The emerging shape of the new Passenger Service Contracts

On 4 November 2021, the Department for Transport held its market engagement day on the new Passenger Service Contract (PSC). This form of contract was announced in the Williams-Shapps Plan for Rail earlier this year and is set to replace Franchise Agreements and National Rail Contracts, with competitions for the new PSCs commencing in 2022. The first competitions are expected to be in areas which serve regional and commuter markets.

The market engagement day focussed on:

• the new commercial model underpinning the PSC - where Great British Railways (GBR) will take revenue risk on the majority of services, whilst operators are required to bid a cost-line for which they will be on-risk;
• ensuring operators are incentivised to provide high quality and reliable services for passengers –incentives are being developed in relation to operational performance (expected to be based on Average Passenger Lateness), customer experience, revenue protection and revenue growth;
• the capital and bonding requirements – including levels of parent company support (and associated bonding requirements) and the level of the Performance Bond required; and
• stimulating competition in the market by simplifying the procurement process – ensuring that the process is stream-lined to reduce barriers for new entrants (for example, by removing the current passport requirements).

The Department was keen to emphasise that this was the first phase of market engagement regarding the new PSC and further consultation will follow with questionnaires, technical sessions on specific aspects of the PSC and bilateral meetings with prospective bidders following over the coming months.

On the same day, the Rail Delivery Group (RDG) released its own proposals (on behalf of train operator owning groups) on the structure of the PSCs - Publications | Rail Delivery Group. This paper includes RDG’s view on the principles that should guide PSCs, the split of responsibilities between GBR and train operators, and how best to incentivise behaviours that improve the passenger experience of travelling by rail.

The development of the PSC is critical to achieving the right balance of responsibilities and incentives across the sector in order to deliver the outcomes set out in the White Paper. There will certainly be much discussion regarding its key principles over the coming months.