Business case for new trains
The overview
IPEX provided support to a well-known UK passenger rail operator in the development of a full business case to procure additional rolling stock. The Operator was challenged with exploring the optimal quantity of additional trains to align with forecast growth in passenger demand and to return the most favourable benefit vs cost ratio when measured on an economic basis. The business case framed the options in accordance with Green Book and TAG guidance, which is a familiar language to the Department for Transport (DfT) and which enables it to weigh the benefit of public investment across a spectrum of transportation projects.
Our client's challenge
The operator had a need to explore whether, if based on forecast passenger growth, it was appropriate to procure additional trains, under a variation to its existing order for new trains. To proceed, the operator required support to develop a robust and evidence‑based business case, capable of securing approvals from both the operator’s own management team and DfT. As a secondary challenge, the proposed extension would likely involve material implications in relation to several key contractual structures, including the manufacture and supply agreement (MSA), the train services agreement (TSA), and the operating lease agreement (OLA). All options needed to be carefully assessed, to understand impacts on commercial terms, delivery obligations, ongoing service arrangements, fleet financing, and compliance with public procurement regulations.
- Business case development
- Optioneering
- Passenger demand and revenue modelling
- Maintenance and deployment strategy
- Financial modelling
- Manufacturer and financier negotiation
The response
IPEX performed extensive optioneering, to produce a range of options with varied quantities and uses for the new trains, which could then be tested to identify which delivered the greatest benefits. The deployment strategy explored how best to align with the UK Transport Secretary’s key priorities through the strengthening of crowded services, improving connectivity to key economic centres, and identifying opportunities to improve resilience and reduce cancellations.
Negotiations with the prospective manufacturer and financier were supported by IPEX and used as inputs to the business case. This included the exploration of procurement options for the supply of rolling stock and maintenance within the bounds of the existing contracts, and overarching procurement regulations.
MOIRA2, which is a UK rail industry-standard software tool used in the modelling of changes to rail timetables, was utilised to forecast passenger demand and perform revenue modelling on the options. Use of the tool, and close collaboration with the operator, enabled an iterative approach to optioneering to be applied, whereby the options and associated diagrams were refined to best match demand, maximise benefits and leverage revenue contribution.
A comprehensive financial model formed the backbone of the business case, holding the whole life costs, revenue, and wider economic benefits for each of the options. This included everything from lease payments and rolling stock maintenance costs, to driver and additional staff costs, and covering ticketing revenue and other economic benefits such as crowding penalty reduction. The outputs of the financial model were used to frame the selection of the leading option, based on the benefit vs cost ratio (BCR) and net impact on the operator’s subsidy requirement.
The value to the client
The client benefited from deep commercial expertise, a strong understanding of MSA/TSA/OLA frameworks, and a solid appreciation of the operator’s own P&L structure. It enabled a confident navigation of the contractual and financial implications of the proposed fleet extension throughout the optioneering and business case development.
IPEX’s turnkey approach, including all modelling, negotiation with the manufacturer and financier, and liaison with the legal advisor, enabled identification of key commercial risks and opportunities while ensuring all procurement activity remained within the bounds of regulatory requirements.
The exercise of developing and presenting the business case was used as the key to open a dialogue between the operator and the DfT. It was pivotal in ensuring that the opportunity to vary the fleet order was fully explored and that contractual flexibility still existed, bringing with it a cost efficiency and strengthening the client’s prospect of securing approvals for the investment.