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Government of UK announces termination of rail franchising system [free access]

September 21, 2020

The Government of the UK has announced the termination of the rail franchising system. The 24-year-old franchising system has been temporarily replaced by the Emergency Recovery Measures Agreements (ERMAs) for a period of six to 18 months. The new agreements include lower management fees of up to 1.5 per cent of the base cost of the franchise before the COVID-19 pandemic began and also require operators to improve coordination and drive down excessive capital costs. The new rail operating system will be developed in the upcoming months.

 

Each ERMA requires that the train operating companies (TOCs) have to reach an agreement with the Department of Transport (DfT) by mid-December 2020 to finalise the amount of support and payments that would have been required to terminate the pre-existing franchise agreements in the absence of the pandemic. The amounts will be based on the financial status of each franchise prior to the pandemic and on the DfT’s assessment of their trajectory in the absence of the pandemic.

 

If there is agreement on the termination amount,  the required payments will be due at the end of the ERMA’s term, at which point the pre-existing franchise contract will also be terminated, and the DfT may then negotiate the direct award of a new contract to the TOC. If there is no agreement on the termination amount, the DfT has the right to terminate that ERMA early, with the TOC reverting to all of the pre-existing franchise terms from mid-January 2021.