FirstGroup Signs National Rail Contracts for SWR and TPE

FirstGroup has signed new National Rail Contracts with the Department for Transport (DfT) for its South Western Railway (SWR) and TransPennine Express (TPE) train operating companies.

These National Rail Contracts will begin on 30 May 2021, replacing the current Emergency Recovery Measures Agreements (ERMAs). The contracts will have a runtime of two years and include options to extend by a further two years at the DfT’s discretion. They will be comprised of a fixed management fee component as well as a variable performance fee component.

Under these new contracts, unlike previous franchise agreements, FirstGroup will bear no revenue risk and only very limited cost risk under an annual budget agreed with the DfT.

South Western Railway (SWR)

FirstGroup holds a 70 percent share of the First MTR joint venture for the SWR train operating company. Under the NRC, its fixed management fee will be 3.3 million GBP per year. There is also scope to earn a further fee of up to 9.9 million GBP – the maximally attainable performance fee. This performance component is intended as an incentive and will be calculated based on four categories: operational performance, customer satisfaction, finance, and business management.

During the NRC, FirstGroup will introduce a new fleet of Alstom-made suburban trains and implement on-board 5G. FirstGroup will also invest in stations and depots and in improving accessibility.

TransPennine Express (TPE)

FirstGroup’s fixed management fee for the TransPennine Express train operating company will be 2.3 million GBP per year. The maximum performance fee it could earn on top of this is 5.2 million GBP. There is room for an additional incentive fee to be earned by FirstGroup for taking part in significant industry change projects, e.g. providing project delivery expertise for the TransPennine Route Upgrade programme that is set to start in 2021 and conclude in 2028.

During the NRC period TPE will put the final Nova fleets into passenger service.

Matthew Gregory, FirstGroup Chief Executive, said:

“We welcome the announcement today by the Secretary of State of a plan for the future of the UK rail industry with the expertise, innovation and experience of private sector rail operators at the heart of the model. The National Rail Contracts agreed for SWR and TPE leave us well-placed for lower risk, cash generative rail operations on those two networks. We have long called for this transition to a new contract structure with a far better balance of risk and reward, and which benefits customers by a clearer focus on performance, including the introduction of a new set of passenger service metrics.”

FirstGroup is also involved in Avanti West Coast with a 70 percent share, which operates the West Coast Partnership franchise. The ERMA for the WCP franchise expires at the end of March 2022. FirstGroup is hoping to obtain an NRC for this network for a ten-year period. How that will be broken down into core and extension is still to be determined.

GWR’s existing EMA has already been extended to June 2021. The underlying direct award will run to 1 April 2023 with an option to extend by one year.

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