There must be a better way to set up incentives. Eg. Company is chosen - they get a temporary monopoly on a route, for free instead of having to pitch a ridiculous low ball But... Every time a train is late, they pay £100,000 Every time a train is cancelled they pay £1,000,000 They pay £10 for every passenger complaint. Etc etc
One can argue whether increasing the fines would lead to better service, or whether it would just increase the cost they bid for the concession to cover those costs, effectively resulting in increased subsidy.
There's also the fact that in many cases there's limitations to what the concession can do: the existing ones have had much decided by the body granting the concession (such as rolling stock, thus limiting their ability to procure more reliable rolling stock if needed), and they don't have any control over infrastructure (and e.g. signal failures or flooding).