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All franchising on hold as InterCity West Coast award cancelled

03 Oct 2012

UK: Secretary of State for Transport Patrick McLoughlin has commissioned an urgent review of the franchise tendering programme, following the discovery of significant failings in the bidding process for the InterCity West Coast franchise which was due to change hands on December 9.

The Department of Transport had selected FirstGroup to take over ICWC from Virgin Trains Ltd, but this decision was challenged by Virgin Group founder Sir Richard Branson, who applied for a judicial review. Whilst preparing for this review, DfT uncovered ‘significant technical flaws in the way the franchise process was conducted’. These relate in particular to the treatment of inflation and passenger growth numbers over the 15-year franchise period.

McLoughlin said on October 3 that when taking office four weeks ago he had been assured that the franchising process was ‘robust’, but when presented with the detailed findings on the afternoon of October 2 he felt that there was no alternative to cancelling the award and re-running the tendering competition, because of ‘deeply regrettable and completely unacceptable mistakes made by my department’.

He has already spoken directly to Branson and Brian Souter of Stagecoach, which holds a 49% stake in Virgin Rail Group, as well as FirstGroup Chief Executive Tim O’Toole. The government will reimburse the bidding costs for the four shortlisted bidders, including Abellio and Keolis/SNCF, thought to total around £40m.

The Transport Secretary has 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 franchising programme is fit for purpose’.

The first will examine DfT’s handling of the ICWC competition, led by Centrica Chief Executive Sam Laidlaw and former PricewaterhouseCoopers Strategy Chairman Ed Smith, who are both DfT non-executive directors; they have been asked for an initial report by the end of October.

The second review will be undertaken by Eurostar Chairman Richard Brown, looking at the wider rail franchising programme to consider ‘whether changes are needed to the way risk is assessed and to the bidding and evaluation processes’. This will report back by the end of December.

Pending completion of the reviews, DfT has halted work on three other bidding competitions currently underway. Bids were submitted on September 27 for the Essex Thameside franchise, now operated by National Express as c2c, which is due to change hands in May 2013. This is to be followed by Great Western in July and Thameslink in September. A further five franchises are scheduled to come up for replacement between December 2013 and July 2014.

McLoughlin says he will be considering two options to ensure continuity of service on the West Coast Main Line. One would be to negotiate with Virgin, and the other would be to hand the operation to DfT subsidiary Directly Operated Railways, which is currently running East Coast inter-city services. DOR had already been asked to mobilise a shadow management team for ICWC in case Virgin’s legal challenge delayed the handover to FirstGroup.