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

[whole diary]

[grahame]

Not sure if this is new?

http://www.out-law.com/en/articles/2012/october/west-coast-retender-could-take-up-to-18-months-says-transport-secretary/?

Transport Secretary says that re-tender could take up to 18 months.  I know we knew it probably wouldn't be quick ...

[JayMac]

Robert Peston, BBC^» (British Broadcasting Corporation - home page) Business Editor, also mentions '18 months' in an editorial piece covering the revelation that the risk in all the bids was incorrectly assessed by the DfT^» (Department for Transport - about). He points out that with this news FirstGroup may be less hostile to Virgin continuing to run the franchise for another 18 months.

http://www.bbc.co.uk/news/business-19881240

[grahame]

Robert Peston, BBC^» (British Broadcasting Corporation - home page) Business Editor, also mentions '18 months' in an editorial piece covering the revelation that the risk in all the bids was incorrectly assessed by the DfT^» (Department for Transport - about). He points out that with this news FirstGroup may be less hostile to Virgin continuing to run the franchise for another 18 months.

http://www.bbc.co.uk/news/business-19881240

or if it's run by the DOR, you can apply to be a manager :

http://www.telegraph.co.uk/finance/newsbysector/transport/9597349/DfT-appoints-headhunters-to-search-for-West-Coast-managers.html

[eightf48544]

Thinking about the mess DaFT^» (Department for Transport - critical sounding abbreviation I discourage - about) have got themselves into they are going to have problem whenever they let the tender for the WCML^▸ (West Coast Main Line).

They can't really give it to First or Virgin unless the process is seen to be totally above board and all the figures are published and available for public analysis. Otherwise the loser will  know that they can throw another spanner in the works by going for a judicial review.

So maybe it goes to one of the other bidders by default or this is the painful death of Franchisng as we know it.

Maybe a LOREL type solution instead of a franchise. It would be one answer to the Wolmar question.

[JayMac]

Maybe a LOREL type solution instead of a franchise. It would be one answer to the Wolmar question.

That get's my vote. London Overground is a concession with TfL^» (Transport for London - about) controlling rolling stock procurement, fares policy, branding, heavy maintenance costs and advertising - amongst other things. The operator controls staffing, cleaning, light maintenance and day to day operation for which it gets a fixed fee that is approximately 10% of revenue, with TfL retaining the other 90%. Some risk is still borne by the operator for performance. With the operator's fee being fixed there is no sharing of revenue surplus or shortfall.

This is essentially Gross Cost Tendering.

The majority of other rail franchises are Net Cost Tendered. The operator takes on most of the revenue risk and the cost risk, and keeps passenger revenue. The tendering authority (or other local authority) may provide a contribution in the form of subsidy. There is usually a revenue surplus/shortfall sharing mechanism ('cap and collar'). The operator controls almost all aspects of the franchise. Fares policy has some input from the tendering authority (regulated fares) as does service provision and rolling stock procurement.

[Oxman]

There is a huge difference between Lorol and the WCML^▸ (West Coast Main Line), or the Great Western for that matter. Lorol is essentially a local service over a small geographic area. Service levels are prescribed by the sponsoring local authority.

Imagine a similar scenario on the Great Western. The DFT^▸ (Department for Transport) would prescribe the services and the TOC^▸ (Train Operating Company) would deliver them. If my memory serves me well, that was exactly what happened at the start of the current FGW^▸ (First Great Western) franchise, and what a disaster that was. There is no room for creativity in a "concession" contract. If the first Great Western contract had been a concession, Cardiff would still have an hourly service.

First Group were set to order new trains and run new services on the WCML - this would not happen with a concession, unless of course you believe that the DFT have the imagination and the guts to specify this as a requirement!

Concessions are good when they are for self contained service groups with a local sponsor, such as Lorol or Merseyside. But I can't see them working (for the benefit of passengers) in larger franchises.

[Rhydgaled]

There is a huge difference between Lorol and the WCML^▸ (West Coast Main Line), or the Great Western for that matter. Lorol is essentially a local service over a small geographic area. Service levels are prescribed by the sponsoring local authority.

Imagine a similar scenario on the Great Western. The DFT^▸ (Department for Transport) would prescribe the services and the TOC^▸ (Train Operating Company) would deliver them. If my memory serves me well, that was exactly what happened at the start of the current FGW^▸ (First Great Western) franchise, and what a disaster that was. There is no room for creativity in a "concession" contract. If the first Great Western contract had been a concession, Cardiff would still have an hourly service.

First Group were set to order new trains and run new services on the WCML - this would not happen with a concession, unless of course you believe that the DFT have the imagination and the guts to specify this as a requirement!

Concessions are good when they are for self contained service groups with a local sponsor, such as Lorol or Merseyside. But I can't see them working (for the benefit of passengers) in larger franchises.

What if local authorities were put in charge of specifying the services, a bit like the way tendered bus services are run (except I think bus operators often own rather than lease their buses)? In fact, could you shift it more towards the way buses/Freight Operators are run with First Group, Stagecoach, Albelo, DB^» (Deutsche Bahn - German State Railway - about) etc. owning their own stock and bidding for contracts to operate services?

[Southern Stag]

But which local authority specifies the contract for the Great Western franchise? There'd be so many different local authorities with so many competing interests that the only appropriate body would be the DfT^» (Department for Transport - about), and DfT micro-management is something everybody is hoping will be phased out.

[Rhydgaled]

But which local authority specifies the contract for the Great Western franchise? There'd be so many different local authorities with so many competing interests that the only appropriate body would be the DfT^» (Department for Transport - about), and DfT micro-management is something everybody is hoping will be phased out.

I'm not saying it would work, just wondering whether it could (or, in other words, whether privatisation could work in some form, given that the current system doesn't, or if bringing back British Rail is the only way to make the system rational). It probably wouldn't work if it was a contract for the whole franchise, but I don't think bus services are tendered in packages either, it is done or a per-service basis (sometimes not even that, eg. service 460 Carmarthen - Cardigan which is split between two operators). Could that work, or would you need Regional Transport Consortia or Passenger Transport Executives in charge of tendering the services?

[IndustryInsider]

The Liverpool Daily Post are having a punt on Virgin getting an 18 month concession:

http://www.liverpooldailypost.co.uk/liverpool-news/regional-news/2012/10/11/99623-32008124/

Will they be right?

[Super Guard]

This quote from the report will be exactly why Virgin will have the extension, whether it is financially right or not...

MPs^▸ (Member of Parliament) fear that if DOR is handed the line it will set a precedent, and the state-owned company would then have to take over the other franchises as the government reassesses its rail policy.

DOR has been operating the East Coast main line since 2009 after National Express pulled out of the franchise.

Effectively renationalising four more franchises would put around half the country^s railways into state control ^ causing a furore among Tories.

[JayMac]

The problem the government have in giving Virgin what would effectively be an open ended (there are no guarantees the mess can be sorted out quickly) management contract is European law. Any such contracts need to be advertised and open to competition.

On the flip side the government will face opprobrium from within the Conservative party if they nationalise the WCML^▸ (West Coast Main Line).

No easy answer, and whichever path Patrick McLoughlin takes there will likely be problems.

[Brucey]

BBC^» (British Broadcasting Corporation - home page) reporting this morning that Virgin will be running the WCML^▸ (West Coast Main Line) for at least another nine months.  I have no details on how this will work or a link to the story yet.

[RichardB]

Worth a read (well, I think so, anyway)

http://www.standard.co.uk/business/markets/anthony-hilton-tracking-down-the-real-rail-culprits-8203849.html

[Chris from Nailsea]

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

Virgin to run West Coast route 'for at least nine months'

Virgin Trains will be asked to continue to run services on the West Coast Mainline for at least another nine months after the latest decision on the route franchise was scrapped.

In a stock exchange announcement ministers said they will hold talks with Virgin for a "temporary" contract.

A competition will then be run for a new franchise agreement.

The decision to give FirstGroup the route from December was withdrawn over "technical flaws" in the bid process.

The Department for Transport told the London Stock Exchange it hoped Virgin would remain as the West Coast Mainline operator for between nine and 13 months while a competition was run for an interim franchise agreement.

This interim agreement will then run until a new long-term franchise agreement is in place.

"The government believes that this is the best way to ensure services are maintained and that there is no impact on passengers," it added.

A Virgin Trains spokesman said the move meant it was in a position to "offer customers some short-term continuity".

The competition to run the line was cancelled on 3 October and led to the suspension of other franchise programmes including bids for Essex Thameside, Great Western and Thameslink.

The government has announced two independent reviews to focus on the West Coast competition and the wider DfT^» (Department for Transport - about) rail franchise programme.

Three civil servants were suspended over the way the West Coast franchise process had been conducted and the government has said the estimated cost of reimbursing Virgin, FirstGroup and two other companies for the cost of their bids will be about ^40m.

The flaws in the bidding were discovered as the DfT was preparing to contest a legal challenge by Virgin to the decision not to award it the contract.

Transport Secretary Patrick McLoughlin said: "My priority now is to fix the problem and the first step is to take urgent action to ensure that... services continue to run to the same standard and passengers are not affected.

"I believe Virgin remaining as operator for a short period of time is the best way to do this and my officials and I will be working flat out to make this happen."

Mr McLoughlin is due to give further details on the plans in the House of Commons at 15:30 BST on Monday.

The West Coast route serves 31 million passengers travelling between London, the West Midlands, the north-west of England, North Wales and the central belt of Scotland.

FirstGroup had initially beaten current operator Virgin Trains to win the 13-year franchise.

BBC News transport correspondent Richard Westcott said the interim contract will last for two years while the longer franchise will be handed out around the time of the next general election.

The decision was a "messy solution to a mistake that is costing the taxpayer tens of millions of pounds" but the transport secretary feels it is the best way to keep services running without disruption, our correspondent added.

Ahead of the announcement, Labour warned that a decision to extend Virgin's contract could see taxpayers exposed to further legal costs.

Shadow transport secretary Maria Eagle also said it was wrong for the investigation into the bid process to be carried by a DfT non-executive director.

RMT^▸ (National Union of Rail, Maritime & Transport Workers) transport union leader Bob Crow described the decision to extend Virgin's franchise as a "shabby deal" but said it was "no surprise". The RMT had been hoping the West Coast franchise would be run by the DfT in the public sector.

Meanwhile, Manuel Cortes, leader of the TSSA^» (Transport Salaried Staffs' Association - about) rail union, said: "This decision means that the long-running Whitehall farce, known as private rail franchising, continues at the taxpayer's expense."