UK: The Department for Transport’s Operator of Last Resort is to take over the running of Southeastern services after Govia’s current management contract expires on October 16.
The government’s decision follows an investigation of profit sharing agreements, which found that more than £25m of historic taxpayer funding had not been declared. The Department for Transport said this was ‘a significant breach’ of the franchisee’s obligations. The Operator of Last Resort already runs LNER and Northern services for DfT.
Since 2006 the South Eastern franchise has been operated under the Southeastern brand by London & South Eastern Railway, which is owned by the Govia joint venture of the Go-Ahead Group (65%) and Keolis (35%). LSER is currently operating under a directly-awarded management contract running from April 1 2020 to October 16 2021, which DfT had an option to extend to March 31 2022.
Announcing the decision on September 28 Secretary of State for Transport Grant Shapps said ‘there is clear, compelling and serious evidence that LSER have breached the trust that is absolutely fundamental to the success of our railways.’
Shapps said ‘the decision to take control of services makes unequivocally clear that we will not accept anything less from the private sector than a total commitment to their passengers and absolute transparency with taxpayer support.’
‘Significant breach’ of good faith
DfT said an investigation had identified evidence that since October 2014 LSER has not declared more than £25m of historic taxpayer funding which should have been returned.
To date £25m has been reclaimed and further investigations are being conducted into all related historic contract issues with LSER. Following these investigations, the government will consider further options for enforcement action, including statutory financial penalties under the Railways Act 1993.
Go-Ahead and Keolis UK commissioned an independent review on August 11. Although this is ongoing, Go-Ahead acknowledged that errors had been made and that the £25m has been repaid.
‘We recognise that mistakes have been made and we sincerely apologise to DfT’, said Go-Ahead Chairman Clare Hollingsworth. ‘We are working constructively with DfT towards a settlement of this matter.’
Elodie Brian has resigned as Go-Ahead Group Chief Financial Officer, with Gordon Boyd joining the Board as Interim CFO. The announcement of the group’s results for the year to July 3 2021 which had been scheduled for September 30 has been postponed.
Keolis said it would work closely with DfT towards a smooth transition of the franchise. ‘We acknowledge our responsibilities as a shareholder and apologise to DfT‘, the company said. ‘The events at Southeastern do not reflect our commitment to working as a trusted partner. We continue to co-operate in the full independent investigation now underway.’
Business as usual
On October 17 the operation of Southeastern services will transfer to SE Trains Ltd, a wholly-owned subsidiary of DfT OLR Holdings Ltd which was established by DfT to ensure service continuity if a franchise comes to an end without an immediate replacement.
Chair of SE Trains Ltd Robin Gisby said this would not affect day-to-day operations. ‘I’d like to reassure all passengers that this is very much business as usual with no immediate changes. Tickets will remain valid after transfer and new tickets can continue to be purchased in the usual way’, Gisby said.
‘We’re committed to ensuring a smooth transition for passengers, colleagues and our suppliers to continue to deliver punctual, reliable and safe services.’
Shapps said ‘under the new operator, we will prioritise the punctual, reliable services passengers deserve, rebuild trust in this network, and the delivery of the reforms set out in our Plan for Rail – to build a modern railway that meets the needs of a nation’
DfT said there would be no impact on front-line staff, and the decision was ‘no reflection on their professionalism and dedication’.
DfT said the intention was that the services would be returned to private sector operation through a new Passenger Services Contract, ‘allowing private sector investment and innovation to lead the way in delivering a regional railway that works for its passengers.’
Reactions
Go-Ahead Group said it was ‘naturally disappointed’, but stressed that the decision related only to Southeastern and its Govia Thameslink Railway business was unaffected.
Labour’s Shadow Transport Secretary Jim McMahon MP said the situation was ‘yet another example of the complete failure of the franchise model’, adding that ‘ministers have the opportunity to bring all the rail franchises back in house over the next six months. They must acknowledge their previous approach just hasn’t worked.’
Caroline Pidgeon, Chair of the London Assembly Transport Committee, called for the government to hand-over control of all suburban rail lines to Transport for London.
General Secretary of the TSSA trade union Manuel Cortes also called on the government to bring all rail services in England into the public sector. ‘The days of rail franchising must now be well and truly over’, he believed. ‘Our union will now be seeking assurances that this mess in no way impacts our members’ jobs’.
RMT General Secretary Mick Lynch said ‘there now needs to be a forensic examination of all the private rail contracts with those caught cooking the books called to account. It defies belief that even after this scandal was exposed that Govia are still running UK rail services. They should be kicked out and the whole network should be brought into public ownership.’
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The South Eastern franchise covers commuter and regional passenger services in southeast London, Kent and East Sussex including domestic services on High Speed 1.
Following privatisation in 1996 the services were operated by Connex until 2003. The franchise was the first to be terminated through a default, after the operator said it needed more subsidy than it had bid for. Services were operated by the then Strategic Rail Authority until 2006, when the new Integrated Kent Franchise was taken over by London & South Eastern Railway, owned by the Govia joint venture of Go-Ahead Group (65%) and Keolis (35%) and branded Southeastern.
The incumbent was directly awarded a new South Eastern franchise running from October 2014 to June 24 2018, but the subsequent refranchising competition was delayed.
In 2019 the government put the process on hold, citing a lack of bids and the Williams Review into the wider future of rail franchising. Govia’s direct award contract was extended until April 1 2020, and then in the light of the coronavirus pandemic a new directly awarded management contract was put in place to run from April 1 2020 to October 16 2021, with the option to extend to March 31 2022 at DfT’s discretion. |
