West Coast Main Line deal scrapped after contract flaws discovered

 

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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
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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
    +10

    Comment number 827.

    An admission of incompetence just 1 day before us all finds out the real truth in a court of Law

    Cover up Cameron strikes again

  • rate this
    +4

    Comment number 826.

    Re-nationalise the trains. Let them be a service for the people of the UK so they can get to work easily and cheaply, travel around, and avoid the roads. Reverse the Beeching's axe - might be a project to make more jobs and help growth?

  • rate this
    +6

    Comment number 825.

    This would make a cracking episode of Yes Minister.................

  • rate this
    0

    Comment number 824.

    I would agree with Johnny that there are a lot of departments that do work efficiently within the civil service but there is a lot of inefficientcy at the top in Whitehall that needs urgent attention that could bring budgets into line and stop so much waste.Look at the waste now, of setting up two enquiries into this rail fiasco.

  • rate this
    +1

    Comment number 823.

    I thought this govt was trying to reduce the deficit by being efficient, prudent and living within its means. Now they have added yet another £40m to the deficit. Well done! DC, GO and team. Keep going

  • rate this
    +6

    Comment number 822.

    Anyone who uses First trains or buses regularly will knw that they are a truly abysmal company, representing the worst excesses of 'get-what-you're-given' service - old clapped out, dirty vehicles for massively over-inflated fares. At least with Virgin they try to make it seem like a world-class service. BUT both are part of the problem - public transport in the UK should be renationalised ASAP.

  • rate this
    -1

    Comment number 821.

    The civil service doesn't seem to be fit for purpose. Time for a radical rethink on how "Government" works in the UK..

  • rate this
    +8

    Comment number 820.

    Privatisation at it's best.

    Hold on a sec, why is the taxpayer getting stung for a £40 million compensation bill?

    Privatise the profit, socialise the loss, burden it on the taxpayer.

  • rate this
    0

    Comment number 819.

    741.David Daniels
    Well done Richard Branson and his team (Editors' Pick of course)

    Virgin Trains 82% on time (bottom of the heap), First 92%. Well done indeed http://www.networkrail.co.uk/about/performance/

  • rate this
    +1

    Comment number 818.

    I've never really understood the process. Why should any of these private firms have to pay extortionate amounts of money just to win the bid? While surely it would make more sense for the hundreds of millions to go towards improving the franchise.

    Seems like the gov't have made it more complicated for no logical reason. Glad Branson was on the ball! A company should win based on its stability.

  • rate this
    +3

    Comment number 817.

    guess what - "lessons are going to be learned". A bit like the LIBOR rate rigging then? In the future it will be fixed eh?

    Not good enough.

  • rate this
    0

    Comment number 816.

    Great news! If the peolpe who use the Virgin services know how good the service has become, why didn't the clowns in the civil service know? I do know that I've been struggling to get hold of brown envelopes.................
    Too many full time bureaucrats and politicians who don't (or have never) worked in the real world.

  • rate this
    +5

    Comment number 815.

    MOD overruns and cancellations, NHS computer sytems that dont work etc etc and now £40m re the rail tendering process. When will this all stop?

    And I keep paying my taxes so the powers to be can continue spraying it up against the wall and nobody cares and no one is held accountable whilst the country sinks deeper into debt.

    I am in the wrong job!

  • rate this
    +2

    Comment number 814.

    This is just an example of how totally out-of-touch and inefficient the British establishment is. Will anyone get fired? Possibly, but it is likely to be a sacrificial lamb, rather than the toffs who actually made the mistakes. Get rid of the lot, I say.

  • rate this
    +3

    Comment number 813.

    As a tax payer I am so appalled, as a procurement professional so disappointed as a private person feel cheated.

  • rate this
    +2

    Comment number 812.

    759.DaveH
    The NHS IT system was Project Managed by a host of Project Managers employed by the government not the private sector. I know someone who was on the project. He said the majority of people had no experience and were employed simply because they had passed their PRINCE2

  • rate this
    0

    Comment number 811.

    This is another harbinger of doom for the Coalition. Ed's description is spot on. What a shower. Well done Richard Branson. Ultimately we should return to state owned BR...

  • rate this
    +1

    Comment number 810.

    Did Transport Dept staff really establish and implement the tender evaluation mechanism all by themselves? Surely they will have received advice from some of the big legal and financial consultants who present themselves as experts in this field. If they did, these experts share the blame for this fiasco. Who are they? If they didn't get expert advice, why not?

  • rate this
    +1

    Comment number 809.

    Oh dear. Why do we persist in this belief that Government departments can operate along the same lines as Business. These are schoolboy errors, and when Patrick McLoughlin says it will cost 'us' a lot of money, is that the shambolic department he is talking about or the Tax payer? In Private Industry, a group of people would now, justifiably be looking for alternate employment.

    HS2 Anybody ?

  • Comment number 808.

    This comment was removed because the moderators found it broke the house rules. Explain.

 

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