Managing the Performance of Rail Franchisees

Tabled: 7 December 2016

3 Maintenance and renewal of assets

The delivery of reliable public transport services in Melbourne depends on the train and tram networks' assets being adequately maintained. Victorian Rail Track (VicTrack) owns these assets, which it leases to Public Transport Victoria (PTV). PTV then leases the assets to the train and tram franchisees, Metro Trains Melbourne (MTM) and Yarra Trams, and pays them for maintenance and renewal works.

To make informed decisions about funding and prioritising asset maintenance and renewal, PTV needs to understand the condition of train and tram assets. In this Part, we examine PTV's strategic management of these important assets and their maintenance and renewal.

3.1 Conclusion

PTV does not have enough assurance that train and tram assets are performing at their optimum level and delivering value for Victoria.

There are longstanding gaps and deficiencies in the way PTV and former responsible agencies have managed the state's train and tram network assets. Deficiencies in PTV's knowledge of the condition of train and tram assets hamper its efforts to make sure that the franchisees are effectively managing the assets. This compromises PTV's planning of maintenance and renewal works and asset funding.

PTV and the Department of Economic Development, Jobs, Transport & Resources (DEDJTR) are now addressing the absence of long-term asset management strategies. In preparing for the next franchise agreements, known as MR4, PTV has acknowledged the inadequate attention it has given to asset management over the course of the current franchise agreements and has started to address these longstanding deficiencies.

3.2 Strategic asset management

Effective maintenance and renewal practices are integral to strategic, whole-of-life asset management to ensure the assets deliver their full service potential.

We found that PTV has not been managing the state's train and tram assets strategically. PTV does not have a comprehensive understanding of the condition of its assets. Therefore PTV has limited capacity to make evidence-based decisions on how it funds and prioritises maintenance and renewal work and limited ability to develop sound long-term asset management strategies.

3.2.1 Asset management strategies

Since the mid-1990s, the Department of Treasury & Finance (DTF) has set clear expectations for Victorian public sector agencies to have a whole-of-life approach to asset management that focuses on the services the assets need to deliver.

Asset management strategies are critical features of this approach—they set out how assets will help to deliver service objectives and include planning for asset maintenance, upgrades, acquisitions and disposals.

A sound asset management strategy requires a robust understanding of the base condition of the existing assets and their capacity, capability and usage. The strategy should take into account available resources, funding constraints, and competing service and asset priorities.

In our 2007 report Managing Victoria's Rail Infrastructure Assets, we recommended that the former Department of Infrastructure develop a long-term asset management strategy for metropolitan rail infrastructure, to help identify and prioritise the maintenance and renewal of these assets. The department did not address this recommendation. Consequently, there was no long-term asset management strategy in place for the train and tram networks at the beginning of the current franchise agreements—known as MR3—in 2009.

PTV acknowledged this gap and began work to address it in November 2015. It published a strategic asset management policy and guide, which outlines the need for medium- and long-term asset management strategies to ensure that train and tram assets deliver the required services. PTV has also committed resources to planning its asset management.

Although these are positive steps, PTV has significant work to do before it can show that it has robust asset management strategies in place and can comply with DTF's 2016 Asset Management Accountability Framework. This framework requires PTV and other public sector agencies to attest to their compliance with a range of mandatory requirements, including the development of asset management strategies, by 30 June 2018.

DEDJTR has also started developing a broad transport asset management program, including a draft transport asset management policy. This will guide all transport agencies as they develop strategies for specific modes of transport, to ensure they align with DEDJTR's draft Network Development Strategy, which is currently in development.

3.2.2 Asset condition information

To fully understand the condition of assets, agencies need to continually collect and analyse information throughout the asset's life cycle. This information can come from:

  • inspections and audits
  • key performance indicators for operational performance, safety and environment
  • customer feedback
  • projects undertaken on assets and infrastructure
  • maintenance and renewal activities
  • monitoring of failures and faults
  • remote monitoring of assets
  • asset life cycle costing.

PTV collects a large amount of information on Victoria's train and tram assets from the franchisees in shared databases, as required by the franchise agreements. PTV also meets regularly with the franchisees to specifically discuss maintenance and renewal of assets.

Figure 3A summarises the main maintenance and renewal reporting that franchisees provide to PTV and any issues we identified with each report.

Figure 3A
Maintenance and renewal reporting requirements


Report content


Monthly maintenance and renewal report

Includes information on the quantity of work in the annual works plan, categorised by asset class. Submitted with an invoice for payment.

Includes quantity data only, without any analysis of trends.

Quarterly maintenance and renewal report

Quarterly summary of monthly maintenance and renewal reports.

As above.

Monthly key performance indicator (KPI) report

Reports results against the KPIs set at the beginning of the agreements, including:

  • service delays caused by assets
  • types of asset failure and frequency
  • track condition indicators measured by remote monitoring equipment
  • number of temporary speed restrictions imposed due to asset condition
  • amount of maintenance work completed and outstanding.

Contains limited overall analysis of data and trends that would build understanding of asset condition.

KPIs primarily aligned to reliability and performance, rather than the underlying asset condition and useful life.

Maintenance and renewal review group dashboard report

Broader report including achievements and activities, safety, finance, personnel and operational information. The maintenance and renewal component of the report includes a summary of the quantity of maintenance work and inspections, and progress against planned works.

Limited meaningful analysis of trends or data.

Source: VAGO, based on information from PTV.

When preparing for the MR4 franchise agreements, PTV identified weaknesses in the information it collects. These include:

  • information being reported in different formats
  • asset information being held in several databases that can be accessed by the franchisees, PTV and VicTrack, but which are not fully integrated
  • franchisees not fully complying with the requirement to update PTV's asset management systems within one month of completing maintenance and renewal works
  • some KPIs missing targets or thresholds to measure against—some were difficult to measure and the KPIs were skewed towards measuring asset reliability, in terms of how often they fail, rather than measuring asset condition
  • the agreements not adequately addressing information needs on other longer‑term network-wide asset requirements, such as bridges and stations
  • difficulties in combining asset information from multiple sources and formats to provide a single picture of trends, issues and risks.

These issues created gaps in PTV's knowledge of the overall health and condition of the assets.

PTV has recently started to address these gaps by planning an asset condition assessment, which is subject to funding approval. PTV plans to document the baseline condition of assets through a further comprehensive survey, which will need to be completed periodically throughout MR4.

VicTrack asset information

As owner of the state's rail assets and infrastructure, VicTrack has an obligation to know the condition and value of these assets in order to comply with applicable accounting standards. Under DTF's new Asset Management Accountability Framework, VicTrack's obligations for asset management reporting will increase.

Although PTV has provided VicTrack with the information required to comply with their accounting and financial reporting obligations, PTV and VicTrack have not worked collaboratively to share more detailed information about assets, and VicTrack was not involved in the asset management meetings between PTV and the franchisees.

For this process to be successful, VicTrack needs to be involved in the strategic asset management planning. The Public Transport Asset Framework Steering Committee was recently established, and VicTrack's inclusion is a positive step. This committee aims to oversee and approve the development and implementation of an asset management framework for Victoria's public transport assets.

3.2.3 Network condition

The limited information available about Melbourne's train and tram networks indicates that the condition of these assets has deteriorated since 2009.


PTV collects information twice a year on the condition of the tram network by running specially equipped test trams across the network, which collect data on track condition as they go. Although this information is limited, it shows that the condition of Melbourne's tram network deteriorated between 2012 and 2016.

PTV has attributed the degradation in the condition of tram tracks to a range of factors, primarily the recent increase in the use of heavier trams with lower floors. As the use of this type of tram is likely to increase in the future, PTV will need to address this challenge when managing tram network assets.


In May 2015, the Office of the National Rail Safety Regulator (ONRSR) reported that Victoria's metropolitan and regional rail infrastructure and rolling stock (for the train network only) was generally fit for purpose, but much of it had deteriorated and was in poor condition. The ONRSR also reported that the track infrastructure in Melbourne was significantly below the standard of track in equivalent interstate networks and, although this did not present any immediate safety risks, PTV's medium- to long-term management of asset-related risks was inadequate.

In January 2016, PTV responded to this report by committing to systematically apply a more comprehensive approach to managing train assets. To achieve this, PTV plans to implement a range of initiatives, including:

  • undertaking asset renewal projects
  • developing medium- and long-term asset management strategies
  • aligning its asset management systems with international standards
  • using the MR4 refranchising process to improve the asset management framework included in the agreements.
Adequacy of maintenance and renewal funding under MR3

Between the previous franchise agreement and the current MR3 agreement, annual funding for maintenance of tram network assets and renewal works has been relatively constant.

Under the MR3 agreement, annual funding for work on train network assets increased by around $42 million. PTV has reviewed the adequacy of funding levels for asset maintenance and renewal works on the train and tram networks and found that it cannot accurately determine whether current funding is sufficient, partly because it lacks comprehensive information on the condition of the assets.

PTV's benchmarking against other jurisdictions suggests that its funding for asset maintenance and renewal as a percentage of asset renewal costs is relatively low. However, equivalent networks were difficult to identify—particularly for trams—and the results were therefore of limited use in determining required funding.

Given the importance of train and tram assets, PTV's inability to demonstrate a comprehensive understanding of required funding levels is significant.

3.3 PTV's oversight of asset maintenance and renewal

PTV pays franchisees for maintenance and renewal work that they complete. PTV does some limited checking of this work but does not analyse the information provided or how effectively franchisees are tracking and managing issues with assets.

As a result, PTV has limited assurance that franchisees' maintenance and renewal work is keeping train and tram assets in optimal working order throughout their life.

3.3.1 Payments

During the current agreements, up to June 2016, the state had paid $1.96 billion to the franchisees to cover the cost of maintaining and renewing train and tram assets—$1.6 billion to MTM and $362 million to Yarra Trams.

The franchisees submit monthly invoices to PTV for the maintenance and renewal work they have undertaken, along with activity reports and other evidence to support their invoices. The franchise agreements prescribe the format and content of these activity reports.

The franchisees have not consistently provided the required information about asset maintenance and renewal on time—in some cases, they were over a year late in providing this information to PTV. PTV withheld payments in these instances, but the delays in providing information have contributed to PTV's lack of knowledge about the actual condition of rail network assets.

3.3.2 Quality assurance over maintenance and renewal work

PTV gains assurance on the quality of franchisees' maintenance and renewal works by:

  • conducting risk-based spot audits of a sample of completed works, to check that the quality and quantity of the completed work matches the information the franchisee has provided
  • relying on franchisees' compliance with their own quality assurance processes and the technical plans, and their compliance with safety regulations applicable to network assets.

We found that PTV's checks of the quantity of maintenance and renewal work were adequate, but that it rarely checked the quality of these works because some assets could not be accessed and checked without interfering with the operation of the train and tram network, and others could not be accessed at all. We also found that PTV has not analysed the information and results from these activities to identify trends and issues.

3.3.3 Managing maintenance and renewal issues

PTV has not effectively managed maintenance and renewal issues throughout the current agreements.

Over the course of the MR3 agreements, franchisees have submitted reports about maintenance and renewal work to PTV, which they discussed together at monthly meetings. However, until recently these reports and meetings primarily covered operational issues and progress with maintenance and renewal works.

PTV did not adequately track and resolve maintenance and renewal issues at the meetings, and PTV has not sufficiently analysed maintenance and renewal trends or issues to inform its strategic asset maintenance and renewal planning.

Figure 3B is a case study about the management of operational control and management systems (OCMS) under the MR3 franchise agreements. It highlights the challenges of resolving issues when roles and responsibilities have not been clearly defined.

Figure 3B
Case study: Managing OCMS—black diamond switches

What is a black diamond switch?

Black diamond switches (BDS) are used to control CCTV data transmissions through an optical fibre network. There are four BDS on the train network. They were installed in 2006 and have a life span of between five and seven years. The BDS are part of VicTrack's security network.

Who is responsible for BDS?

VicTrack owns and manages the underlying fibre network and the BDS, but it does not own or manage the peripherals that 'plug' into the network, which are the responsibility of the franchisees, such as cameras, decoders, storage computers and workstations.

Under the telecommunications services agreement (TSA), VicTrack manages, monitors and maintains the network and BDS, and grants the franchisees access so they can plug in their equipment.

What work was required on the BDS?

As demand for CCTV increased across the train network—the number of cameras grew from 2 500 in 2006 to 6 000 in 2016—the BDS were no longer able to transmit the increasing volume of data. In 2015, VicTrack submitted a project proposal to PTV to replace the BDS, at a cost of $1.6 million. At the same time, VicTrack was investigating options for a totally different system, which would mean that the proposed replacement of the BDS would be irrelevant in two to three years. Based on this, PTV asked VicTrack to consider other options for BDS replacement.

At around the same time, MTM also submitted a proposal to PTV for a lower-cost replacement of the BDS, but VicTrack disputed the accuracy of MTM's costing of the proposal.

What was the outcome?

Before the parties could agree on the best solution, MTM went ahead and replaced three of the four BDS. VicTrack prevented MTM from replacing the fourth BDS.

VicTrack and PTV have not been able to confirm how the project was funded or whether MTM received any formal approval, and the dispute remains unresolved. VicTrack advised that PTV is trying to resolve the dispute, despite not having a formal mediation role under the TSA.

What were the issues and findings?

  • VicTrack reported that MTM's actions breached the TSA. VicTrack is aware of the need to balance any penalties or consequences for MTM with the need to continue effective operation of the train network. To date, there is no evidence of any consequences for MTM.
  • It is clear that the BDS needed to be replaced. However, VicTrack has stated that due to MTM's actions it does not have adequate knowledge of the BDS'condition.
  • The BDS are part of a network-wide security system, and it is important that the state, through VicTrack, can adequately monitor and control this system. However, VicTrack says that it is not currently able to do this.

What were the contributing factors?

  • There is inadequate governance of the maintenance and renewal of OCMS.Although there are regular coordination meetings between VicTrack and MTM at officer and executive levels, there is no defined process to resolve issues, and PTV does not attend these meetings.
  • Renewal of OCMS is funded separately to other types of assets. This means that OCMS renewals are managed as individual projects and assessed on a case-by-case basis. In this case, PTV's project management was ineffective.
  • There is no agreed process for approving projects that will be directly funded by the franchisees.
  • VicTrack is not represented in meetings of the Network Development Partnership, in which network-wide interests are discussed.
  • There is no clear and well-managed process for resolving disputes between VicTrack and MTM.

Source: VAGO, based on information from PTV and VicTrack.

While preparing for negotiating the MR4 franchise agreement, PTV has identified opportunities to improve the way OCMS are managed in the next agreement by:

  • developing a comprehensive asset strategy
  • seeking a significant funding increase
  • reviewing the contractual arrangements
  • increasing the expertise within PTV
  • identifying clearly defined roles and responsibilities for each party—PTV, VicTrack and the franchisees.

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