Cross Country, East Midland and Chiltern Railways contracts Network Rail - to support the success of WMR and focus on reducing the operational cost of the West Midland local rail network Office of Rail Regulation - to maximise the value for money and outputs of Network Rail and the Contract Operator s activities Rail Safety Standards Board and other rail industry stakeholders - Working together to continue to deliver a safe railway network Rail Delivery Group ensuring integration of local and national opportunities to support and drive the RDG s rail efficiency agenda High Speed 2 early, continued WMR-HS2 engagement to maximise value of both parties investments, and deliver integration between HS2 and the local rail network West Midlands Rail Contract Operator via WMR/DfT specification, tendering and Contract award and subsequent shared commitment to cost-effective delivery Train Operating Companies - via a West Midlands Routes Partnership with all TOCs serving the West Midlands Welsh Government and other neighbouring regional bodies - To ensure seamless linkages between regions Birmingham Airport ensuring coordination of WMR s objectives and investments with those of the Airport, Network Rail, HS2 and Solihull Metropolitan Borough Council Bus and Coach Operators working with the bus industry to best integrate subsidised and commercial services with rail, and deliver high quality bus-rail interchanges Midland Metro to fully integrate marketing and ticketing of Midland Metro phases 1 and 2 with the West Midlands Rail Network WMR Constituent Local Authorities to build relationships with other authority functions such as planning and highways in addition to each authority s formal WMR role Local Enterprise Partnerships as major partners for economic investment, local, regular and routine engagement with the LEPs would be a vital devolution benefit Business, Commerce and Tourism Bodies WMR sees the rail network being a key contributor to the health of business, commerce and tourism Passenger bodies statutory and voluntary bodies will be key partners in determining what the West Midlands Rail Network should deliver and its success in doing so Page 22

23 11. Procurement and Programme Procurement 11.1 The DfT Rail Franchise Schedule proposes a new London Midland franchise from June 2017, preceded by a 15 month Direct Award Interim contract running from April Our proposition seeks the agreement of the DfT for the re-mapping of the London Midland franchise when re-tendered in 2017 to create two new franchises West Midlands Rail (WMRC) and West Coast Connect (WCC) (Section 3 above) 11.3 Subject to such agreement, WMR proposes engagement as follows: London Midland Direct Award Interim Contract - Joint DfT/WMR specification Formal protocol for WMR to oversee the management of franchise delivery WMR Contract OJEU/ITT notices specify a standard Franchise Agreement, and will set out how the franchise will subsequently be managed by WMR Consultation DfT/WMR joint public consultation on the West Midlands and West Coast Connect contracts WMR Contract Specification and Award - Joint DfT/WMR programme, specification, procurement and contract award WCC Contract Specification - Joint DfT/WMR for WCC services in the West Midlands Programme 11.4 Our programme begins with this proposition, is consistent with the DfT Rail Franchise Schedule, and is in three principal stages, with the following key milestones: Milestone 1: WMR s Proposition for WMRC and WCC October Submission of WMR Proposition to DfT Winter 2014 Secretary of State s decision to proceed with franchise remapping and devolution Develop and agree the Heads of Terms for the franchise management protocol Milestone 2: WMR engagement with DfT on Direct Award Autumn agree scope, objectives and passenger benefits with DfT End DfT complete negotiation with London Midland April 2016-June month Direct Award Interim Contract Milestone 3: West Midlands Rail Contract and West Coast Connect Franchise Procurement Page 23 December consultation; agree strategy, specification and Draft ITT with DfT December Pre-qualified bidders selected May Invitations to tender, Franchise Agreement November Contract Bid deadline January Contract Award and commencement of mobilisation June 2017 WMRC and WCC commence

24 12. Managing the Risks of Change 12.1 The gradual transfer of roles and responsibilities from the DfT to WMR will be accompanied by the transfer of risks. Indeed, one of the benefits of devolving responsibility is that being closer to the risk will allow local and more effective management of that risk. Implicit in this phased approach is the need for a clear strategy for identification, transfer and management of risks both between DfT and WMR and amongst WMR s constituent authorities WMR is thus developing a Risk Management Strategy, within which principal risk categories and their mitigation are being assessed. The exact balance between the risks and potential rewards will be subject to detailed discussions. Initially, we would propose to work with the DfT to define the principles behind the amount of risk that would be transferred to the train operator. Once these key principles have been agreed we will then discuss with the DfT how the public sector risks can be best shared between WMR and DfT. The management of this risk sharing and a risk register will form part of the agreement between DfT and WMR. During the franchise WMR will work with Network Rail and the train operator to help them manage their risks Even with full devolution WMR recognises that some risks will be retained by the Secretary of State and in seeking an incremental, phased transfer of responsibilities from DfT to WMR post contract award in 2017, WMR recognises the need to strengthen its capacity further The principal risk categories and their mitigation being assessed include: Financial Risk - WMR has prepared a high-level Financial Risk Register (5 Stage Business Case - Table 4.4) forming the base for a subsequent full and detailed quantified risk register WMR Capability - to extend its capability WMR intends to put in place an experienced team to work with the DfT to specify the LM Direct Award, specify and procure the next West Midlands franchise, and to work with the DfT in specifying the WCC services in the West Midlands. Risk Allocation amongst WMR Constituent Authorities - this would be managed through the Leaders Group under WMR s governance structure, with models currently being considered by WMR constituent authorities for risk-bearing and decision making Network Rail Relationship WMR will need to participate in industry forums and agree a structured working relationship with Network Rail to manage performance and ensure that WMR can effectively input into the Control Period planning processes and agree infrastructure enhancements. Service Specification WMR will work closely with DfT to ensure that an appropriate performance management regime is clearly defined and WMR will then put in place a local team to manage the contract. The agreement between DfT and WMR will need to have clear rules agreed on scope of authority for changes to the specification. Page 24

25 West Coast Connect Birmingham to Northampton and Birmingham to Stafford Services are vital to the West Midlands economy and the local rail network; joint engagement in their specification is a key risk mitigation for WMR Safety - Continuing delivery of operational safety of the prospective Contract network, its passengers and staff, meeting all statutory and industry standards, is and will be a core feature of all relevant components of the proposition development, implementation and operation. Political Under devolved management, WMR may have to make difficult decisions. The WMR proposition is to have an agreed robust governance structure that allows day to day operation on a commercial basis. Page 25

26 13. Five Stage Business Case Summary 13.1 WMR has developed the Proposition in the Five Stage Business Case format required by the DfT. The key components and benefits set out in the Business Case are summarised below Stage 1 - Strategic Case Economic growth via greater rail capacity and better connectivity and integration Better services and stations attracting more passengers and reducing carbon emissions A more efficient, affordable, effective railway which is better value for the taxpayer A rail service which is more accountable and responsive to local people and businesses A local rail network ready to unlock the full potential of HS Stage 2 - Economic Case Better value for money and lower costs via local partnership with the Operator Earlier, larger Contract outputs and revenue available for local re-investment Over 50m (NPV) of direct economic benefits (2010 prices) between 2017 and 2024 Closer alignment of rail investment and services with the West Midlands economy Greater incentives for WMR constituent authorities to invest in rail services and facilities 13.4 Stage 3 - Financial case Premised on existing service and subsidy levels, providing certainty to DfT and WMR Affordable, with subsidy no greater than within a retained single franchise Subsidy c. 66m p.a., based on 93m revenues and 159m costs p.a. Proposition and franchising costs covered by savings and revenue growth Closer, local management of the subsidy-dependent portion of the LM franchise 13.5 Stage 4 Commercial Case and Procurement Strategy DfT procure LM 2015 Direct Award and Contract in partnership with WMR Early establishment in 2014 of an experienced WMR Executive Management Team Early WMR/DfT agreement on geography, service and financial base, term and risk Initial Net Cost Contract reviewed in subsequent contracts. Four agreements: Devolved Funding Agreement (DfT/WMR); West Midlands Rail Contract (DfT/WMR/TOC); West Coast Connect (Local Services) Side Agreement -WCC Northampton/Stafford services (DfT/WMR); Operator of Last Resort (DfT/WMR) 13.6 Stage 5 - Management Case Clear, inclusive and democratic WMR governance structure with early shadow set-up Robust financial management, developing longer-term risk bearing capability Swift, flexible, directly engaged with local people, businesses and LEP investment Processes to include project planning, risk management, assurance and communications Phased programme supporting DfT with LM Direct Award and Contract Page 26