Hansard

Good morning, convener. My report on the First ScotRail passenger rail franchise was published on 28 November. It looks at Transport Scotland's management of the franchise contract, including a review of the process for awarding the franchise extension. It also looks at First ScotRail's performance.The first point to make is that First ScotRail's performance to date has been good overall and continues to improve in the items that really matter to people, which are punctuality of running, unscheduled changes to timetables, cancellations and quality of service generally. Secondly, Transport Scotland is generally managing the franchise contract effectively, and the performance measures it uses to assess First ScotRail are generally appropriate. However, there is some scope to improve. Finally, by extending the franchise, Transport Scotland has secured a guaranteed £73.1 million that will be used to reduce the Government subsidy or invested in rail services. Transport Scotland has also made some of the existing contract requirements more challenging for the operator. However, I found that some aspects of the governance arrangements for extending the franchise could have been better.If I may, convener, I will go through some points briefly. On the background, as members will be aware, the current franchise was let in 2004 by the Strategic Rail Authority and the Strathclyde Passenger Transport Executive. That was before rail responsibilities were devolved to Scotland. Transport Scotland took over the management and monitoring of the franchise in January 2006. Because of that, my report does not cover the awarding of the original contract, which fell before the period when rail transport was devolved to the Scottish Parliament. The franchise contract was initially established as a seven-year term with an option to extend for a further three years. In April this year, the franchise was extended to November 2014. The size of the contract is considerable, with First ScotRail due to receive £2.5 billion in Government subsidy over the 10-year term.I have divided the report into three parts. The first part looks at the management of the franchise, the second examines the franchise extension and the third looks at the performance of First ScotRail itself. If I may, I will offer a few comments on the first part, which is about how Transport Scotland is managing the franchise contract and monitoring First ScotRail's performance. As part of the contract, Transport Scotland can financially reward or penalise First ScotRail in relation to its performance. Transport Scotland is effectively managing the core aspects of the contract. It reviews First ScotRail's performance, and the evidence is that it acts quickly to address poor performance and has clear escalation procedures to resolve issues and concerns.However, I suggest that Transport Scotland could improve some aspects of its management of the franchise. First, passengers and the public—let us call them stakeholders—are not able to go to a single source of information on the contract and First ScotRail's performance.Secondly, the current performance measures are generally effective, but they could be reviewed to align them more closely with the concerns of passengers and also with wider Government priorities. That could mean, for example, giving a higher priority to areas of low passenger satisfaction, such as toilet facilities on trains and how First ScotRail deals with delays when they occur, and the introduction of environmental outcome measures to reflect the Scottish Government's priority to reduce emissions.Thirdly, although a number of transport stakeholders told Audit Scotland that Transport Scotland consults well on specific projects, they feel that it has not clarified with them its consultation arrangements.The second part of my report deals with the arrangements for extending the contract. As I said, the option for an extension was included in the original franchise contract and Transport Scotland became concerned that key aspects of the original contract were no longer fit for purpose. Within its first year of operating, First ScotRail was performing above its punctuality and capacity targets and it had reached the point at which it was returning 80 per cent of the additional revenue that it made to the Scottish Government. Transport Scotland was concerned that low revenue returns to First ScotRail from investment might discourage it from making further service improvements. Transport Scotland therefore believed that an early review would be in the public interest.Audit Scotland has found that Transport Scotland used a rigorous appraisal process; it modelled a range of scenarios and used expert consultants to review its work and provide advice. The extension of the franchise contract was announced in April. As a result of the franchise extension, Transport Scotland has secured a guaranteed £73.1 million investment from First ScotRail in exchange for an estimated £57 million in potential revenue share. The £73.1 million will be used to reduce the Government subsidy or be invested in rail services.The extension has also made the following main changes to the franchise contract. First, performance targets for reliability and capacity have been made more challenging. Secondly, revenue targets have been revised in line with more recent forecasts and the point at which First ScotRail returns a share of its revenue to the Scottish Government has been extended. Essentially, First ScotRail can now retain more revenue, but a profit cap has been introduced with half of all profits above the cap being paid to the Scottish Government. Thirdly, new service improvement options have been added, and First ScotRail is now required to provide additional information that will help Transport Scotland plan for the next franchise. First ScotRail is also more explicitly required to participate in the development of new major rail projects that will begin service after the franchise term ends, but for which planning will be required before the end of the contract.My report also outlines that some of the governance arrangements during the review process could have been better. First, Transport Scotland's record keeping was not sufficiently detailed to provide transparency with regard to the decision-making process. Paragraph 70 of my report states that Transport Scotland's former director of finance and corporate services held shares and share options in FirstGroup and that those were appropriately declared in Transport Scotland's register of interests and annual accounts. However, it also states that the director of finance and corporate services attended key meetings at which the franchise extension was discussed and that the minutes of those meetings do not record whether he declared an interest or removed himself from the discussions. The chief executive of Transport Scotland has stated that the director of finance and corporate services did not have a vote on any decision making in relation to FirstGroup and was not involved in the review process.Secondly, as outlined at paragraph 72 of my report, Transport Scotland did not provide the Minister for Transport, Infrastructure and Climate Change with a fully documented business case; it took the view that presentations were more appropriate.Finally, Transport Scotland did not consult on the extension with its non-executive board members or external stakeholders. Transport Scotland's investment decision-making board assists the chief executive with major investment decisions but it does not include the non-executive board members.With regard to external consultation, Transport Scotland is of the view that there were commercial sensitivities and that previous consultations were sufficient.The third part of my report looks at First ScotRail's performance. As I mentioned when I began my remarks, overall performance to date has been good and continues to improve. Delays attributable to First ScotRail have decreased. Overall passenger satisfaction with First ScotRail has increased, as have passenger numbers. There has been a slight increase in the number of cancelled services; however, those were due mostly to a period of industrial action in the greater Glasgow area. In other areas in Scotland, there was a decrease in cancellations. The quality of service both at stations and on trains is good and is improving in most areas.I make a number of recommendations throughout the report, which are brought together on pages 8 and 9. My report concludes that Transport Scotland is generally managing the franchise contract effectively; however, there are some areas where further improvement is possible. For example, Transport Scotland should develop a systematic project plan for awarding the next franchise, including the decision-making criteria, the reporting arrangements and the approval arrangements. Transport Scotland should also be encouraged to review its franchise performance measures to improve the alignment between passenger concerns and wider Government priorities and to improve its engagement with stakeholders by clarifying its consultation arrangements.In addition, my report includes the suggestion that Transport Scotland should establish a single source from which passengers, the public and other stakeholders can easily access relevant information about First ScotRail's performance, the contract and how it is being managed.My colleagues from Audit Scotland and I will do our best to answer any questions that you have.