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

[whole diary]

[JayMac]

Press release from the Department for Transport:

Department for Transport to negotiate with Virgin on temporary operation of West Coast rail services

The Department for Transport will negotiate with Virgin Rail Group for them to continue providing rail services on the West Coast Main Line for a temporary period.

The current franchise is due to expire on 9 December after which it is the government^s intention that Virgin remain as operator for a short period ^ expected to be between 9 and 13 months ^ while a competition is run for an interim franchise agreement. This interim agreement, which would be open to any bidders, will then run until the new long term West Coast franchise is ready to commence.

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

Transport Secretary Patrick McLoughlin said:

    ^The cancellation of the InterCity West Coast franchise is deeply regrettable and I apologise to the bidders involved and the taxpayer who have a right to expect better.

    ^My priority now is to fix the problem and the first step is to take urgent action to ensure that on the 9 December 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.^

On 3 October the previous competition to run trains on this line was cancelled following the discovery of significant technical flaws in the way the franchise process was conducted.

The department also paused the on-going franchise programme including live competitions on Essex Thameside, Great Western and Thameslink and set up two independent reviews into what went wrong with the West Coast competition and the wider DfT^» (Department for Transport - about) rail franchise programme.

Notes to editors

• The Transport Secretary has ordered two independent reviews:
• The first will be an urgent independent examination into the lessons to be learned from the department^s handling of West Coast competition. Conducted by independent advisers and overseen by Centrica chief executive Sam Laidlaw and former PricewaterhouseCoopers strategy chairman Ed Smith, both DfT non-executive directors, this review will look as soon as possible at what happened and why with a view to delivering an initial report by the end of October.
• The second independent review will be undertaken by Eurostar chairman Richard Brown CBE, and examine the wider rail franchising programme. It will look in detail at whether changes are needed to the way risk is assessed and to the bidding and evaluation processes, and at how to get the other franchise competitions back on track as soon as possible. This will report back by the end of December.

   
   
   

[Andrew1939 from West Oxon]

In addition to the compensation to be paid from tax payer funds to the 4 bidders, Virgin are now in a position to dictate the price they will charge to continue the service. How much will that add to the charge on taxpayers funds (or reduced income to taxpayers from a much lower premium being paid by Virgin).

[ellendune]

An interesting contribution from the independent

http://www.independent.co.uk/news/uk/politics/did-brutal-cuts-cause-west-coast-rail-fiasco-8211008.html

There is this attitude with so called senior managers in this country that if you need to cut staff you just do it and expect them all to deliver the same amount of work.  In other European Countries apparently they prefer to work out what they are not going to do and then adjust staffing levels to the remaining workload.   

Did 'brutal' cuts cause West Coast rail fiasco?

Whitehall insiders claim the Coalition's own austerity drive could have landed the taxpayer with a ^100m bill. Oliver Wright reports

More than 30 senior civil servants in the Department for Transport, including some with direct responsibility for franchising, were axed in the run-up to the West Coast Main Line fiasco, The Independent has learnt.

Documents show that dozens of directors in the department were "eliminated" as part of an aggressive cost-cutting programme, while another 400 more junior posts were closed.

Insiders believe that the speed and scale of the staff reductions ^ alongside cuts in financial consultancy spending and the introduction of a new, "fiendishly complicated" 13-year franchise agreement ^ led to the mistakes, which are set to cost the taxpayer more than ^100m. All three areas are to form part of the department's inquiry into what went wrong. Patrick McLoughlin, the Transport Secretary, will update Parliament today on the investigations into the fiasco and announce details of what will happen to the West Coast franchise after 9 December, when Virgin's contract officially runs out.

Senior department officials have been in discussions with Virgin about giving the company a temporary extension to run the line while the franchise process is rerun and two inquiries establish what went wrong. He is likely to confirm this extension today. The inquiries, whose terms of reference are also expected to be published today, will focus their attention on what Mr McLoughlin has described as "a number of serious mistakes" that were made in the franchising process.

But they are also expected to examine the wider problems in the department, including staff and consultancy cuts. Among the posts abolished in the restructuring programme was the Director of Procurement ^ whose role was to oversee the franchise agreements. The directors of Rail Strategy and Rail Contracts, both of which would have had a role in the process, were also axed.

Two other senior posts which dealt with finance were lost in the cull, which saw many responsibilities merged and teams shrunk. Hundreds more junior staff lost their jobs.

Kate Mingay, the most senior civil servant suspended for her role in the franchise decision, had previously been head of Corporate Finance in the department but as a result of the restructuring was given additional responsibilities for rail contracts, procurement and commercial services. At the same time, Department for Transport board minutes from 2010 show that senior officials believed they could have some "quick wins" by cutting consultancy spending.

However, they admitted that other cuts in external support would have "some inevitable implications on prioritisation of expert support".

In the case of the West Coast Main Line, this is thought to have included not hiring external financial consultants to do an external audit of the department's assumptions and calculations in awarding the franchise.

It is understood to be these problems in financial modelling that led to the scrapping of the decision to hand the franchise to FirstGroup ahead of Virgin Trains. One source, with extensive knowledge of the department, told The Independent: "We always thought the cuts would mean something had to give. We didn't know it would be this bad."

Another said: "The job cuts at the Department for Transport were faster and more brutal than pretty much anywhere else. They have suggested that it was all been successfully achieved. But with what we know now, you would have to question that."

The Independent understands that the staff cuts and restructuring will form part of the inquiry being carried out by the Centrica chief executive, Sam Laidlaw, and the former strategy chairman at PricewaterhouseCoopers, Ed Smith. Next month, the think tank Institute for Government is due to publish a report on the effect of the restructuring on Whitehall departments. It looks in detail at the Department for Transport, which made a decision to move faster than others in cutting staff.

Louise Ellman, who chairs the House of Commons Transport Select Committee, said her committee would want to investigate whether the department had a capability to deal with the franchise bids, which were said to be so large that the paperwork needed to be transported in vans.

"Cost-cutting is one of the areas of concern that we have," she said. "We will be looking to see how much pressure this put on the people who had responsibility for the franchising process."

Stephen Joseph, of the Campaign for Better Transport, added: "What we have heard is that the Government completely changed the nature of the franchise, cut the number of civil servants by one third and then would not allow them to employ external auditors. None of this has been passenger focused, it has all been about the bottom line."

Labour MP^▸ (Member of Parliament) Maria Eagle, the shadow Transport Secretary, said: "It's increasingly evident that ministerial incompetence caused this rail franchise fiasco. It will add insult to injury if ^40m and rising of taxpayers' money has gone down the drain because of short-sighted short cuts made by ministers, designed to save money but ending up costing vastly more. This is yet another reason why we need a genuinely independent inquiry."

From cuts to crash? the story of the West Coast rail fiasco

October 2010: A spending review sets out plans to save more than ^300m a year from the Department for Transport's budget by 2012.

November/December 2010: Redundancy plan results in merging of responsibilities among staff.

November 2010: Decision to make cuts in consultants goes ahead despite fears of impact on DfT^» (Department for Transport - about) resourcing.

2011: Restructuring plans rolled out with further redundancies among more junior civil servants. Government says central department will lose 480 staff.

May 2011: Government accepts McNulty report recommending a new rail-franchising system. Draft Invitation to Tender for West Coast franchise shortlists Richard Branson's Virgin Rail, Abellio, FirstGroup and SNCF^▸ (Societe Nationale des Chemins de fer Francais - French National Railways)/Keolis.

May-December 2011: Detailed plans for the new franchise are drawn up by Department officials, and financial models by which the bids will be assessed are devised.

January 2012: Final bids are received and assessed by the Department.

August 2012: Justine Greening announces she intends to award the West Coast franchise to FirstGroup. Virgin demands a judicial review into the decision.

October 2012: The DfT announces the decision to award the West Coast franchise to FirstGroup has been scrapped following the discovery of flaws in the procurement process. The Transport Secretary, Patrick McLoughlin, orders two independent reviews into the matter.

[eightf48544]

If ever there was a case of when you are in a hole stop digging this is it, the latest announcmnet only seem to deepen the hole.

Virgin gets another year to 18 months, say profits will go to charity, so why not DOR and let us have our  money back,

Then another interim franchise before the big one. Which TOC^▸ (Train Operating Company) would enter into a such a short term franchise with no gurentee of getting the big one? So any bids will have to include  heavty extra profit for the short term risk so putting up the costs of running the line.

My advice to DaFT^» (Department for Transport - critical sounding abbreviation I discourage - about) is stop digging. Give it to DOR and then step 20 paces back and throughly review the whole franchising system. Plus the fares as well at the same time it would be a good chance to cut the Gordian knot at the same time.

The other franchises can go to DOR as well, when they expire, that will please the Treasury as it will cut the subsidies but upset the Tories. 

[Andrew1939 from West Oxon]

Ellendune is quite correct when she talks about reducing labour costs first without deciding what work will be cut. I retired early almost 20 years ago after working as a professionally qualified local authority accountant most of my working life. This was when the last recession was on (not as bad as the current recession) and local authorities were required to cut costs. My job went but I wondered as I left who would do what I did, effectively keeping the systems going and firefighting system failures. I found out 18 months later when there were so many cock-ups and critical public reports after I left that my post was recreated together with a substantial consultants bill. I just smiled and took the view that I was glad that I had left that organisation to enjoy my retirement but also take part in what is known now as the Big Society, i.e. working as a volunteer to help support volantary organisations that could benefit and appreciated my skills.

[ellendune]

Ellendune is quite correct when she he talks about reducing labour costs first without deciding what work will be cut.

[grahame]

I am not aware that this has been said anywhere else yet, but one of the repercussions of this fiasco would seem to be that the existing franchise holders for the franchises that are currently the subject of the suspended bidding process ....

There's an element of discussion of that aspect in "Looking forward" at http://www.firstgreatwestern.info/coffeeshop/index.php?topic=11347.0

A great deal has happened in the last two weeks, and - yes - further comment on that thread would be welcome. 

[JayMac]

Moderator note

Discussion on Chancellor George Osbourne's ticketing and upgrade 'woes' has been split off into a separate topic:

http://www.firstgreatwestern.info/coffeeshop/index.php?topic=11427.0

bignosemac.

[Chris from Nailsea]

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

West Coast Main Line: Rail franchise process 'was flawed'

An interim investigation into the West Coast Mail Line franchise process has found "significant errors", a "flawed process" and "inadequate planning".

The findings were revealed by Transport Secretary Patrick McLoughlin in a statement to the House of Commons. But he said his department had been "frank and open" about the mistakes.

The decision to award the multi-billion pound rail franchise to FirstGroup over Virgin was scrapped by the government on 2 October. The bidding process for the line, which serves 31 million passengers travelling between London, the West Midlands, the north-west of England, north Wales and the central belt of Scotland, was also put on hold after "significant technical flaws" were discovered.

The transport secretary said the flaws came about because of mistakes by Department for Transport staff and three civil servants were suspended.

Mr McLoughlin told MPs^▸ (Member of Parliament) he received the interim report into the franchise collapse from Sam Laidlaw, who was commissioned by the Department for Transport to look into what happened. He said the report made "uncomfortable reading" before he outlined its findings.

In a letter to Mr McLoughlin, Mr Laidlaw wrote: "In seeking to run a complex and novel franchising competition process, an accumulation of significant errors, described in the report, resulted in a flawed process."

He added: "These errors appear to have been caused by factors including inadequate planning and preparation, a complex organisational structure, and a weak governance and quality assurance framework."

In his statement on Monday, Mr McLoughlin said there had been a lack of transparency, inconsistencies in the treatment of bidders and technical flaws in the franchising process.

"It is clear that the inquiry has identified a number of issues which confirm that my decision to cancel the franchise competition was necessary," he said.

"These include a lack of transparency in the bidding process, the fact that published guidance was not complied with when bids were being processed, inconsistencies in the treatment of bidders and confirmation of technical flaws in the model used to calculate the amount of risk capital bidders were asked to provide to guard against the risk of default.

"The Laidlaw inquiry also mentions factors "that appear to have caused or contributed to the issues raised".

Shadow transport secretary Maria Eagle said the cabinet ministers involved in the original process should take responsibility for its failures "instead of blaming officials".

"Ministers must not be allowed to shuffle off responsibility - not my words but the words of the prime minister. This isn't just a faulty process, it's a faulty government," she said.

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

A further report, with firm conclusions, is expected by the end of November.

[Chris from Nailsea]

From The United Kingdom Parliament:

Transport Committee seeks answers about the cancelled West Coast Main Line franchise competition

The Transport Select Committee calls the Secretary of State for Transport, Rt Hon Patrick McLoughlin MP^▸ (Member of Parliament), and the Permanent Secretary at the Department for Transport, Philip Rutnam, to give oral evidence on the cancellation of the competition to run the West Coast Main Line franchise. 

Announcing the session Transport Committee Chair Louise Ellman MP said:

"It is astonishing that the Government has had to cancel the West Coast Main Line franchise competition and delay other competitions. Just last month the Secretary of State told us that he was content with how the Department for Transport had handled the West Coast Main Line competition and that Virgin's challenge to the outcome would be defended robustly.

I expect the Department's review of what went wrong to be available by the end of this month and we will want to examine that very carefully. We will also want to know how much this episode has cost the taxpayer, what lessons will be learnt, and what will be the wider implications for franchising. In addition, I expect the Committee to look closely at the Government's review of franchising when it is published at the end of this year."

[Chris from Nailsea]

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

First Group dividend on hold after West Coast fiasco

Travel company First Group has decided to freeze its interim shareholder dividend due to the uncertainty created by the cancellation of the West Coast Main Line franchise competition.

The Aberdeen-based transport group had been announced as the winning bidder. But then the government scrapped the competition after irregularities in the tendering process came to light.

First Group's interim dividend will now be held at 7.62p. A decision on its full-year dividend will come in May. "By that time, we expect the prospects for our rail division to be clearer, following independent reviews into the cancellation of the West Coast competition and the future of rail franchising," it said in a statement.

The reviews are crucial to First Group as all four of its rail franchises expire over the next three years.

First Group had previously committed to raising the payment it makes to shareholders by an annual rate of 7% a year for three years.

The announcement that it was freezing its dividend payments came as the bus, coach, and rail company reported a disappointing first half trading statement for the six months to 30 September 2012.

While group revenues rose 2% to ^3.25bn, pre-tax profits slumped to ^8.4m, down 93.4% from ^127.8m for the same period last year.

The company said the particularly sharp fall in pre-tax profits was down to a charge for exceptional items in the first half and a one-off gain of ^73.3m in 2011 following the restructuring of its UK^▸ (United Kingdom) Bus pension scheme.

Stripping out one-off items, underlying profits fell from ^163m to ^128.7m.

First Group chief executive Tim O'Toole said: "In the short term we have to contend with the uncertainty around future rail franchises created by the Department for Transport's decision to cancel the InterCity West Coast contract and pause the current franchise competitions, following its discovery of flaws in the way it conducted its process."

First Group, which runs the First Transit, Greyhound, UK Bus subsidiaries as well as its rail division, had been shortlisted for three other franchise competitions, so the government pause has cast a cloud of uncertainty over the group's rail strategy.

Chairman Martin Gilbert said: "It has been an exceptionally difficult period in rail", adding that the company was "extremely disappointed and frustrated that our employees and our shareholders have had to endure this extraordinary series of events".

First Group's total UK bidding costs reached ^12.3m.

The Department for Transport has said it will repay the estimated ^40m costs to the four groups involved in the flawed bid process.

First Group said it was in discussions with government over its bill for its franchise bid.

The company's shares closed down 5.1% and have now dropped about 40% over the year.

[Chris from Nailsea]

From the Express & Star:

Virgin is yet to sign deal for trains on West Coast rail line

An extension to Virgin Trains^ franchise to run the busiest rail line in the country has still not been signed, just under a month before its existing deal runs out.

Virgin, owned by Sir Richard Branson, was set to be given up to two more years to run the West Coast mainline while the Government recreates the tender for the multi-billion pound franchise. An earlier decision to hand the line to Virgin^s rival FirstGroup was torn up because mistakes were found in the calculations of civil servants.

Virgin today said it was still in discussions with the Department for Transport and was confident that a deal would be signed in time. The existing franchise ends on December 9.

Rail union the RMT^▸ (National Union of Rail, Maritime & Transport Workers) today called on the Government not to rule out re-nationalising the line.

RMT general secretary Bob Crow said allowing Virgin to continue was not the answer, adding: ^As a result of sheer Government incompetence, right-wing ideology and desperation Richard Branson has muscled his way in to a monopoly contractor position on Britain^s biggest rail route.

^Virgin find themselves pulling the handle on a fruit machine that^s been fixed on jackpot at every spin of the reels. It^s no wonder they don^t want to leave the arcade.^

Mistakes in the original Government^s franchise process led to it refunding ^40 million to bidders. Virgin is likely to run the line for at least nine months until a new process can be started.

Virgin Trains spokesman Richard Stanton said: ^We are in positive and constructive discussions with the DfT^» (Department for Transport - about) and remain committed to continuing with our West Coast operations beyond December 9. We^ve been overwhelmed by the level of support we have received from public and our staff.^

[TonyK]

This story from Bristol Evening Post deserves to be in several threads for different reasons.

Transport minister: "I'm looking forward to working with Bristol mayor"

Transport minister Patrick McLoughlin was in Bristol today for David Cameron's Cabinet meeting - and afterwards met bosses from First Great Western and Network Rail at Temple Meads station.

The minister said that he is looking forward to working with the city^s first elected mayor.
 
He went on to say that the problems surrounding the tendering process for the Great Western franchise should be ironed out by the end of the year.

Mr McLoughlin said: ^This is a fantastic facility and a fantastic station and there has been a big increase in demand for rail travel in recent years. It is fantastic that such a great city as Bristol is going to get a great city to match its aspirations.^

The minister said he saw the new mayor as a vital role for the city in terms of transport and business.

He said: ^It will be a great help for me to be able to speak to one individual voice in the city. The elected may will be one clear single voice that we will be able to speak to directly.

^The mayor will be a major voice for Bristol. When I want to speak to someone about transport I can go directly to Boris and hopefully it will work the same way in Bristol.^

The city has been awarded ^130 million to help pay for a new Rapid Transit System but some of the of the candidates have voiced objections to the scheme.

However, Mr McLoughlin is said he is willing to talk directly to the new mayor on a number of issues. He did not rule out moving the cash to another scheme but added that he was keen to work with the new mayor as soon as the election has been settled.

The row over the West Coast Mainline franchise has left a cloud of uncertainty hanging over the bidding to run train services between London and Bristol.

The bidding process has been put on hold after the Government was forced to admit it had made serious mistakes in the process.

Mr McLoughlin said: ^We are holding a number of inquiries which are due to report by the end of the month. The hope is that once we have the findings then we will be able to continue in the bidding process.

^At the same time we want to make sure that Bristol and the south West will continue to get the train service it deserves.^

In this thread, the revelation is that the fiasco could be over soon, at least soon enough to crack on with the Great Western franchise.

[Chris from Nailsea]

The Secretary of State for Transport may have been putting a brave face on things while he was interviewed in Bristol, though.

From Railnews:

DfT^» (Department for Transport - about) crisis deepens as union appeals to Europe

The growing crisis at the Department for Transport over the West Coast franchise collapse and an apparent stalemate over rolling stock procurement has taken a new turn, because the DfT now also faces a union challenge under European law.

The RMT^▸ (National Union of Rail, Maritime & Transport Workers) said its solicitors are petitioning the European Commission with an allegation that procurement rules are being broken.

The Department has been locked in talks with Virgin Trains for almost a month about an emergency contract to keep West Coast trains running from 9 December, but so far no terms have been agreed. Industry insiders claim the DfT is in serious trouble because Virgin is the only practicable bidder and is apparently taking a tough stance.

Transport secretary Patrick McLoughlin announced on 15 October that the DfT wanted Virgin to carry on in the short term, for a period of between nine and thirteen months. He had cancelled the award of the West Coast franchise to FirstGroup at the start of the month because the DfT's processes had been revealed to involve serious flaws. Three civil servants were suspended.

The DfT intends to award two further West Coast contracts after the initial period of emergency operation is over. The first would be a short franchise of perhaps two years, to be followed by a long-term arrangement which could run until about 2026.

However, the RMT has now launched an all-out attack on the official plan to keep Virgin as the West Coast operator for the time being, claiming that by doing so the Department has breached the EU^» (European Union - about)'s Consolidated Directive on Public Procurement.

The union's general secretary Bob Crow said: "The current West Coast staff could have three bosses in three years with all of the uncertainty and potential for cuts to jobs, working conditions and pensions that are thrown in the mix at every twist and turn. That^s not job security, that^s gambling with people^s working lives in the name of private profit.

"If RMT, or any other union, sought to flout laws and regulations in the way that the Government are proposing over the West Coast lash up we would be dragged into court like a shot. RMT will not sit back while our members are hung out to dry by this franchise fiasco."

The DfT's difficulties are multiplying. Not only are West Coast intercity services currently in the balance, but the pivotal Thameslink rolling stock contract is also thought to be spiralling out of control, because preferred bidder Siemens has yet to confirm external funding for the ^1.4 billion deal.

The Government has tried to compensate for the financial crisis in the Eurozone by including funding guarantees in its proposed Crossrail rolling stock contract, but it cannot do this retrospectively for the new Thameslink trains because such a move would also breach European procurement law. Ministers have repeatedly claimed that financial close is imminent, but deadlines have moved back several times. The latest position, which has been supported by Siemens, is that the deal is now expected to be confirmed early in 2013.

The DfT had defended its handling of the Thameslink contract after suggestions that it had been tainted by the West Coast flaws, saying that the two processes were different, but it has now emerged that two of the three suspended West Coast civil servants were also involved in the Thameslink calculations.

An inquiry into the West Coast problems headed by Centrica boss Sam Laidlaw is due to present its final report at the end of the month, but in the meantime the crucial countdown to 9 December continues.

[paul7575]

I wonder if Railnews do any real journalism or just reprint RMT^▸ (National Union of Rail, Maritime & Transport Workers) press releases for their stories?

Paul