Assessment of a franchising framework

Franchising is a significant intervention in the local bus market, and as such, the LTA will be required to carry out a comprehensive assessment of the suitability and viability of adopting their proposed franchising framework.

Section 13E of the 2001 Act requires an LTA to undertake a detailed assessment of their proposed franchising framework. There are several mandatory elements to the assessment. These include:

• Set out how, and to what extent, the LTA considers the making of the proposed framework will contribute to the implementation of their relevant general policies;
• Compare the making of the proposed franchising framework to one or more courses of action available to them (this could include comparison with alternative delivery models such as BSIPs or consideration of alternative franchise approaches or designs)
• Describe the expected effect of the proposed framework on any areas which are adjacent to the area of the franchising framework;
• Set out how they intend to operate the proposed franchising framework, and the extent to which they will be able to secure the local services to be operated under the franchising agreements. In addition to the franchising agreements themselves consideration should also be given to securing other measures to support the delivery of the framework, such as new fares structure(s), integrated ticketing schemes and infrastructure (e.g. acquisition of depots, new vehicles, etc.);
• Set out their analysis of the financial implications for them of making the proposed framework, including how they intend to support the operation of rural or other services which may be less profitable to operate, and
• Set out how they propose to review the effectiveness of the proposed framework once it is made.
• In preparing an assessment 13E(4) requires that the LTA must seek views about the proposed franchising framework from operators who, at the time of the assessment being prepared, are providing local services in the area to which the proposed framework relates.

The assessment may also include such other matters as the LTA may see fit. In particular the LTA may also want to:

• Compare how the local bus services will integrate with other types of transport, such as light or heavy rail, Demand Responsive Transport (DRT), and services provided under Section 19 and 22 of the Transport Act 1985; and
• Determine how the LTA’s proposed franchising framework will impact small and medium size enterprises (SMEs), particularly as these may provide other services, such as community transport under section 22 permits.

Competition and Subsidy Control

The Competition Act 1998 is a key piece of legislation in the UK that establishes the framework for competition law and contains prohibitions on actions which could prevent, restrict or distort competition.

In 2024, the Competition and Markets Authority (CMA) published its bus franchising advice paper for LTAs. The paper aims to assist LTAs in meeting their policy objectives, by helping LTAs to think about how different interventions may affect markets, the role competition can play in supporting the objectives of LTAs, and franchising design considerations that may help promote competition and thereby help deliver long-term policy objectives.

LTAs also should be aware of the requirements of the Subsidy Control Act 2022 (“the 2022 Act”) which establishes a new domestic subsidy control regime that replaces the previous EU state aid rules. The 2022 Act requires public authorities, including LTAs to adhere to the specific principles of the Act to prevent market distortion and unfair competition, this is relevant when they are developing their proposals and preparing their franchising agreements.

Detailed Assessment

The detailed assessment should be developed on a similar basis to an Outline Business Case (OBC), in which it revisits the rationale for franchising through the work it has done to date (i.e. consideration and development of a local/regional transport strategy, or a bus strategy that determines how bus will contribute to the implementation of the LTAs relevant general policies, and what consideration it has made of alternative approaches). The assessment must also demonstrate its affordability; as well as detailing its procurement strategy, together with management arrangements for the successful rollout of the franchise.

The Guidance on the development of Business Cases provides further information on the business case process, which is based on HM Treasury Guidance and follows the Five Case Model (strategic, economic, commercial, financial and management).

The different components of the Five Case Model are closely related and should be satisfied. The purpose of the business case is to ensure that the LTA’s proposals meet their intended objectives and deliver their intended benefits by making sure they:

• make a robust case for change – the ‘strategic case’
• optimise Value for Money (VfM) in terms of economic, social, and environmental benefit – the ‘socio-economic case,’
• commercially viable – the ‘commercial case’
• financially viable – the ‘financial case’, and
• achievable – the ‘management case.’

Throughout the development of their detailed assessment, the LTA must proactively and meaningfully be engaging with neighbouring LTAs and bus operators who are providing services within the proposed area of the framework to understand their views and potential impacts of the LTAs proposals.