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Managing the Performance of Rail Franchisees the Performance Managing Victorian Auditor-General’S Report Victorian Auditor-General’S Managing the Performance of Rail Franchisees Rail Performance of the Managing Managing the Performance of Rail Franchisees December 2016 December Victorian Auditor-General’s Report December 2016 2016–17:14 2016–17:14 Level 24 Telephone 61 3 8601 7000 35 Collins Street Facsimile 61 3 8601 7010 Melbourne Vic. 3000 www.audit.vic.gov.au 102561 Managing the Performance of Rail Franchisess_COVER.pdf | Page 1 of 1 102561 Managing the Performance of Rail Franchisess_COVER.pdf | Page 1 of 1 V I C T O R I A Victorian Auditor-General Managing the Performance of Rail Franchisees Ordered to be published VICTORIAN GOVERNMENT PRINTER December 2016 PP No 228, Session 2014–16 This report is printed on Monza Recycled paper. Monza Recycled is certified Carbon Neutral by The Carbon Reduction Institute (CRI) in accordance with the global Greenhouse Gas Protocol and ISO 14040 framework. The Lifecycle Analysis (LCA) for Monza Recycled is cradle to grave including Scopes 1, 2 and 3. It has FSC Mix Certification combined with 55% recycled content. ISBN 978 1 925226 81 2 The Hon Bruce Atkinson MLC The Hon Telmo Languiller MP President Speaker Legislative Council Legislative Assembly Parliament House Parliament House Melbourne Melbourne Dear Presiding Officers Under the provisions of section 16AB of the Audit Act 1994, I transmit my report Managing the Performance of Rail Franchisees. Yours faithfully Andrew Greaves Auditor-General 7 December 2016 Victorian Auditor-General’s Report Managing the Performance of Rail Franchisees iii Contents Audit overview .......................................................................................... vii Conclusion .............................................................................................................. vii Findings .................................................................................................................. vii Recommendations ................................................................................................... ix Responses to recommendations ............................................................................. xi 1. Audit context ........................................................................................ 1 1.1 Train and tram franchise agreements ............................................................. 1 1.2 Train and tram performance under the current franchise agreements ............ 3 1.3 Patronage ....................................................................................................... 6 1.4 Payments to the franchisees .......................................................................... 7 1.5 Managing train and tram assets ...................................................................... 9 1.6 Extending train and tram franchise agreements ............................................ 10 1.7 Agency responsibilities .................................................................................. 10 1.8 Previous VAGO audits ....................................................................................11 1.9 What this audit examined and how ................................................................11 1.10 Report structure ..............................................................................................11 2. Contract and performance management ............................................. 13 2.1 Conclusion ..................................................................................................... 13 2.2 Contract management ................................................................................... 13 2.3 Operational performance regime ................................................................... 15 2.4 Customer experience performance regime ................................................... 18 3. Maintenance and renewal of assets ..................................................... 21 3.1 Conclusion ..................................................................................................... 21 3.2 Strategic asset management ......................................................................... 21 3.3 PTV’s oversight of asset maintenance and renewal ..................................... 26 4. Extending the franchise agreements .................................................... 29 4.1 Conclusion ..................................................................................................... 29 4.2 The right to negotiate a franchise extension ................................................. 29 4.3 Preparing for the next agreements ................................................................ 36 Victorian Auditor-General’s Report Managing the Performance of Rail Franchisees v Contents Appendix A. Audit Act 1994 section 16—submissions and comments ...... 41 Appendix B. Past VAGO audits ................................................................ 47 Appendix C. Monitoring franchisee performance ...................................... 49 Appendix D. MR4 project governance ...................................................... 51 vi Managing the Performance of Rail Franchisees Victorian Auditor-General’s Report Audit overview Public transport is an essential service for many Victorians, and an effective transport system is critical to the state’s economic development. Public Transport Victoria (PTV) is responsible for managing the contracts with the operators that run the metropolitan passenger train and tram networks, known as franchise agreements. Agreements must be well designed, and effective contract management policies, processes and systems must be in place to ensure these agreements deliver value for money to the state of Victoria. In this audit, we looked at how PTV manages its franchise agreements and its assets, to improve the performance of the train and tram networks. We also assessed how PTV and the Department of Economic Development, Jobs, Transport & Resources have prepared for future franchise agreements. Conclusion Train and tram services have become more reliable and punctual under the current franchise agreements, and customer satisfaction has improved. However, weaknesses in the design and implementation of the performance regimes prevent PTV from maximising value from the current agreements. It is positive to see that PTV has gained a good understanding of the strengths and weaknesses of the current agreements and is well prepared to negotiate better outcomes in future agreements. The challenge for PTV is to successfully negotiate and properly implement the new agreements and improve its management of contracts. Our key area of concern has been PTV’s lack of focus on managing its train and tram system assets, which it has only recently begun to address. As a result, PTV has limited assurance that these critical assets are being optimally maintained and used by operators to maximise the efficiency and effectiveness of train and tram services. Findings Managing contracts and performance Measuring performance PTV measures the performance of its train and tram operators, or franchisees, in several ways. It measures and publicly reports on the reliability and punctuality of train and tram services, and surveys customer satisfaction with these services. Victorian Auditor-General’s Report Managing the Performance of Rail Franchisees vii Audit overview One of the challenges for PTV has been that the current arrangements do not enable it to periodically review and reset reliability and punctuality performance thresholds. These thresholds set minimum standards for performance and outline consequences if performance falls below the threshold. The franchise agreements also include operational and customer experience performance regimes that are linked to financial incentives and penalties. Until recently, PTV has relied heavily on manual systems and on data reported by train operators to assess the performance of trains. In 2015, it introduced an automatic train position monitoring system to improve the way it keeps track of franchisees’ performance. PTV’s automated system to monitor tram performance, introduced in 1987, uses old technology with significant limitations that reduce its effectiveness. PTV’s own checking of the reliability of both systems is limited. It largely relies on the franchisees to assure the ongoing integrity of the monitoring systems and the data they produce. This means PTV has only limited assurance about the reliability of the underlying performance data that it reports publicly and uses to determine bonus and penalty payments for franchisees. The customer experience performance regime under the current franchise agreements was poorly designed and costly to administer, making it ineffective. PTV decided that it was not delivering value for money, and largely abandoned it in 2012. Since then, PTV has relied on limited subjective data to assess the way franchisees fulfil their customer experience obligations and to determine the payment of associated bonuses and penalties. Reporting performance PTV’s public reports identify reliability and punctuality performance thresholds for franchisees. However, they do not clearly explain that these thresholds actually represent underperformance levels instead of performance targets. PTV needs to ensure that its public reporting is easy to understand and clearly reflects franchisee performance. Managing performance While there have been improvement in train and tram reliability and punctuality, we found gaps in how PTV manages its franchise agreements: •
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