On 24 September 2009, the Office of Rail Regulation (ORR) published a consultation paper setting out its proposal to introduce a model freight customer access contract.
This consultation paper is stated to have been prepared in response to interest expressed by freight customers in holding track access rights in their own names, and the difficulties those customers have experienced in developing appropriate access contracts (i.e. in terms of uncertainty as to form and content, and the cost of developing bespoke agreements). Taking into account these difficulties, ORR considers that it will be beneficial to the industry if it introduces model clauses, in accordance with its powers under section 21 of the Railways Act 1993.
ORR's proposal is consistent with its corporate strategy entitled 'Promoting safety and value in Britain's railways: ORR's strategy for 2009-14' which highlights a requirement to focus on the needs of freight customers. It is also consistent with the drive towards a sustainable transport system.
Relevant legal background
Under section 17 of the Railways Act 1993, 'any person' may make an application to ORR for directions requiring a railway facility owner to enter into an access contract, and the access sought may be for that person alone or for that person and its associates. Associates are defined broadly in this context to include any servant, agent or independent contractor, any person engaged in the provision of goods or services to or for the relevant person, and any other person who deals or has business with that person.
It is therefore clear that access contracts are not limited to train or freight operators, but can extend to freight customers (and others). However, despite this, no freight customers currently hold access contracts.
Rationale and benefits
ORR wishes to facilitate freight customers holding and managing their own track access rights. However, it recognises that the existing freight model track access contract may not appeal to such customers as it requires full engagement with industry processes and the acceptance of various associated risks, responsibilities and liabilities.
It has therefore developed a model freight customer access contract, specifically tailored to freight customers, which it considers will:
- afford freight customers greater control relevant to their business needs by providing for them to hold access rights directly,
- allow freight customers to secure availability of freight paths to meet their rail transport requirements through direct participation in the timetable bidding process if they so wish,
- incentivise Network Rail and freight operators to be more responsive to the commercial needs of freight customers, and
- promote competition in the freight market between freight operators.
ORR anticipates that its proposed model contract will be attractive to a wide variety of freight customers including logistics companies, port and terminal operators, power stations, providers of bulk goods (e.g. coal), retailers, and major contractors.
Preferred contractual framework
ORR's model freight customer access contract is based on what it terms the 'draw down model'. This is ORR's preferred model, as it considers that a 'back-to-back arrangement' would, from a freight customer perspective, retain many of the disadvantages of the existing freight model track access contract.
Specifically, under a back-to-back arrangement - which would require the freight customer to enter into a track access contract with Network Rail, similar to the existing freight model track access contract - the freight customer would assume operational risks, responsibilities and liabilities which it would then need to pass on to the freight operator in a separate, unregulated, back-to-back contract. ORR therefore considers that this arrangement would be unlikely to appeal to the majority of freight customers, and has chosen not to develop it further.
The key aspects of ORR's preferred contractual model are as follows:
- The model freight customer access contract is structured as a track access option. It enables freight customers to secure track access rights from Network Rail, and subsequently to appoint one or more freight operators to exercise those track access rights on their behalf.
- Freight customers will exercise their access rights by drawing them down into a freight operator's track access contract with Network Rail.
- Freight customers can choose to bid for train paths in the timetable themselves, appoint a third party other than a freight operator to do so on their behalf, or appoint a freight operator to both operate services and bid on their behalf.
- Any freight operator who wishes to operate services on behalf of a freight customer using that customer's track access rights should enter into a new track access contract with Network Rail into which those rights can be drawn down.
- If a freight operator is appointed by more than one freight customer it will need to enter into separate track access contracts with Network Rail for each customer.
- Freight customers will be able to change between freight operators at short notice (e.g. if they are dissatisfied with a freight operator's performance).
This model therefore gives freight customers direct control of their track access rights, and relies on operational issues (such as the possessions, charges and performance regimes) being managed through the freight operator's track access contract with Network Rail.
As now, the freight operator and the freight customer will need to enter into a separate, unregulated, commercial contract, governing the relationship between them.
ORR's model freight customer access contract is described in detail in the consultation paper, and a copy of it is provided as an attachment. The differences between this contract and the existing freight model track access contract are clearly identified.
It is obviously intended that ORR's model clauses should be the starting point for any freight customer access contract. However, where a freight customer considers that they do not offer sufficient flexibility or meet its specific needs, ORR will be prepared to consider different provisions.
Contractual amendments and Network Code modification
ORR considers that a number of amendments are required to the existing freight model track access contract in light of its proposal. A marked-up version highlighting the proposed amendments is therefore also attached to the consultation paper.
Similarly, ORR considers that modifications may be required to the Network Code. ORR states that any modifications to the Network Code which are ultimately deemed necessary will be taken forward by the Industry Steering Group - of which it is a member - and will be subject to the usual democratic change process.
ORR states that it will update its 'Criteria and Procedures for the Approval of Track Access Contracts' (August 2009) and 'Track Access Option Policy' (January 2008) to reflect its new policy.
Review of impact and operation
ORR also states that it intends to review the uptake of freight customer access contracts in 2010 in order to determine whether its model contract is encouraging freight customers to acquire track access rights in their own name.
In addition, it will consider whether the provisions of its model contract are working as intended, or whether any amendments are required.
ORR has requested consultees' views on its proposed policy, its proposed model freight customer access contract, its proposed changes to the existing freight model track access contract, and its thinking on the application of, and the necessary modifications to, the Network Code.
The consultation paper and its attachments can be accessed on ORR's website, and comments must be received by ORR no later than 18 November 2009.
ORR is aiming to publish its final conclusions as soon as possible after this date. Any freight customer wishing to apply for a freight customer access contract before such publication should speak with ORR and seek legal advice as necessary.