Serco plans to seize on failure of franchising with rail return

The attraction of fixed fees lures Serco back to UK transport after coronavirus kills off ‘bonkers’ old model

The contractor at the centre of a row over the NHS test and trace system is preparing to bid for more essential work as Britain’s trains come back under Whitehall control.

Serco, recently criticised over the performance of the Covid testing initiative, plans to seize on the failure of “bonkers” franchising to make a return to the railways.

The company stopped bidding for rail franchises in 2014 after judging them to be too risky.

Rupert Soames, the chief executive, said the new outsourcing system due to be introduced next year is “more in our bailiwick”, however. It is expected to offer fixed fees for operators.

Serco runs transport contracts around the world on this basis. Mr Soames said: “It is what we do with the Dubai metro, for instance.

“We stopped bidding for UK franchises. It was one of the first things we did when I arrived. I could not understand the margins and risk. The old model produced some good results, but the economics of it were bonkers.

“The risks that companies were being asked to take versus the rewards were tiny and we wouldn’t have anything to do with it.”

Ministers revealed plans to cancel franchising last month, a quarter of a century after the railways were privatised under John Major.

The reforms, which will be introduced from next year, are expected to force some operators off the railways.

Whitehall officials last week confirmed a report by The Sunday Telegraph that it is in discussions with operators over “termination payments”.

Rail bosses have warned the penalties, which could total £500m in aggregate and are designed to ensure they do not benefit from the early cancellation of franchises, could leave them no choice but to abandon train lines.

Serco told the stock market in an unscheduled update on Friday that it expects to beat forecasts this year due to coronavirus-related work, which include NHS test and trace contracts.