Secretary of State powers under Section26(1) of the Railways Act 1993

Introduction

1. This statement of policy is published by the Secretary of State for Transport (the "Secretary of State") pursuant to section 26(4A) of the Railways Act 1993 (as amended) (the "Act").
2. Terms defined in the Act have the same meanings when used in this statement unless the context requires otherwise.
3. Section 26(1) of the Act provides that the appropriate franchising authority may select the person who is to be the franchisee in relation to a franchise agreement from among those who submit tenders in response to an invitation to tender under section 26 of the Act for the right to provide, or to secure that a wholly owned subsidiary provides, services for the carriage of passengers by railway under that franchise agreement.
4. The Secretary of State is the appropriate franchising authority in relation to all franchise agreements except Scottish franchise agreements.
5. Section 26(4A) of the Act requires the Secretary of State to publish a statement of policy about how she proposes to exercise her power under section 26(1) (the "Franchising Power").
6. Section 26(4B) of the Act requires that statement to include the policy of the Secretary of State about:
   1. when her selection of the person to be a franchisee under a franchise agreement is likely to be from among those submitting tenders in response to an invitation to do so;
   2. when it is likely such an invitation will not be issued; and
   3. the means by which she is proposing that the selection will be made in cases where there is no such invitation.

General use of the Franchising Power

7. The Secretary of State intends to award franchises by means of a competitive process wherever possible. It is therefore likely that her selection of the person to be a franchisee under a franchise agreement will be from among those submitting tenders in response to an invitation to do so in all cases except those mentioned at paragraph 9 below.
8. Where a franchisee is selected from among those submitting tenders in response to an invitation to do so, that selection will be based on an analysis of those tenders in relation to criteria set out in the invitation to tender and associated documents made available to the bidders. Such criteria are likely to include:
   1. consistency with the Secretary of State’s strategic objectives, (and those of the Welsh Assembly Government (WAG) in the case of the Wales and Borders Franchise);
   2. affordability;
   3. the ability of the bidder to deliver the specification set out in the invitation to tender; and
   4. value for money.

Circumstances in which it is likely that an invitation to tender will not be issued

9. It is likely that an invitation to submit a tender for the right to provide, or to secure that a wholly owned subsidiary provides, passenger railway services under a franchise agreement will not be issued where:
   1. it is necessary to re-let a franchise earlier than anticipated as a result of the early termination of that franchise;
   2. the Secretary of State’s duty under section 30(1) of the Act arises;
   3. a short-term franchise agreement is required to facilitate franchise remapping; or
   4. the Secretary of State considers that, as a result of some temporary uncertainty or instability, best value would be secured by letting a franchise on a short-term basis;
      
      and in the Secretary of State’s opinion:
      
      
   5. it would be impracticable to issue an invitation to tender because of the shortness of the interval between the relevant circumstances falling within paragraphs a) to d) above arising and the date when services are required to begin under the new franchise agreement; or
   6. if an invitation to tender were issued, any bids received in response to that invitation would not represent value for money, or would not be affordable, as a result of the shortness of the term of the proposed new franchise agreement, or any other circumstance.

The circumstances listed at b) and c) above are described in more detail at paragraphs 10 and 11 below.

Section 30(1) duty

10. The Secretary of State has a duty under section 30(1) of the Act (frequently referred to as 'the operator of last resort duty') to provide, or secure the provision of, services for the carriage of passengers by railway where a franchise agreement is terminated or otherwise comes to an end but no further franchise agreement has been entered into in respect of the services provided under the terminated or expired franchise agreement.

Franchise remapping

11. The Secretary of State is required by section 23(1) of the Act from time to time to designate such services for the carriage of passengers by railway as she considers ought to be provided under franchise agreements (except in relation to Scotland-only services). In exercising the Franchising Power she may from time to time require a revision to the allocation of the services designated under section 23(1) to particular franchise agreements. This may require simultaneous changes to the scope of services provided under franchise agreements with different expiry dates. She may therefore from time to time enter into a short-term franchise agreement in order to secure the provision of services during the interval between the cessation of services under an existing franchise agreement and the commencement of a new ‘remapped’ franchise.

Means by which selection will be made if no invitation to tender is issued

12. If no invitation to tender is issued in either of the circumstances described at paragraphs 9(c) or (d) above and one of the circumstances described at paragraphs 9(e) or (f) above exists, and provided the existing franchisee agrees, the Secretary of State proposes to appoint the existing franchisee to be the franchisee under the short-term franchise agreement on terms substantially the same as those of the existing franchise agreement.
13. If no invitation to tender is issued in other circumstances where the Secretary of State’s duty under section 30(1) of the Act arises in relation to a franchise agreement, then the Secretary of State proposes to select as franchisee, or operator, of the franchise to which that franchise agreement relates a company which is wholly owned by her and which has not previously traded.

No adequate tender for franchise received

14. Section 26ZA of the Act sets out courses of action available to the appropriate franchising authority where, in the case of an invitation to tender under section 26 of the Act for the provision of services:
    1. the appropriate franchising authority receives no tender in response to the invitation; or
    2. it receives a tender but considers that the services would be provided more economically and efficiently if they were provided otherwise than under a franchise agreement entered into in response to the tender.
15. For the avoidance of doubt, the Secretary of State may also select the person to be a franchisee under a franchise agreement without issuing an invitation to tender in the circumstances described at paragraphs a) and b) above.

Franchise extension provisions in franchise agreements

15. A franchise agreement may contain provision for the term of the franchise to be extended either automatically in specified circumstances or at the discretion of, or by agreement with, the Secretary of State. This statement of policy does not apply to such extensions. However, it is likely that the Secretary of State will exercise any such discretion, and consider any such agreement, in accordance with the criteria set out at paragraph 8 above.

Delivered: 20 March 2008