Government cancels West Coast Mainline contract due to ‘flaws’ in bidding process

Transport Secretary Patrick McLoughlin said that the flaws “stem from the way the level of risk in the bids was evaluated”, reports The Telegraph.

“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.”
Virgin Trains, which lost out to First Group’s £5.5bn bid, initially voiced fears that the amount its rival paid will have made the contract unprofitable.

Mr McLoughlin has also ordered two independent reviews. One into what went wrong with the West Coast competition, and the second into the “wider rail franchise programme”.

Mr McLoughlin added that members of staff at the Department for Transport (DfT) will be suspended over the flaws.

DfT permanent secretary Philip Rutnam called the errors “deeply concerning”.

The Transport Secretary 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.”

FirstGroup, which was due to take over the running of the London to Scotland line on December 9, was unaware of the dramatic move until late on Tuesday night.

“Until this point we had absolutely no indication that there were any issues with the franchise letting process and had received assurances from the DfT that its processes were robust and that it expected to sign the contract with FirstGroup soon,” the company said.
“We are extremely disappointed to learn this news and await the outcome of the DfT’s inquiries. 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. Our bid would have delivered a better deal for West Coast passengers, the taxpayer and an appropriate return for shareholders.”

Just hours before Mr McLoughlin’s announcement, FirstGroup said in a trading update that it “continues to prepare for a successful mobilisation on December 9, 2012”, adding that its focus was to “ensure a smooth transition with continuity for staff and passengers alike”.

In a blog entitled “Virgin Trains back on track”, Sir Richard Branson wrote that he “appreciates the DfT publicly acknowledging these errors”.

“I am pleased to say that the DfT has looked at all of the facts and found significant flaws in the way it’s officials handled the process. They have basically acknowledged that what we had been saying is correct. The same procedures were not followed and “deeply regrettable and completely unacceptable mistakes” were made by the Department.

“We also appreciate the DfT publicly acknowledging these errors, and are hopeful they will now accept that Virgin Trains should carry on running the West Coast Main Line and ensure that passengers continue receiving our team’s award-winning service.”

Mr McLoughlin has also halted the Great Western, Essex Thameside and Thameslink competitions “pending the independent reviews, which are designed to ensure future competitions are robust and deliver best value for passengers and taxpayers”.

The first independent review will be conducted by independent advisers and overseen by Centrica chief executive Sam Laidlaw and former PricewaterhouseCoopers strategy chairman Ed Smith.

The second independent review will be undertaken by Eurostar chairman Richard Brown. This will report back by the end of December.

The row over the contract for the West Coast line has been raging for almost two months.
In August, Sir Richard attacked the “insanity” of the Government after Virgin Trains lost control of the West Coast rail line that it had run for 15 years.

He voiced fears that the amount FirstGroup paid will make the contract unprofitable, forcing the Government to take back ownership of the line.

A few weeks later, Sir Richard launched legal action in a final attempt to prevent the Government handing its West Coast rail franchise to FirstGroup.

The Government said on Wednesday that It is “consequently no longer contesting the judicial review sought by Virgin Trains Ltd in the High Court”.

Playing down fears of travel disruption as a result of his decision, Mr McLoughlin stressed that passengers will continue to be served by the same trains and frontline staff.

“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 DfT is to begin a fresh competition “as soon as the lessons of this episode are learned”.