Success Factors and Problems of Rail Franchising: a Fresh Assessment of the German Case

Success Factors and Problems of Rail Franchising: a Fresh Assessment of the German Case


H Link, DIW Berlin, DE; R Merkert, Cranfield University, UK


This paper evaluates the development of franchising regional rail passenger services in Germany. The analysis draws lessons from recent data, a series of interviews with key stakeholders as well as from an extensive documentary and literature review.


An important measure of the 1994 rail reform in Germany was the so-called regionalisation of regional rail passenger services. The background of this measure was i) the attempt to achieve a clear distinction between cost-covering (or even profitable) services to be provided at DB?s (incumbent) own entrepreneurial risk (commercial services), and those services which are non-profitable but have to be operated in the public interest and therefore to be subsidised (PSOs), and ii) to guarantee a sound financing for these PSOs. While all long-distance rail services were defined as commercial services being not eligible for explicit subsidies (as a result market entry in long-distance passenger services is very low), regional passenger services were classified as services to be subsidised. Since 1996 the federal states have been responsible for procuring these services from transport companies and for financing them within franchise contracts. Theoretically, this follows the idea of obtaining the most efficient service delivery by introducing bidding procedures for the right to serve lines or networks as monopolist for a pre-defined franchise period. The subsidisation of these services is regulated by the Regionalisation Act and can be considered very sound. In contrast to other countries such as the UK, only regional rail services which are eligible for subsidies are franchised. .

This paper analyses the development and success of franchising regional rail passenger services in Germany. It is based on an analysis of publicly available sources such as reports of the relevant authorities in the market (Federal Railway Board, Network Agency, Commission on Monopolies), some recent data and a series of interviews conducted by the authors with PTA?s and train operating companies.

We have found that the character of franchise contracts in Germany varies considerably regarding the question whether they are granted within competitive tendering procedures or not and regarding features such as duration, contract types (net versus gross contracts). Our major conclusion is that the so-called regionalisation with the agreed sound financing of rail-PSOs in Germany and in particular competitive tendering had positive impacts on service provision, patronage, customer satisfaction, service quality and costs. However, the huge diversity across the different states and PTAs hamper a systematic impact analysis as the lack of centrally hold and publicly accessible data does. We have identified several problems of the German approach to rail franchising which are mostly due to failures in the institutional set-up (vertical integration of the DB group and a lack of a sufficient regulation for a long time, as well as the lack of a clear legal rules whether regional rail services have to be tendered or not) and to some extent also due to lack of more experience of PTAs, in particular during the first years after regionalisation. Overall, with improvements in these fields competitive tendering appears to bear still potential for further cost savings and quality improvements (although for already competitively awarded contracts not as much as in the first round of tendering).


Association for European Transport