Job Vacancy and Serco financial crisis

20 February

Transport Scotland seeks new Rail Franchise Manager

Julian came across this job advertisement, and comments

Has the last incumbent been found lacking?  Is Transport Scotland getting jittery?  Why is this happening now?

A crucial point in the job description is:

The post holder will be responsible for overseeing the management of the current rail franchises – ScotRail and the Caledonian Sleeper, with specific emphasis on leading complex contractual negotiations and variations on behalf of Scottish Ministers.

It is the transparency of these complex contractual negotiations and variations that has been our concern.

I also like:

The role will also require the postholder to lead on continued agency preparedness and contingency planning, in the event Scottish Ministers are required to utilise their powers under Section 30 of the Railways Act (as amended 2005). This ensures the operation of passenger services in the event a franchise agreement is terminated or otherwise comes to an end but no further contract has been entered into in respect of the services.

Serco financial crisis

Could the last paragraph quoted above have anything to do with a warning from Serco that it might seek an early exit from the Caledonian Sleeper franchise, as reported in the Press & Journal on 23 February by Keith Findlay?

Sleeper blows hole in Serco’s finances

Higher-than-expected operating costs for Caledonian Sleeper trains have blown a £47million hole in the balance sheet of operator Serco, prompting a warning from the company it may seek an early exit from the 15-year franchise.

Reporting 2017 results yesterday, the outsourcing giant said a net charge of £30.6million was driven by a “sharp increase in the estimated costs related to the delayed introduction and operation of the new sleeper service”.

One-off gains offset the financial impact of running night trains between London Euston and Edinburgh, Glasgow, Fort William, Inverness and Aberdeen.

Serco’s results statement added: “We will be examining every option for reducing operating costs.

“The position under the contract is expected to improve over time as the terms of the franchise agreement provide a mechanism that requires Transport Scotland to bear 50% of contract losses from April 1, 2020.

“In addition, from April 1, 2022, we have the right to seek adjustments to the financial terms of the franchise agreement that would result either in a small positive profit margin for Serco from that date, or allow us to exit the contract.”

Serco took over Caledonian Sleeper services, previously part of ScotRail, on March 31, 2015.

Serco’s bottom line pre-tax profits tumbled to £19.1million in 2017, from £29.6million the year before. But underlying trading profits were “at the top end” of its expectations, at £69.8million.

There was a similar article by Andrew Picken in the Sunday Post on 25 February


22 February

Minister writes to Parliamentary Committee

Julian has found an interesting letter written by Transport Minister Humza Yousaf to Edward Mountain MSP, Convenor of the Scottish Parliament's Rural Economy and Connectivity Committee, just after the Serco financial results were made public.  He appears to be specifically alerting the committee to the possibility of major re-structuring of the franchise agreement, or Serco's withdrawal from it altogether, while at the same time trying to reassure them that everything will be all right.  Here is part of what he says

"Serco is contracted to deliver the contract in the terms agreed in its Franchise 
Agreement with the Scottish Ministers.  Serco have confirmed they are committed to 
continuing  the contract. 
"It is important to acknowledge that, in contracts of this type, risk-sharing mechanisms 
are inevitably included to reflect the significant complexities of long term projections 
and assumptions.  In this case, after 7 years the franchisee can propose a 
contractual recalibration of the basis on which payments to it are calculated.  
Ministers can either accept that proposal or exercise their right to terminate the 
contract in response.   
"Similarly, the contract also includes a mechanism that, after 5 years, potentially 
shares exposure to losses.  If Serco were to seek to rely on that mechanism to 
mitigate some of its projected losses, a key task for the Scottish Government will be 
to closely interrogate any claimed entitlement to such support, and that is what we 
will do."

Read the  full letter .  


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