Virgin given 23-month contract after three stage process dropped

The Department for Transport has revised its short term plan for reletting the West Coast franchise, after train operators argued that it was overly complex, and could potentially prolong both the hiatus in awarding a new long term contract and delay commercial developments on the route.

Initially, the DfT had announced that it would offer Virgin a 13-month franchise extension, and then let an interim contract on the open market  prior to letting a new long term franchise. However, Virgin has now been awarded a management contract for up to 23 months to November 2014, after which the new long term franchise will operate.

The DfT told Passenger Transport that the revised arrangements for the West Coast were “based on feedback from industry”. It added: “We feel the length of time we have contracted with Virgin Rail Group is the right time needed to run a competition for a longer franchise.”

The 23-month franchise extension will see Virgin earn a fee of 1% of revenue, considerably below the current operating margin in the final two years of Virgin’s previous 15-year franchise which ranged between 5-10%, and below the 3.7% margin on the subsequent nine month franchise extension.

However, the new 23-month contract makes provision for the DfT and Virgin to agree revised commercial terms that would see Virgin take greater revenue and cost risk. It also allows for the contract to be terminated up to six months early if the DfT is in a position to let the new long term West Coast franchise in a shorter timescale than currently anticipated.

Virgin said that during the 23-month contract it would make service improvements including better station facilities, onboard enhancements and an improved compensation scheme for customers whose journeys are delayed. The detail will be discussed with the DfT in the coming weeks.

The announcement of Virgin’s new management contract coincided with the completion of its programme to lengthen the Pendolino fleet providing 28,000 extra seats, and came four days before the launch of an enhanced Glasgow-London service which saw two additional trains per day start operating in each direction to provide an hourly service.

 

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