First Great Western Franchise

The Secretary of State for Transport (Ruth Kelly): The performance of First Great Western has persistently fallen short of its customers' expectations and has been unacceptable to both passengers and Government.

I can inform the House today that First Great Western has breached its franchise agreement by exceeding the limits on cancellations, and also by misreporting those cancellations.

I can now outline the measures I have taken, and the actions I have agreed with First Great Western, which were reported in an announcement by First plc to the Stock Exchange before the markets opened this morning.

First, I am today issuing First Great Western with a Remedial Plan Notice for exceeding the threshold on cancellations which resulted in a Breach of its franchise agreement.  In response to this notice, First Great Western will submit a Remedial Plan for addressing this level of cancellations.  Discussions are at an advanced stage on what the plan will contain.

Second, I am also today issuing First Great Western with a Breach Notice for misreporting its cancellations.

Third, and importantly for those using First Great Western services, a substantial package of additional benefits for passengers has been agreed.

First Great Western’s franchise contains strict limits on delays and cancellations; specifies the circumstances in which the franchise is in breach, and more seriously still, those circumstances which constitute an event of default; and it sets out the remedies for correcting poor performance.

Every four weeks, the company reports the number of cancellations, and may claim adjustments to the headline number in line with the provisions of the franchise. My Department tests any such claims, allowing only those we agree with. Typically we reach final agreement on performance within six weeks of the end of the reporting period.

For the period ending in mid-September 2007, there were a substantial number of claimed cancellation adjustments, which were then scrutinised by my Department. Early in November 2007, before a conclusion could be reached, First Great Western informed the Department that it had discovered that it had been miscalculating the base numbers of train cancellations. Over subsequent weeks it carried out an internal audit of its method of calculating cancellations which uncovered several errors in the methodology, which First Great Western has now corrected.

First Great Western now accept that they breached the franchise agreement from August to December 2007 in respect of cancellations. I will therefore be issuing later today a Remedial Plan notice.

This requires First Great Western to submit to me a Remedial Plan, to bring the standard of services back to acceptable levels, and it will be contractualised as a Remedial Agreement.  Material non-compliance with the Remedial Agreement would be a default of the franchise agreement, which could lead to the Government terminating First Great Western’s franchise

In order to prepare an acceptable Remedial Plan, First Great Western has committed to employ more drivers and other train crew, to deploy extra carriages and to implement a range of other measures to reduce the number of cancellations.  First Great Western has already commenced implementation of several of the initiatives. 

In addition to the Remedial Plan, First Great Western has offered a package of passenger benefits amounting to £29m.

First Great Western has already announced that it has doubled passenger compensation for this year.

But First Great Western has also now committed to the following benefits, as described today to the Stock Exchange:

  • further improved passenger compensation from 2009 to 2010;
  • an additional 500,000 cheap off-peak tickets on some of the most popular routes from April of this year;
  • additional carriages on the Cardiff-Portsmouth route from this summer, to provide extra capacity;
  • new, and additional, high-quality information equipment to be installed at more stations than already committed in the franchise agreement; and
  • refurbishment of Thames Valley commuter trains to a higher standard than committed in the franchise agreement to commence this year and to be completed by 2011.

It is also open to me to impose a monetary penalty on First Great Western for under-reporting their performance last year.  Any penalty would be paid to central Government.  Having considered this carefully, and given that a penalty would not, itself, help passengers, I have opted instead for passengers to receive a better benefits package as described above.

The franchising system has encouraged good performance from operators, with many train companies operating above target performance levels.  However, in the light of the errors in self reporting which First Great Western brought to light, I have asked my officials to audit reported performance on a risk basis, in particular for those train operating companies whose performance is close to their franchise benchmarks.

Delivered: 26 February 2008

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