Success Factors and Pitfalls of Regional Rail Franchising in Germany

Since 1996 regional rail passenger services in Germany have been subject to franchising. The franchising framework is characterised by a strong decentralisation of responsibilities, a considerable degree of freedom for the responsible authorities regarding contract design, a sound financial basis for awarding contracts, and the free choice of authorities between tendering procedures and direct awarding of franchise contracts. This paper analyses the key outcomes of this franchising approach. We conclude that regionalization of responsibilities and franchising positively impacts on service provision, patronage, customer satisfaction, service quality and costs, in particular through better targeting of services. However, these positive outcomes could have been even greater if the failures in the institutional set-up, foremost the vertical integration of the DB group and insufficient regulation, were resolved. Overall, competitive tendering appears to bear further potential for additional cost savings and quality improvements, although for already competitively awarded contracts the improvements will not be as great as those from the first round.