Franchising Melbourne’s train and tram system

Any large city depends on its public transport system. It connects people to work, to services, and to each other. For these reasons, many governments  are closely involved in public transport policy and operations in their jurisdictions. 

In 1999, in pursuit of greater efficiency and service quality, the (then)  Victorian Government split Melbourne’s train and tram system into 5 franchises. It conducted a competitive tender for each franchise, and awarded them to 3 private sector franchisees for periods of between 12-15 years. 

However, it soon became clear that some of the franchisees’ revenue and cost targets had been unrealistic and were unsustainable. Several franchisees experienced various degrees of financial difficulty, which jeopardised their viability. 

By December 2002, the franchisees’ financial difficulties had become acute, and one (the National Express Group Australia) withdrew from its 3 franchises. The government immediately appointed receivers and managers to operate these 3 businesses. It also negotiated interim operating agreements with the 2 other original franchisees, while it considered its options for the whole system. 

After a detailed process (the subject of this audit), the government restructured the metropolitan train and tram system into one train and one tram franchise, and awarded the 2 current franchises to: Connex Melbourne Pty Ltd (train franchise); and MetroLink Victoria Pty Ltd (tram franchise). Unlike in 1999, the government did not award the current franchises through a competitive tender process. Instead, it chose to negotiate bilaterally with Connex Melbourne Pty Ltd and MetroLink Victoria Pty Ltd. The franchisees are referred to as Connex and Yarra Trams for the remainder of the report. 

The current franchise agreements commenced in April 2004 and will end in November 2008, with an option to extend the franchises till May 2010. The Department of Infrastructure (DoI) manages these franchise agreements for the government. 

Ref #: ptfranchising_report

VIC. 2005. Franchising Melbourne’s Tram and Train System. Melbourne, Australia: Victoria Auditor General. [#1311]