Rail giant FirstGroup may sue government if can’t agree South West franchise

southern rail

Transport giant FirstGroup could sue the government if it fails to renegotiate terms on its struggling South Western Railway franchise.

The new boss of the FTSE 250 bus and rail operator, Matthew Gregory, said he preferred a consensual deal. However, he would consider other options if talks with the Department for Transport, led by Chris Grayling, failed.

FirstGroup won South Western Railway, along with Hong Kong-based operator MTR, with a pledge to pay the government £2.6bn in premiums. Its bid was based on growth of about 7% a year.

Passenger numbers have missed that target, though, hit by track and signalling problems, strikes and last year’s timetable crisis. Clauses in the contract were supposed to insulate FirstGroup from falls in GDP and central London employment, but these have not been triggered. Last week, Gregory wrote down £102m of future losses from the franchise, admitting it might never make a profit.

He said: “This is a difficult one for us. Some of the protection mechanisms haven’t worked as we had expected them to, or believe they should have worked.

“The central London employment metric suggests there is more employment in central London than we see coming on our trains. We don’t see that working properly.

“We prefer to work with our customer to find resolution through discussion and negotiation. If there’s a contractual issue that we are unable to deal with through negotiation, we would have to turn to other means.”

Any move would add to a queue of legal claims against the government over rail franchises. Stagecoach and German-owned Arriva are suing after missing out on the East Midlands contract.

A string of operators are struggling under the weight of rail franchises secured on over-optimistic terms. Abellio’s Dutch owners have also threatened legal action over the Greater Anglia route.