4.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2021 4.2 National Rail Contracts (NRCs) require train operators to deliver against annually-agreed business plans (ABPs) and performance targets. This allows these contracts to evolve as the industry recovers from the COVID-19 pandemic and reforms are implemented. Each year, the department will specify its objectives and negotiate updated business plans to help deliver those. 4.3 Revenue and cost risk sit with the department, subject to stringent tests of the efficiency of costs and revenue collection. Having limited financial risk allows operators to focus on operational areas within their control to drive improvements. The government will benefit from post-COVID-19 pandemic revenue recovery and cost savings from efficiency improvements. Annual budgets set caps for cost reimbursement to operators – NRCs require evidence and mitigating action before those caps can be increased. 4.4 The performance-based fee directly incentivises improved performance, with flexibility to switch from qualitative to quantified measures as circumstances permit. Fees are reduced if performance is poor; the department can require operators to develop and implement improvement plans. 4.5 ABPs will include commitments to specific activities, outputs and timescales, with operators contractually obliged to meet those commitments and the department can require remedial plans where they are not met. Where appropriate, the department can agree ‘Industry Change Projects’ with operators to further incentivise delivery of reforms that expose the operator to significant additional risk. 4.6 NRC rollout is ongoing, with three now in place (South Western, TransPenine Express and c2c). Before NRCs are agreed, a full business case is approved to ensure the contract is designed to incentivise improved performance, including Williams/Shapps Plan for Rail reforms.