The new contracts have some tougher targets

The Victorian Government yesterday announced new seven-year contracts with Metro Trains Melbourne (MTM) to run the city’s trains and Keolis Downer (KDR) to operate the trams. The Government is emphasising the tougher performance targets and performance penalties in the new contracts, including:

  • Trains will now need to be on time 92 per cent of the time per month, up from 88 per cent.
  • Trams will need be on time 82 per cent of the time, up from 77 per cent.
  • Metro will face fines of up to $700,000 if half the network shuts down, on top of performance penalties.
  • Restrictions on advertising — including a ban on wrap-around tram ads — will be put in place.

There’ll also be a 37% increase in maintenance and renewal expenditure to reduce the number of faults on the system including signalling failures, overhead wires and points failures.

The stronger targets are getting most of the attention, but an arguably more important issue is how the rail and tram systems are managed. The Andrews Government has firmly rejected recent calls to roll-back “privatisation” and “re-nationalise” the rail and tram systems. I looked at this issue earlier this year and it’s timely to return to that discussion (see Should public transport be “returned to the people”?).

As I pointed out then, these sorts of terms are wildly misleading in this case. Melbourne’s rail and tram systems have not been privatised. Indeed, the reason it’s in the news is because the current eight-year contracts expire later this year. What’s at issue here isn’t like the well-known and controversial asset sales of the 1990s e.g. Commonwealth Bank, Qantas, electricity infrastructure (that shouldn’t be surprising because it’s hard to sell an operation that doesn’t come remotely close to making a profit).

The Victorian government still owns and is responsible for the tracks and the rolling stock; it’s the one who’s funding and building Melbourne Metro, the Mernda extension, level crossing removals, tram super-stops, and acquisition of new trains and trams.

What the Government’s doing is outsourcing the management of operations for a period of seven years; that’s similar in principle to what it does with myriad other public sector functions, like IT. The franchisees’ role is to manage operations, but even then the government plans and approves the introduction of new services and timetable changes.

Nevertheless, there are risks with the current approach. In theory the franchisees offer some advantages over public sector managers who at state government level are almost always under close political control. For example, private operators can be fined and must deal with the threat of termination. Further, labour must compete against investors to extract value from the operation.

But the experience of station-skipping in Melbourne shows that relinquishing direct control inevitably involves compromises that can make travellers worse off (see What’s better: a train that’s late or one that doesn’t get there at all?). The important thing is to be confident the inevitable trade-offs are worth it. Unfortunately, we don’t know whether, had management of trains and trams remained in public hands over 1999-2017:

  • The level of subsidy would have been significantly higher or lower.
  • The level of service – number, reliability, punctuality, stoppages – would have been significantly higher or lower.

In other words, do taxpayers and travellers benefit from outsourcing or are they worse off? Unfortunately, I’ve not seen anything that comes close to providing an independent, reliable and trust-worthy answer. Lobby groups and ideologues are too politicised to take seriously – critics and advocates alike attribute any and every deterioration or improvement to the 1999 changes.

While the tougher targets and rules are likely to go down well politically – and removing wrap-around tram ads by itself will delight many – the Government should make available to the public the evidence that supports its decision to continue with the franchise arrangement rather than using a fee-for-service model or returning operations to direct public sector management. It should also work harder at explaining to travellers why 92% on-time running for trains and 82% for trams are fair and reasonable targets.

Regrettably, the Government has ignored my plea to get rid of noisy video ads at stations (see Is loud advertising at railway stations going too bloody far?).