Friends of the Rail Forum

West Coast rail contract halted in shock move

Transport secretary announces competition has been cancelled following discovery of flaws in franchise process

Gwyn Topham, transport correspondent
The Guardian, Wednesday 3 October 2012

The future running of one of Britain's most prestigious and lucrative rail services, the West Coast main line, was thrown wide open after the transport secretary, Patrick McLoughlin, announced that the competition had been cancelled following the discovery of significant technical flaws in the franchise process.

The news could potentially put other franchises due to be settled in the next two years on hold and will raise questions over the whole system, with unions and Labour considering calling for renationalisation.

The shock move means that the Department for Transport will no longer be awarding a franchise contract when Virgin's current one expires on 9 December, and will not contest the judicial review that Sir Richard Branson's firm sought in the high court.

In a climbdown that appears to vindicate Virgin's angry reaction to losing the franchise on 15 August, the DfT has indicated key staff will be suspended, apparently for incorrectly calculating the risk involved in the winning bid.

A spokesman for FirstGroup, which had been awarded the franchise, said: "We are extremely disappointed to learn this news and await the outcome of the DfT's inquiries. The DfT have 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.

"Our bid would have delivered a better deal for West Coast passengers, the taxpayer and an appropriate return for shareholders."

The DfT said it had uncovered serious flaws in the procurement process. FirstGroup's winning bid, with payments heavily loaded towards the back end of the 13-year franchise, offered premiums far in excess of the bond it was offering as security. Virgin had described the winning bid as a recipe for bankruptcy.

An investigation will be conducted by the department, which is likely to speed ahead with plans to pass the running of the West Coast line into the hands of state-owned company Directly Operated Railways to ensure that train services continue uninterrupted.

McLoughlin said passengers would continue to be served by the same trains and frontline staff. The transport secretary has ordered two independent reviews to be undertaken urgently: the first into what went wrong with the West Coast competition and the lessons to be learned, the second into the wider DfT rail franchise programme.

McLoughlin has asked officials to examine the options for the operation of the service after 9 December taking into account procurement and competition law. Meanwhile he has frozen all other outstanding franchise competitions – Great Western, Essex Thameside and Thameslink – pending the independent reviews, which the Dft hopes will ensure future competitions are robust.

McLoughlin said: "I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.

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

"I have ordered two independent reviews to look urgently and thoroughly into the matter so that we know what exactly happened and how we can make sure our rail franchise programme is fit for purpose."

He added: "West Coast passengers can rest assured that while we seek urgently to resolve the future arrangements the trains that run now will continue to run, with the same drivers, the same staff and timetables as planned. The tickets that people have booked will continue to be valid and passengers will be able to make their journeys as planned."

The most senior civil servant at the department, Philip Rutnam, said: "The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance.

"I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again."

The first independent review will be overseen by Centrica chief executive Sam Laidlaw and former PricewaterhouseCoopers strategy chairman Ed Smith, to work out what went wrong with the award of the west coast franchise. The second review, to be undertaken by Eurostar chairman Richard Brown, will examine the wider rail franchising programme and look in detail at whether changes are needed to the way risk is assessed and to the bidding and evaluation processes, and at how to get the other franchise competitions back on track.

The Dft said it found evidence of significant flaws as its officials were gathering evidence in preparation for legal proceedings.

These 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.

The department said it could not be confident that these flaws would not have changed the outcome of the competition or that any of the four bidders would not have chosen to submit different offers.

The four bidding companies – First, Virgin, Keolis-SNCF and Abellio – will all be compensated, and have been assured a fresh competition will be started.

See also BBC: West Coast Main Line deal ditched

The most senior civil servant at the department, Philip Rutnam, said: "The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance.

"I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again."

What is going to happen to the people responsible for those errors?

I've been following it online and also via BBC and Sky on satellite TV. It really is quite an extraordinary story. It seems that it is only because Virgin mounted a legal challenge that the government had to look carefully at all its findings in order to present them as evidence in court. In doing so, they discovered their mistakes. If Branson had not taken them to court, maybe these errors would never have come to light. It's a vindication for him, particularly as he came in for a lot of criticism when he first took legal action.

See Sky News: West Coast Franchise Is Thrown Off Track:

The mistakes in Whitehall were only revealed because officials were gathering evidence for the court case, suggesting they may not have been uncovered for some time had there been no challenge.

See also West Coast Main Line move welcomed by Richard Branson (BBC)

Some choice quotes...

Labour leader Ed Miliband said it was a "disgrace" that reimbursing the companies for the "fiasco" could cost this much, and demanded Prime Minister David Cameron "get a grip" on his "incompetent" cabinet.

When the franchise was [originally] 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

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".

when asked if the government could step in to run the line, Sir Richard said: "If they can't run a process, then it'll be even more difficult to run a railway."

The "fault lies wholly and squarely with the Department of Transport"

Three Department for Transport civil servants have been suspended.

HOW OUTRAGED RICHARD BRANSON TOOK UP THE FIGHT

Daily Express Thursday October 4, 2012

Last month outraged Sir Richard was accused of being a bad loser when he went before the Transport Select
Committee and accused the Department for Transport of failing to follow its own rules in the battle for the £5.5billion franchise.

He branded the system as flawed and launched a bid for a judicial review, which was due to have been heard today in the High Court.

But yesterday newly appointed Transport Secretary Patrick McLoughlin effectively admitted Sir Richard had been right all along...


Rail franchises: a signal failure

The Department for Transport has had seven secretaries of state in six years: too many ministers and not enough management

Editorial, The Guardian, Wednesday 3 October 2012 22.15 BST

The Department for Transport has had seven secretaries of state in six years: too many ministers and not enough management. Less than 24 hours after Ed Miliband's litany of government failures and embarrassments in Manchester, the department produced another of its heroic fiascos. But blaming the eleventh-hour decision to abandon the west coast mainline franchise-letting operation because of mistakes in the process by three officials is to miss the point. The system itself is not fit for purpose. Less than a month after David Cameron shuffled all three Tory transport ministers into new jobs (promoting Theresa Villiers, who had been in charge of the franchise process to the cabinet), the process of awarding the most lucrative of the rail franchises has been frozen. So have all other imminent refranchising negotiations. The cost to the taxpayer will be at least the £40m promised in compensation to the bidders. Even less clear is the impact on future inward investment in infrastructure, of which the coalition has such high hopes.

The west coast franchise was the first to be awarded under the coalition's new design of a longer franchise with more risk to the operator and more cash for the Treasury. The key judgment officials had to make was on the sustainability of the offer, the balance between risk and revenue. When the franchise was awarded to FirstGroup, industry critics tended to dismiss cries of foul from the existing franchisee, Virgin Trains, since Richard Branson advisers had reportedly, in an unguarded moment, described it as a licence to print money. But the claim that First's revenue projections were based on a "preposterous" increase in journeys was more sympathetically heard. They were not due to happen for 10 years, and there were allegations that the company would game the system – an accusation it has faced in connection with its Great Western contract. Meanwhile, the franchise for another of the strategic rail routes, the east coast mainline, has been handed back twice by operators whose bids were unsustainable and is now being run (to the taxpayers' advantage) by the government through Directly Operated Railways (DOR), an arms' length body.

Patrick McLoughlin, the new transport secretary, insists that the problem has been mechanical rather than systemic. He promises passengers will not suffer while the franchise process is frozen, pending the outcome of the two inquiries he has instigated. He does not sound like a politician preparing wholesale reform. Nor, more worryingly, does Labour. There's support at the top for the idea of the gradual return to a form of public ownership – not a return to British Rail, more a development of DOR or the non-dividend Network Rail. But this is an argument that needs to be made, and the time to start is now.

This scandal over the West Coast trainline shows our politicians have no idea how to govern

West Coast rail franchise: Civil servants not solely to blame for collapse of deal

Justine Greening, Theresa Villiers And Patrick McLoughlin Under Pressure Over Costly West Coast Mistake

How a flawed process sunk the government's rail strategy

Five days before before the new west coast main line franchise announcement, ministers were sent a report exposing flaws in the process. Was that report ignored because it was commissioned by Virgin?

West Coast fiasco: rail franchise is broken, says architect of privatisation

The railway franchise system is “broken” according to one of the architects of the privatisation of the industry in the 1990s.

Chris Stokes who was the Department for Transport’s deputy director of franchising, has criticised the convoluted and lengthy machinery which has developed since the original sell off...

"The stark reality is that the franchising system is now broken. It has become ever more protracted and expensive but less effective, giving prospective franchisees less scope to add real value"

WEST COAST LINE’S TWO-YEAR DELAY

Sunday Express
Sunday October 7,2012
By Tracey Boles

THE West Coast Mainline (WCM) is heading into limbo for two years after last week’s shock collapse of a new franchise deal for the key rail route between London and Scotland...

“It will probably be up to a year before a new bid, and another year for the process, so expect a re-let in 2014.”...

FirstGroup may take legal action over West Coast rail franchise

Dan Milmo, industrial editor
The Guardian, Sunday 7 October 2012 19.53 BST

Transport department could face challenge if Virgin contract extended as government faces pressure to finalise route's future...

West Coast Main Line: Virgin asked to extend franchise for ‘short period of time’

RAIL operator Virgin has been asked to continue running the troubled West Coast Main Line for another few months, the Government said today...

Virgin in talks on West Coast route contract extension

Virgin Trains will be asked to continue to run services on the West Coast Mainline for at least another nine months...

DfT plans interim West Coast franchise

The Department for Transport announced on October 15 that it intended to launch a competition for an interim franchise to operate the Inter-City West Coast franchise...

the interim franchise would provide more time for the government to reconsider its franchising strategy before another competition is held for a ‘new long term West Coast franchise’.

In the meantime, DfT confirmed that it would negotiate with Virgin Rail Group for it to continue operating ICWC for ‘between nine and 13 months’, until the interim franchise could be awarded.

RMT response to Virgin West Coast stitch up

"This announcement is no surprise. The Government are ideologically opposed to public ownership of the railways and, in collusion with the private train operators, have stitched up a shabby deal that will enable them to rerun the whole franchise fiasco in a years time"...

SIR RICHARD BRANSON ON TRACK TO TAKE FRANCHISE

VIRGIN Rail is poised to sign a contract to run the West Coast Mainline (WCM) franchise on an interim basis...

West Coast Mainline deal failure criticised

A report into the collapse of the £5bn West Coast Mainline franchise deal has blamed a "damning failure" by the Department for Transport...

Let's hope they're rather better than the private sector experts who get paid huge sums of money to advise in the industry with which I most familiar, international humanitarian aid and development...

Troubleshooters lined up to avert another West Coast rail fiasco

Rail experts from the private sector will be drafted into the Department for Transport to avoid a repeat of the “very damaging” and “serious” West Coast Main Line scandal...