West Coast Main Line deal scrapped after contract flaws discovered

 

Branson: Virgin 'likely' to keep running the West Coast Main Line

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The decision to award the UK's multi-billion-pound West Coast Main Line rail franchise to FirstGroup has been scrapped by the government.

The transport secretary said there were "significant technical flaws" in the bidding process because of mistakes by Department for Transport staff. Three civil servants have been suspended.

The estimated cost of reimbursing four companies for the cost of their bids will be £40m, Patrick McLoughlin said.

FirstGroup said it was "disappointed".

The company had beaten current operator Virgin Trains to win the 13-year franchise.

The West Coast route serves 31 million passengers travelling between London, the West Midlands, the north-west of England, North Wales and the central belt of Scotland.

Mr McLoughlin emphasised that the companies had done nothing wrong during the process. The "fault lies wholly and squarely with the Department of Transport", he said.

Writing on his blog, Virgin founder Sir Richard Branson welcomed the move, details of which emerged in the early hours on Wednesday.

He said he was hopeful ministers would "now accept that Virgin Trains should carry on running the West Coast Main Line".

Analysis

This dramatic, midnight admission by the government that it failed to judge the West Coast Main Line bid properly is deeply embarrassing.

When the franchise was handed to First Group the then Transport Secretary Justine Greening insisted the government would push on with a process it insisted had been robust and fair - in the face of angry objections by Virgin, the Labour Party and the thousands of people who signed a petition calling for the bid to be reconsidered.

She lost her job in the reshuffle. The new Transport Secretary, Patrick McLoughlin, told the Commons as recently as 12 September he was satisfied all bids were considered fairly and with "due diligence".

Now, the day before Virgin's High Court legal challenge was due to start, the Department of Transport has admitted to "completely unacceptable mistakes."

Its rail franchising policy is in chaos.

Four companies submitted bids 15 months ago - Virgin, FirstGroup, Dutch train operator Nederlandse Spoorwegen, and a joint bid from French companies Keolis and SNCF.

BBC transport correspondent Richard Westcott says the implications of the decision to scrap the deal go much further than just the West Coast Main Line.

There were about 15 rail franchises due to be decided before the next general election and the whole franchising process could now be thrown into doubt, he added.

The August announcement that FirstGroup would take over train services on the line - one of Britain's busiest - in December had sparked a legal challenge from Virgin, which has run the franchise since 1997.

The Department for Transport said because of the decision to rerun the bidding process it would no longer be contesting the judicial review launched by Virgin Trains in the High Court.

Virgin will continue to operate the line while the issue is resolved.

Mr McLoughlin, who became transport secretary just three weeks ago, described the mistakes made by his department as "deeply regrettable and completely unacceptable".

Transport Secretary Patrick McLoughlin: "It is going to cost us a lot of money"

He said: "A detailed examination by my officials into what happened has revealed these flaws, and means it is no longer acceptable to award a new franchise on the basis of the competition that was held."

The department said the "flaws stem from the way the level of risk in the bids was evaluated. Mistakes were made in the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result".

West Coast Main Line franchise

  • 15 August 2012 Virgin Rail loses franchise as FirstGroup awarded it by Department for Transport
  • 26 August Virgin Rail boss Richard Branson offers to run franchise "for free" while process is reviewed
  • 28 August Virgin Rail launches legal challenge over contract process
  • 3 October Department for Transport unexpectedly scraps contract with FirstGroup after flaws in process discovered. Two reviews ordered, and process to be re-run
  • 9 December New contract for West Coast Main Line due to begin, lasting till 2026

BBC business editor Robert Peston says the department made unrealistic assumptions about the growth of passenger numbers and inflation towards the back end of the franchise period.

This had the effect of making First Group's bid seem significantly more attractive, he added, because the company was much more optimistic about how passengers and revenues could grow after 2021.

The government has ordered two reviews. One will examine how the West Coast franchise competition went wrong, and what lessons could be learned. It will be headed by Sam Laidlaw, a non-executive director of the department, and is expected to report by the end of the month.

The other review will look into the wider Department for Transport rail franchise programme, and will be overseen by Eurostar chairman Richard Brown. His report is expected by the end of December.

The suspended staff face possible further disciplinary action pending an investigation.

Three other franchise competitions had also been "paused" in light of the West Coast Main Line situation, Mr McLoughlin confirmed.

"I want to make sure what lessons need to be learnt from what went wrong with this have not been repeated in those particular franchises."

'Frank announcement'

FirstGroup said that it had had "no indication" of any problems until it was contacted by the Department for Transport.

"We are extremely disappointed to learn this news, and await the outcome of the DfT's inquiries," the company said.

"The DfT has made it clear to us that we are in no way at fault, having followed the due process correctly. We submitted a strong bid, in good faith and in strict accordance with the DfT's terms."

Asked whether it was considering legal action, a spokesman said: "It is early days but we are considering our position." The company's shares had dropped 18% in early afternoon trade.

In a statement, Virgin Trains welcomed what it described as the transport secretary's "frank announcement" that the contest was flawed.

FirstGroup

Last Updated at 18 Dec 2014, 11:30 ET *Chart shows local time FirstGroup intraday chart
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106.00 p +
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It said: "We are ready to play a full part in assisting the review to help deliver a franchising system that better serves passengers, taxpayers and the interests of all bidders."

Labour MP Louise Ellman, chairwoman of the Commons Transport Select Committee, described the development as "absolutely astonishing".

She said she would recall the transport secretary and permanent secretary to question them about it.

"This is really a major issue and a major catastrophe for them."

After learning that his firm had lost the bid in August Sir Richard said he was convinced that civil servants had "got their maths wrong."

Justine Greening, who was Transport Secretary at the time, defended what she described as the "robustness of the process".

In August, Labour had also called for a chance for MPs to review the process.

Following the cancellation, shadow transport secretary Maria Eagle said: "The government's belated admission that it ran a flawed tendering process will come as a surprise to no one."

West Coast Mainline map
 

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  • rate this
    +2

    Comment number 787.

    I see that there is the usual “Blame the public sector” mentality here.

    When will people realise that it is THIS GOVERNMENTS policies and incompetence that is at fault. Cameron and Co need to accept responsibility for THEIR mistakes and stop blaming the last government and the public sector for THEIR incompetence

  • rate this
    +3

    Comment number 786.

    Huge amounts of money + Closed bids + Politicians involved
    AND we're surprised that there were some "flaws"?

  • rate this
    +4

    Comment number 785.

    At last in the UK, common sense has trumped dogma.

    As a regular traveller on the WCML, I can only agree that the Virgin franchise, allied to Railtrack spending a lot of money to improve the track, has improved the service in journey time, comfort and reliability.

    My only fear is that some poor minion in the D of T will carry the can for ministerial bungling.

  • rate this
    +2

    Comment number 784.

    £40m paid to Four Companies for bidding! £40m!!! You put your bid into an envelope, seal it, put a stamp on and post it. A £10million stamp! You got to ask why would anybody spend £10m on a stamp? A) So they can provide a first class service to the public or B) They can make £100m
    profit! ...Bet if they don't pay £40m the four same Companies bid again! Hmm... £10m stamp = £100m Profit!

  • rate this
    +2

    Comment number 783.

    It is not the minister fault it is the civil servants I would like to know what cuts the minister made in the dept and was the lack of suitable staff the real cause

  • rate this
    +4

    Comment number 782.

    429.
    The process was an EU standard process using EU procurement regulations, you can't just short-cut it. I work in waste management procurement, and a contractor can easily spend over a million pounds bidding to one of the local authority contracts. The cost of legal and financial advisers is absolutely eye-watering, that's where a lot of the cost goes.

  • rate this
    +2

    Comment number 781.

    The whole franchising process is a shambles and always has been. It costs the industry and therefore its customers millions of pounds and adds no value at all. There are franchise bid teams in all the train companies beavering away and spending a fortune. And lots of them lose of course. The industry is costing the taxpayer at least three times what BR did. Shameful.

  • rate this
    +8

    Comment number 780.

    Interesting, when Labour presided over perceived procurement failures within the MOD, that was their fault, according to the Conservatives.
    Now, it's the civil service at fault, not the Minister

  • rate this
    +4

    Comment number 779.

    A civil servant could be professional, have vast knowledge of his area of expertise, years of experience, excellent man manager all in all a credit to his profession and an asset to his country. Every couple of years he gets a boss who knows nothing of the field and is blinkered by his political ideology and this person is the one who makes decisions and sets targets. THE SYSTEM IS DOOMED TO FAIL

  • rate this
    +1

    Comment number 778.

    To those blaming Branson: Do you want flawed processes in procurement using public money to go unchallenged?

    Like him or hate him, he's probably just helped save public money in the future (mid- to long-term).

    One real problem this exposes is the lack of accountability and oversight between Ministers and their civil servants, a problem in all departments, I believe, too (Tory and Labour).

  • rate this
    +5

    Comment number 777.

    Looks like his judicial review would have uncovered how rotten this bidding process was
    ---

    Our secretive corrupt government system had its bluff called and...

    ..the Government folded without showing its hand

    What happens now?
    The usual stuff
    A "whitewash inquiry" will be instigated and a few civil servants will leave with fat lifetime pensions for helping our political crooks

    rinse and repeat

  • rate this
    +1

    Comment number 776.

    The Rail Service of the UK is an EXPENSIVE JOKE! Branson, First Group et al are all theiving from the taxpayer in a carefully concealed fraud. This is a stroy of Branson losing the £22 million a year from Virgin Trains he puts in his private wealth, and how some crafty insiders at FG tried to reallocate that money thier bank accounts. The Railways should be re-nationalised. Immediately!

  • rate this
    +3

    Comment number 775.

    The new contract wasn't going to reduce fares, to make it economical enough to travel by train, and the loss of it isn't either.
    So I couldn't care less.
    Trains are toys for the likes of boys like Branson

  • rate this
    +1

    Comment number 774.

    Is it likely that government ministers of any party would have the time and experience to scrutinise these bids? Of course not. They rely on the civil servants. And we pay out a whole lot more in taxes for the civil servants than we do the politicians. We can sack politicians every 5 years. But how do we sack incompetent civil servants - on their 6 years salary redundancy packages BTW?

  • rate this
    +4

    Comment number 773.

    Excellent - no DoT bonuses or honours this year then. When will these supposed professionals get it right with our money?

  • rate this
    +3

    Comment number 772.

    What a bunch of chinless incompetent wonders!
    Just another £40 million squandered whilst Cameron and Clegg expects Joe Public to tighten his belt.
    All in this together?
    What a farce!

  • rate this
    +4

    Comment number 771.

    How many £m's does the franchise process cost Rail Companies - money that could be spent on improving service or reducing fares?
    How many Civil Servants run a process that delivers the same trains, running on the same track, staffed by the same people?
    How much of a distraction from running an effective rail service is this process?
    It all appears to be a monumental waste of effort and money.

  • rate this
    +4

    Comment number 770.

    Hear hear Rob J, you just beat us to it! Until we regain integrity in every aspect of political life - we are stuffed. Richard Branson for PM and prosecution for corruption in all walks of life, especially MPs, bankers, civil servants etc etc.

  • rate this
    +4

    Comment number 769.

    So who gets fired? If I lost my company £40 million through incompetence then I'd get fired and so would a whole lot of people involved in the decision making process. It's a ton of money to lose.

    It's okay though I know the answer. We'll be told people have been talked to and new more robust processes are now in place.

    I can only LOL 'cause if I didn't I'd cry!

  • rate this
    +4

    Comment number 768.

    Um, I think just LOL will do for this one.

 

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