Operator of Last Resort
Michael Doyle
Assurance Manager
5 April 2022
ScotRail was nationalised on April 1st 2022 for the first time in 25 years since the privatisation of British Rail, and on first inspection the switch appears to have gone well. The new Scottish national railway is the operator of the of the electric Hitachi Class 385 fleet which runs mainly between Glasgow and Edinburgh and forms a key role in the decarbonisation agenda.
This is in stark contrast to the historic assets such as the now famous Glenfinnan Viaduct in the Highlands which provides a vital mobility link for the local community and tourist alike to get around Scotland, although highly dependent on diesel traction.
The above examples highlight the diverse and challenging nature of the Scottish Rail network and the issues in the coming years so perhaps it is correct that the railway is now in public ownership.
This blog is going to explore the mechanism which allowed the transition to happen and ensure the UK rail network will always function, no matter what is thrown at it.
The franchising model of the railway took a blow in 2020 when the pandemic cut rail travel passenger numbers to nearly a tenth of the normal figures. Even today with restrictions ending and rising numbers of people returning to offices, a new paradigm of working from home has emerged.
The franchise model for Train Operating Companies (TOC) requires a certain amount of farebox income to sustain the franchise payments to the government. With mostly fixed overheads, regulated fares and a massive fall off in usage because of lockdowns, the government were forced to suspend franchising and implement emergency measures agreements (EMAs) with all the TOCs. These EMAs paid a management fee to the TOCs to allow them to continue operating the trains on the network without concern for farebox revenue. As the pandemic continued and the original EMAs came to an end, emergency recovery measures agreements (ERMAs) were brought in as a longer-term solution which included ending the franchises.
Under the legislation that initially brought in franchising, the Railway Act 1993, the government is responsible for ensuring trains continue to operate in the absence of a franchise. This led to the DfT implementing the Operator of Last Resort (OLR) process. This runs alongside contract and franchising negotiations to provide the option of a state-owned operator should the franchise be terminated. The table below indicates the heavy rail franchises which have been terminated to date and so the OLR is now the Operator.
The OLR is a shadow company which ensures a number of items are able to legally transfer from the incumbent operator, e.g., TUPE of staff and leases for property, to allow a transition to the OLR in the event of mobilisation. The OLR advisory team are made up of industry experts across a range of disciplines from HR to Operations to Safety, who perform due diligence activities ahead of any potential mobilisation to understand the risks inherent to the TOC. This team also performs the majority of the activities required to transition to the OLR during mobilisation.
I have been working with DfT, Transport Scotland and Transport for Wales over the last two and a half years as an advisor for Safety and Licensing for the OLR work and have supported the mobilisation of the OLRs for the Wales & Borders franchise and the Southeastern franchise, as well as the ScotRail mobilisation on 1st April. This involved ensuring the safety certification and safety authorisation were in place from the Office of Rail and Road and the licence conditions were implemented ahead of the transfer as well as ongoing monitoring of risks and arising issues.
The decision to mobilise an OLR is one taken at high levels of government. In the past, this decision was made for them with the East Coast franchise being handed back on two occasions due to financial issues and more recently accounting issues highlighted over £50m of franchise payments not made by Go-Ahead to the government, forcing a mobilisation of the OLR in October last year. Similarly, the COVID pandemic has encouraged political decisions to bring in Transport for Wales Rail as a public operator in February 2021 and ScotRail now follow suit.
We have seen great changes in the industry in this short time and now with the Williams-Schapps plan, a post-franchising railway is beginning to emerge. Passenger Service Contracts which build on the concession model will replace franchises. Public service operators like ScotRail and the introduction of Great British Railways should also see a different rail network emerging in the coming years, particularly when achieving decarbonisation. I have great faith in the industry’s ability to improve the offering to the public and the Operator of Last Resort will continue to be the safety net to ensure Britain’s railways keep people moving.
