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 24 Dec 2014, 07:30 ET *Chart shows local time FirstGroup intraday chart
price change %
106.40 p +
+0.40
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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
    +4

    Comment number 807.

    Why doesn't the Gov't just admit that Rail privatisation has been a complete Red Herring, a triumph of Dogma over common sense ?
    They could have appointed good Managers to operate the Railways efficiently without selling it off, and having to pay artificial profit margins in ADDITION to the cost of rail service provision.
    Nationalise it.

  • rate this
    +1

    Comment number 806.

    @751 - why would nationalisation work for any public sector area? The civil service and MPs are both a nationalised industry and look what a mess they make of everything.

    I'm not saying the private sector is any better but it does seem the whole country is determined to make sure that their personal situation is all that matters and sod the rest of you.

  • rate this
    +3

    Comment number 805.

    I thought privatisation was supposed to save us money? Why the hell do we continue to fall for it with our NHS etc?

  • rate this
    +1

    Comment number 804.

    HOORAH.....HOORAH, HOORAH, HOORAH!!!!!!!

  • rate this
    +4

    Comment number 803.

    Come now its just a technical slip; it's only £40m. One doesn't even spend that on ones stable. You plebs should leanr your 3 r's at school and be out working from age 16; we'd soon get the money back form your pawltry taxes.
    Now get on your bikes, instead of claiming benefits and thinking your vote matters.
    Todays diary - board meeting, Big lunch and off to kill foxes.. haw haw haw!

  • rate this
    0

    Comment number 802.

    ~229 ".....look across all large privatisations of once state owed assests & all you see are higher prices, less service & lower standards....."

    Only someone who wasn't alive when those assets were owned by the state or with an astonishingly poor memory could make such a claim with a straight face. Publicly owned utilities were a laughing-stock.

  • rate this
    +3

    Comment number 801.

    If evidence was needed we are being run by idiots, well, now we have it.

  • rate this
    +4

    Comment number 800.

    This fiasco just strengthens the case for re-nationalising the rail network, or failing that have one company run the whole of the UK system on a single franchise on a long term basis.
    We need continuity and stability in our transport network and the present system will never deliver that.

  • rate this
    0

    Comment number 799.

    @745: Justine Greening was probably briefed that the process was 'robust' by one of the managers who mismanaged the process. But note that she is a qualified accountant...
    @735: "tax payers silly enough to be still working": don't forget that pensioners also pay tax!

  • rate this
    +4

    Comment number 798.

    When this contract was given to first group, i said this stinks of back handers all the way.We will soon find out were the the smell is coming from.

  • rate this
    +4

    Comment number 797.

    647.coastwalker
    I don't think you've got that quite right .... the final word on ANY decision made lays with the goverment of the day, so I ask again, who in Goverment is to be sacked for this C**k-up?? or is it also to be Hushed up?

  • rate this
    +1

    Comment number 796.

    As someone peripherally involved, I recall hearing in the Thatcher years that rail operators were flabbergasted how little they were being asked to pay for the newly-privatised services. They thought at least one nought and maybe more had been lost in calculations so they snapped them up before anyone could spot the mistakes! Sounds credible now.

  • rate this
    +1

    Comment number 795.

    "Branson for PM"

    Sure, he's great at PR, spinning a really rather bad rail, broadband and airline service into something perceived as glorious - the makings of a perfect PM.

  • rate this
    0

    Comment number 794.

    I thought the whole thing was very transparent, First would make the service worse then the government would step in and say HS2 is here to save the day and so the government is vindicated in spending billions on a white elephant. All the time service is reduced customers pay more and good business goes out of the window. But to cover the backs of a few, worth it I am sure.

  • rate this
    0

    Comment number 793.

    Yet another illustration that privatisation of public services does not work. Companies bidding for a monopoly leads to corruption. I would like to know exactly what was wrong with the bidding process. The transport minister assured Parliament before the court case the bidding process was fair and transparent. Now they say it wasn't to avoid going to court. Time for a full disclosure i think.

  • rate this
    0

    Comment number 792.

    @757.loganwrangler

    I think you're missing the point completely. This is simply a refund of the money the companies spent because the process was flawed and could not be completed. The same ass if you paid to enter a competition and you found that it had been cancelled, you'd want your money back.

  • rate this
    +1

    Comment number 791.

    @ 727.McGill
    @618.
    This govt has spent the last two and a half years blaming the last govt for this govt’s incompetence and the consequences of its failed policy’s

    Now that the public have finally realised that it’s this gov'ts fault they now blame the civil service

    Thankfully most of us aren’t that naive"

    YES WE ARE BECAUSE WE WILL CONTINUE TO VOTE FOR THEM AND THEY KNOW IT.

  • rate this
    0

    Comment number 790.

    Can't believe the 4 bidders will be able to justify claims for £40m in abortive tendering costs. If they are asked to, that is. So many red faces at DoT it will probably all be swept under the carpet.
    If they did do £40m worth then determining bids of that complexity would be beyond any human capabiility.

  • rate this
    +1

    Comment number 789.

    "The estimated cost of reimbursing four companies for the cost of their bids will be £40m"

    No matter its only taxpayers money - plenty more where that came from . . .

  • rate this
    0

    Comment number 788.

    Why should politicians and government have any involvement in the construction and running of our railways, or most other things for that matter?

 

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