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Public Transport Partnerships PUBLIC TRANSPORT PARTNERSHIPS An Overview of Passenger Rail Franchising in Victoria March 2005 Department of Infrastructure PUBLIC TRANSPORT PARTNERSHIPS An Overview of Passenger Rail Franchising in Victoria March 2005 Public Transport Division Department of Infrastructure © State of Victoria 2005 Published by Public Transport Division Department of Infrastructure 80 Collins Street, Melbourne March 2005 www.doi.vic.gov.au This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968. Authorised by the Victorian Government, 80 Collins Street, Melbourne. Minister’s Foreword In February 2004, after the failure of the original privatisation framework, the Victorian Government entered into new franchise agreements with Melbourne’s public transport companies, Yarra Trams and Connex. These partnership agreements find the balance between government support for public transport in Melbourne and the operational expertise provided by experienced private rail operators. Almost one year on, the new arrangements are running smoothly, providing stability across the public transport system and giving a solid foundation for a range of improvements in service delivery. Some of the other benefits to passengers that stem from these agreements include: • Additional front-line customer service staff; • Increased security patrols; • Improved driver training programs; • All night New Year’s Eve services; • Additional rolling stock; and • Improved standards for the upkeep of transport facilities. The key themes of this summary report include the background to the failure of the original contracts, the renegotiations, the nature of the new partnership agreements and the challenges of the refranchising process. You can obtain the latest information about Melbourne’s public transport by visiting www.doi.vic.gov.au/transport I commend this report to you. Peter Batchelor MP Minister for Transport State Government of Victoria, Australia March 2005 Department of Infrastructure 2 Purpose of this document This document has been prepared by staff within the Public Transport Division of the Department of Infrastructure to assist interested parties to understand the history, processes and rationale associated with the refranchising of metropolitan train and tram services undertaken between 2002 and 2004. In particular, it examines the reasons behind decisions made on contract design. While this document is intended to be comprehensive and accurate, it is not a substitute for a review of the legal contracts or detailed documentation retained by the Department of Infrastructure on the policy, process and Offer evaluation issues associated with the refranchising process. In particular, no action of any sort should be undertaken in reliance of information in this document. This document is divided into five main sections: 1. Background – a history of the structure of public transport in Victoria and the original franchising process, discussion of what went wrong and preparation for refranchising. 2. The Refranchising Process – a summary of the procedures and strategy adopted by the Refranchising Team in managing the amalgamation and refranchising of the metropolitan train and tram businesses. 3. The Outcome – an overview of the new industry structure, including details of the Yarra Trams, Connex and Metlink structures. 4. Contract Design – a detailed discussion of the processes and requirements set out in the franchise contracts. 5. The Legal Framework – an overview of the key franchise documents and how these interact. Department of Infrastructure 3 CONTENTS Chapter 1: Background....................................................................................................... 5 Early history ....................................................................................................................... 5 Recent history and prelude to privatisation......................................................................... 5 The 1999 franchising process ............................................................................................ 6 The original franchise arrangements.................................................................................. 7 What went wrong ............................................................................................................... 8 Settlement Deeds and the IOAs....................................................................................... 12 Chapter 2: The Refranchising Process ............................................................................ 15 Retender, renationalise or renegotiate? ........................................................................... 15 The Government’s refranchising objectives...................................................................... 17 Foundations of refranchising............................................................................................ 18 Structure of the Refranchising Process ............................................................................ 22 Documents provided to franchisees ................................................................................. 24 Public Sector Benchmark................................................................................................. 26 Probity and information gathering..................................................................................... 28 Negotiation....................................................................................................................... 31 Evaluation of Offers ......................................................................................................... 31 Chapter 3: The Outcome ................................................................................................... 35 Yarra Trams’ franchise structure ...................................................................................... 35 Connex’s franchise structure............................................................................................ 36 Metlink ............................................................................................................................. 40 Summary of roles and responsibilities.............................................................................. 45 Chapter 4: Contract Design .............................................................................................. 47 Operations and service delivery ....................................................................................... 47 Incentive mechanisms...................................................................................................... 55 Risk and financial management ....................................................................................... 59 Asset management .......................................................................................................... 65 Rolling stock ....................................................................................................................75 Projects and project delivery ............................................................................................ 78 Business planning and reporting ...................................................................................... 85 Contract variations ........................................................................................................... 88 Payments......................................................................................................................... 88 Metlink ............................................................................................................................. 91 Chapter 5: The Legal Framework ..................................................................................... 95 Transaction Documents ................................................................................................... 95 Metlink Agreements ......................................................................................................... 97 Direct Agreements ........................................................................................................... 98 Enforcement of contracts ................................................................................................. 99 Termination arrangements ............................................................................................. 100 Appendix 1: Financial Summary .................................................................................... 101 Appendix 2: Risk Allocation Table ................................................................................. 103 Appendix 3: Key Projects ............................................................................................... 115 Appendix 4: List of Documents ...................................................................................... 119 Appendix 5: Glossary of Terms...................................................................................... 123 Department of Infrastructure 4 Chapter 1: Background 1.1 Early history Melbourne’s first railway line opened between Flinders Street and Sandridge (now Port Melbourne) in September 1854, and over the next decade the railway spread across the city area. Cable trams appeared in Richmond in 1885, and the first electric tram began operation between Box Hill and Doncaster in 1889. By the early 1900s, Melbourne had a comprehensive train and tram network,
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