Saturday, 18 June 2022

First Group Signs National Rail Contract for GWR

FirstGroup plc has signed a Direct Award with the Department for Transport (‘DfT’) to continue operating Great Western Railway (‘GWR’) services from when the Direct Award under which services are currently being operated comes to an end.

The agreement runs until 31 March 2023, with a possible extension of up to one further year at the DfT’s discretion. The agreement ensures continuity of operation and will run concurrently with the DfT’s previously announced Emergency Measures Agreement (‘EMA’) for at least the first six months. 

FirstGroup’s experience of managing the route over many years will be crucial to restoring the service to full operation once the immediate crisis has abated, and will facilitate the ongoing transformation of GWR, through the biggest changes to the network in a generation.

The announcement provides continuity for customers, employees and other stakeholders beyond the period of emergency measures currently proposed, as well as an appropriate balance of risk and reward between FirstGroup and the Government, supported by a contractual Forecast Revenue Mechanism (‘FRM’) which eliminates the majority of the revenue risk. 
GWR will build on the improvements it has delivered to services over the past five years, with a focus on connecting people and local communities looking to restore normality when the present restrictions on travel due to the coronavirus pandemic are over.

The agreement has a strong emphasis on improving regional connectivity, helping customers return to the railway by making rail a more convenient and environmentally-friendly way to travel. As part of this, GWR will bring additional trains into service to provide thousands of extra seats on regional routes across the network.

There will also be increased funding to improve services for local communities and at stations, and the introduction of a combination of new flexible ticket products for customers who do not commute to work every day, such as discounted part-time season tickets and the extension of paperless pay-as-you-go schemes.

Since 2015, GWR has successfully delivered new fleets of modern intercity and local trains comprising 785 new carriages, and introduced faster, more frequent services for customers across the network through the successful introduction of the largest timetable change in decades last December. 
GWR recently posted some of its highest ever passenger satisfaction scores and delivered the most improved punctuality scores in the UK last year.

Commenting, Matthew Gregory, FirstGroup Chief Executive, said:

“Whilst the immediate focus of GWR is to ensure that key workers, vital to the country’s response to coronavirus, can get to where they need to go, continuity of rail services will also be critical to a restoration of normal life when the present uncertain and difficult situation is overcome. In the longer term this new agreement will mean that customers can return to rail as their preferred choice of travel; with more seats, more services, better stations and more flexible ticketing to help reconnect the people and communities we serve.

“When the present emergency measures agreed with Government come to an end, today’s agreement will ensure that GWR will continue to deliver sustainable benefits for customers and an appropriate balance of risk and reward for our shareholders and the Government. 

We are proud of GWR’s achievements over the last few years, working with industry partners to transform the experience for passengers with new, faster and more environmentally friendly trains and a timetable offering record fast journey times to the major towns and cities on the route.”

The new agreement for GWR begins when the previous Direct Award contractual arrangements end on 1 April 2020 and has a three year duration to 31 March 2023 with a possible extension of up to one year at the DfT’s discretion.

As previously announced on Monday 23 March, FirstGroup welcomes and has accepted the comprehensive response of the UK Government to provide emergency support for the country’s vital rail networks during the coronavirus pandemic. These measures will provide continuity and certainty for all DfT-let rail franchises through EMAs which will last six months or longer if required. For the duration of the EMAs, the Government will take revenue and cost risk, and franchise operators will be paid a fixed management fee with the potential for a small performance-based fee.

At the conclusion of the EMA period, GWR will operate services as a franchise with revenue risk shared with the DfT through a Forecast Revenue Mechanism (‘FRM’) governed by today’s agreement, which also makes provision for a revenue rebasing exercise as required. The FRM will apply if revenue variances differ from target in the bid assumptions, outside of a nil rate band, and is available from the start of the agreement. 
Payments or receipts occur when actual revenue is 1.5% higher or lower than the expected FRM revenue, at 90% of the revenue difference.

FirstGroup, as parent company to GWR, will provide subordinated contingent loan facilities of £10m (£5m of which is bonded) and a performance bond of £10m to GWR, as well as a cash-collateralised season ticket bond of c.£35m. A wide range of scenarios were considered as part of the modelling to assess the award, including with respect to pensions, passenger demand and to the risk sharing mechanisms provided by DfT, and the Board of FirstGroup is of the view that there is an appropriate balance of risks and rewards in the agreement.