Stagecoach embarks on another legal fight over block over franchise bid

East Midlands train

Stagecoach has started its second legal action against the Department for Transport in less than a month after the bus, coach and train operator was shut out of bidding for key rail franchises in a row over staff pensions.

In the latest stage of a battle that lays bare the crisis facing the rail franchising system, Stagecoach said that, along with several consortium partners, it had begun legal action against the department after being prevented from bidding for the West Coast Partnership contract. It was joined in its action by SNCF, the French railways group, and Virgin Trains, part of Sir Richard Branson’s trading empire.

The action comes after the department blocked all three companies from bidding for the East Midlands, West Coast Partnership and South Eastern franchises. Stagecoach argues that it was excluded from bidding for the franchises unfairly after it refused to take on open-ended pension liabilities for staff.

Chris Grayling, the transport secretary, argued that the group had disqualified itself after its submission did not comply with the department’s requirements.

Stagecoach was founded in 1980 by Sir Brian Souter, 65, who remains its chairman. It operates buses, coaches and rail and tram services in Britain. It employs 26,000 staff transporting more than three million passengers a day and is valued at £726 million.

Martin Griffiths, 56, chief executive, said: “It is disappointing we have had to resort to court action to find out the truth around the DFT’s decision-making process. However, we hope court scrutiny will shine a light on the franchising process and help to restore public and investor confidence in the country’s rail system.”

Patrick McCall, 54, senior managing director at Virgin Group, said: “It is extremely frustrating the reason our bid was disqualified has nothing to do with looking after passengers or running a good train service.”

Yesterday’s legal action comes just over a fortnight after Stagecoach said it would be suing the transport department for unfairly shutting it out of the bidding for the East Midlands rail franchise. The contract was awarded to Abellio, the transport group owned by the Dutch state.

Stagecoach said at the time that the risks it was being asked to take on covering all three franchises could be in excess of £1 billion. It said that it was considering taking legal action over the third franchise, the South Eastern contract.

The department said that it did not comment on legal cases but added that Stagecoach was an experienced bidder and that its submission had been non-compliant.

The row has put pressure on Stagecoach’s share price as investors fret over lost profits and shredded relations with the government. It has also turned up the heat on Mr Grayling.

It is not the first time that Stagecoach and the government have been in dispute. In 2012 the transport department awarded a contract to First Group, a rival operator, evicting the encumbent consortium that included Stagecoach. Stagecoach and Virgin, its partner, instigated a judicial review, but the department cancelled its decision and admitted that it had made mistakes.