Government cancels decision to award rail franchise for West Coast Main Line to FirstGroup

[whole diary]

[RichardB]

Fascinating blog by Robert Peston on the BBC^» (British Broadcasting Corporation - home page)'s website.  Well worth a read.

http://www.bbc.co.uk/news/business-19816359

Love that pic of Montpelier.  What an atmospheric shot!

[John R]

That's correct. First did nothing wrong, and their submission was compliant, albeit aggressive. It was the assessment of their bid (against others) by DafT which was fundamentally flawed.

[TonyK]

I stand corrected! Transport minister McLoughlin was very clear about none of the TOCs^▸ (Train Operating Company) having done anything wrong, and took the blame on behalf of DafT in tonight's news. He has the luxury of being new to the job. There will be more embarrassment to come when the two inquiries report, but not for First or the Bearded One. Justine Greening could be in for further demotion if she is found not to have acted properly, as may be the case for the three civil servants involved. ^40 million is a lot of money to lose.

[LiskeardRich]

Its mainly down to inflation, and although sounds more the weighting of the First bid meant allowing for inflation it would potentially work out a poorer deal financially.

Dont forgot though the olympic budget went out of the window because they forgot to add VAT^▸ (Value Added Tax).

Makes you wonder how these idiots in the government manage to breathe without help.

[JayMac]

Whilst today's events and the future ramifications are a serious matter for the rail industry and its political meddlers, there's always room for a bit of the light hearted:

From News Thump:

Isn^t it annoying when something you^ve paid for gets cancelled, commuters ask FirstGroup

After the decision to award the UK^▸ (United Kingdom)^s multi-billion-pound West Coast Main Line rail franchise to FirstGroup was cancelled by the government, customers claimed that it now knows how its customers feel while waiting for one of their trains.

Transport Secretary Patrick McLoughlin cancelled the deal before standing outside FirstGroup^s head office and using a megaphone to issue an apology for any inconvenience it may have caused.

^This is completely unacceptable,^ said a FirstGroup spokesperson.

^To pay for something only to find that it has been cancelled with just a few minutes notice is infuriating.^

^What^s even more frustrating is that there^s no-one around to tell us what^s going on.^

^Three minutes ago everything looked like everything was still on schedule, but now this screen is telling me it^s cancelled. A little more notice would have been nice.

Rail tender cancelled

Mr McLoughlin responded to FirstGroup^s anger and frustration by shrugging his shoulders and walking off saying it was ^completely outside of his control^.

^We^re looking at alternative franchises for them, on which their tender will remain valid,^ said McLoughlin.

^Sure, owning a subway franchise in Slough is not quite the same as the one they thought they were buying, but then neither is a bus ticket from Stoke to London when you bought a train ticket from Manchester.^

[TonyK]

Makes you wonder how these idiots in the government manage to breathe without help.

I get by somehow.   

[TonyK]

 

[Trowres]

Anyone who scored less than 100% in all their exams is in a shaky position when calling someone an idiot for making a mistake.

Perhaps a more suitable target is the lack of quality control, which I fear is endemic in a climate where there is a clear winner in the contest between "efficiencies" and quality data.

[John R]

Its mainly down to inflation, and although sounds more the weighting of the First bid meant allowing for inflation it would potentially work out a poorer deal financially.

And also that the further in the future you go there is much more risk of the amounts not being achieved (a good example being that First didn't exercise the option for the last 3 years of the GW^▸ (Great Western) franchise).  So you put a higher risk adjustment on the expected payments. The combination of the two effects (inflation and risk) means that the value put on the later year payments, where First overtook Virgin in terms of total payment, is much reduced.

Very simple really, and mind boggling that DafT got it wrong. It's reputed that civil servants at DafT have hated Virgin ever since they were forced to renegotiate the first franchise in Virgin's favour (Virgin had them over a barrel after the downgrading of the WC^▸ (Wiltshire Council (Unitary Authority)) modernisation). So I do wonder whether it was less cock up and more conspiracy.

[TonyK]

If "hatred of Virgin" by Civil Servants was the motivator said Civil Servants will be attending "meetings without coffee" and could drawing their pension early

Which is why I am willing to trade places with them.

[Trowres]

Hmm, there seems to be some ambiguity in the information published so far, as to whether the "mistake" was
a) through the uniform application of unsuitable rules that just happened to favour First; or
b) through differences in the way each bidder was treated.

(b), unsurprisingly, is hinted in the reaction from Mr. Branson.

Has anyone seen any *reliable* source that may shed more light?

[JayMac]

FirstGroup's statement:

FirstGroup statement re: InterCity West Coast Franchise

Wednesday 3 October 2012

We were notified late last night that the Department for Transport (DfT^» (Department for Transport - about)) has apparently discovered significant technical flaws in the way their franchise process for the InterCity West Coast was conducted and have consequently cancelled the competition for this franchise. We understand the DfT has ordered two urgent independent inquiries into the West Coast competition and the wider DfT rail franchise programme. 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 their processes were robust and that they expected to sign the contract with FirstGroup soon. 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.

[JayMac]

From The Telegraph:

West Coast Main Line: FirstGroup considers legal action over contract fiasco

FirstGroup is considering legal action against the Department for Transport after it pulled the controversial West Coast rail bid in a humiliating about-turn, plunging the entire industry into chaos.

The bus and rail operator, which had been awarded the contract after bidding ^13.3bn to run the London-to-Scotland services until 2028, saw its shares dive by more than a fifth, falling 50.6 to 193.4p.

Analysts said the potential loss of ^40m cash flow this year and ^50m of operating profits next could lead to fresh fears over FirstGroup's balance sheet and signalled a near-certain dividend cut.

Karl Burns, at Shore Capital, said: "This could lead to fears over the loss of the franchise and subsequent balance sheet concerns." Gert Zonneveld at Panmure Gordon said: "I don't think the dividend looks sustainable."

The decision by new Transport Secretary Patrick McLoughlin to pull the contract came after the "discovery of significant technical flaws in the way the franchise process was conducted". Three DfT^» (Department for Transport - about) officials have been suspended.

The flaws were unearthed as the transport department was poised to hand to the court its case for rejecting a judicial review of the bid by Virgin Rail, the losing bidder controlled by Sir Richard Branson that has run the London-to-Scotland service for the past 15 years.

Mr McLoughlin's move came as a surprise to FirstGroup which, only on Tuesday, issued a trading statement saying it continued "to prepare for a successful mobilisation" on the West Coast on Dec 9.

Tim O'Toole, FirstGroup chief executive, said he was "gutted" by the decision and stood by his bid. "I would deliver it today," he said. Asked whether FirstGroup could take legal action, a spokesman said: "We are looking at all our options."

The news was broken to Mr O'Toole via a phone call from Mr McLoughlin just before midnight on Tuesday. He also called Sir Richard and Sir Brian Souter, chief executive of Stagecoach, which owns 49pc of Virgin Rail.

Sir Richard, who spent ^14m on Virgin Rail's bid, said Mr McLoughlin had apologised and admitted "the Department for Transport was 100pc guilty. We so believed we were right on this."

The discovery of the errors is a humiliating setback for the transport department, which had repeatedly rebuffed questions from Virgin Rail over how it had assessed the bids. Industry sources pointed the finger at former Transport Secretary Justine Greening, moved in last month's reshuffle to International Development, and Theresa Villiers, the former rail minister promoted to Northern Ireland Secretary.

Ms Greening had insisted she had overseen a "robust" process, leading Mr McLoughlin to tell MPs^▸ (Member of Parliament) on the Transport Committee last month that: "I am content with the way the Department exercised its review of the contract."

He has now found: "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 findings go to the heart of Virgin Rail's complaint that because of FirstGroup's riskier bid, based on revenue growth of 10.4pc a year, it should have been required to put more capital at risk that ^190m.

Due to flaws in the franchising process, Mr McLoughlin has now also suspended three other bids ^ Great Western, Essex Thameside and Thameslink. The Government has also undertaken to return bidders' costs that could total ^50m.

Mr McLoughlin has also asked senior businessmen to undertake two urgent reviews. Centrica chief executive Sam Laidlaw and PwC strategy chairman Ed Smith will scrutinise what went wrong on the West Coast, while Eurostar chairman Richard Brown will look at the "wider franchising programme".

Mr McLoughlin also met Tony Collins, the Virgin Rail chief executive, yesterday to discuss extending its current West Coast contract on a management basis. It could take a year before the contract is rebid.

[chuffed]

 I hope Justin Greening and Theresa Villiers are travelling from their London constituencies to Birmingham for the Conservative party conference next week with Chiltern!

I suspect that if they tried to set foot on Beardie or O'toolerail they would be tied to the line as in the  best Victorian melodrama tradition.
And the evil baddie in the frock coat and shiny topper who may remind you of someone  who went to public school, might demand ^40  million to release them !

[Chris from Nailsea]

From the BBC^» (British Broadcasting Corporation - home page):

West Coast Main Line: Minister 'not aware' of rail flaw

Former Transport Secretary Justine Greening did not know about the problem which led to the collapse of the West Coast Main Line franchise award, the Department for Transport has said.

The award of the franchise to FirstGroup was scrapped on Wednesday because of bidding process "flaws".

The Times has reported that she learned of a potential flaw a week before the Cabinet reshuffle on 4 September.

The DfT^» (Department for Transport - about) says this was not the error that caused the process to collapse.

Three civil servants - who face possible further disciplinary action pending an investigation - have been suspended after the government admitted major failings over the contract to run the rail line.

BBC transport correspondent Richard Westcott said the department told him Ms Greening had been made aware of an area of "potential concern" but that she had been told it would "not affect the outcome".

She asked officials to check it further and it turned out to be a "minor error". The department insists it is not related to the main flaw that they found later on and which brought the whole process down.

Transport Secretary Patrick McLoughlin said a "terrible mistake" in evaluating the relative merits of four bids had been made by Department for Transport staff and that the fault lay "wholly and squarely" with the department.

Staff reportedly failed to include predicted passenger numbers and inflation forecasts in some of the risk assessments of the rival bids from firms.

They included Sir Richard Branson's Virgin Trains, which currently runs the route - which links London with Glasgow and Edinburgh via the Midlands and north-west of England.

Mr McLoughlin said the estimated cost of reimbursing the four companies for the cost of their bids would be ^40m.

Meanwhile, the Public and Commercial Services union, which represents one of the suspended men, said it would ensure the inquiry examined all the issues, including ministerial involvement and oversight of the bidding process.

General secretary Mark Serwotka said: "The way ministers have sought to blame civil servants in the Department for Transport before any of the facts have been established has been deplorable but sadly not out of character. It is entirely consistent with the way the civil service is being treated by many ministers as an irritation, rather than as a professional body that works to ensure the smooth running of government."

Scotland's transport secretary has hit out at the handling of the franchise, saying the Scottish Government had been given no notice of the decision to scrap the FirstGroup deal.

In a statement at the Scottish Parliament, Keith Brown said: "The department's handling of the procurement process has been incompetent and shambolic. Most importantly, it has caused a great deal of confusion and speculation about arrangements for West Coast services after the franchise handover date of 9 December."

He said the Scottish government would be keeping a close eye on assurances which had been given by the Department of Transport that services would not be affected.