Mind the Gap? West Coast Laidlaw Report identifies huge problems in the DfT and The Treasury

Published 10th December 2012

London - Skills and Accountability gaps to be closed in Department for Transport and The Treasury.

West Coast Report

Mr Laidlaw’s final report of what went wrong in the West Coast Franchise (WCF) award last summer has been published and as with the interim report, lays the blame fairly and squarely with the Department for Transport (DfT) and The Treasury.

These two Government departments did not work together but this was compounded by the individual way sections within the departments. The report also said that there was no overall person in charge so therefore was no overall decision maker. Why should the DfT and Treasury liaise with each other you may ask?

The West Coast franchise (as with others) potentially carries a huge financial risk for Government and bidders alike. These risks are supposed to be shared with the Treasury Approval Point Panel for debate and assessment.

Financial calculations too difficult for The Treasury?

The financial risk modelling included which version of the Passenger Demand Forecasting model to use. This is a detailed analysis of current and potential passenger numbers and thus revenue income for the franchise. It seems it was too difficult for the Treasury to get to grips with so they left it for the DfT to make a decision on.

Other risks identified were the dysfunctional way of working leading to both process and accountability problems. This was made worse by a lack of clarity as to what the outputs were expected to be so far as the franchise competition was concerned.

Serious questions were also raised about the basis of what internal quality assurance control procedures were applied. The lack of quality assurance was put down to failures within the DfT to follow up on the results of internal processes and procedures.

No Accountability

The absence of clear accountability fostered a culture of limited ownership and resolution. All bidders were anonymised, that is given different identifies so there could be no bias shown for or against any given bidder by DfT or Treasury staff. The report says that this also created barriers and some senior DfT officials expressed concern that this requirement for anonymity may have hindered information flow, restricted ongoing peer review and governance oversight.

This meant that only the ICWC Project Team knew about key issues without full recognition of the need to escalate issues to higher levels of authority within the DfT. A number of senior DfT officials absented themselves from committee meetings on the grounds that they had a conflict of interest the report suggests.

Bond Calculations’ error

Interviewees also emphasised that anonymity concerns should not have hindered the flow of information in respect of the calculation of Subordinated Loan Facility (SLF) levels as this process was common to all bidders. This is the amount of cash to be put up as a bond by the winning bidder which was incorrectly calculated and triggered the investigation.

Dammingly, the report says that planning and preparation in respect of the WC franchise was inadequate and also failed to allocate time appropriately or incorporate sufficient flexibility in respect of the process timetable.

False economy and lack of clarity

The organisational structure at the DfT failed to set out roles, responsibilities and associated accountabilities clearly, and the resources of the organisation were excessively stretched due to the Government’s spending review and the competing pressures of other projects.

Governance framework effectiveness was severely reduced by the lack of clarity in the functions, authorities and interrelationships of various committees and boards. Significant risk issues were identified in the WC franchise process but the quality and robustness of the WC procurement was overridden in the attempt to meet deadlines, despite the franchise already being extended once.

Nobody felt responsible for the ICWC franchise so there was a failure on the team to escalate and resolve problems. This resulted in the Rail Minister Theresa Villiers being wrongly advised by the DfT so she made the wrong decision as a result.

DfT Significant errors caused failure

The independent inquiry concluded that the project failed because of an accumulation of significant errors related to inadequate planning and preparation, complex organisational structure, and a weak governance framework. The Subordinated Loan Facility figures resulting from the flawed methodology were then varied in a way that contravened franchise competition rules.

Ministers made the original August 14 provisional contract award without being told about the critical flaws and having been given “inaccurate reports”. The report also finds that there is no evidence of a culture of bias against Virgin at the DfT referring to the ABB (anyone but Brnason) whispers.

The Laidlaw Inquiry concluded that:

The report’s recommendations to strengthen accountability and governance structures “if acted upon quickly and effectively, will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement”.

There is nothing in the report to suggest that the flaws discovered in this franchise competition exist in any other DfT procurements.

The DfT said:

The DfT issued its formal response to the report which commits the department to implementing swiftly a series of actions that will enable it to resume the franchising programme, with the confidence of the rail industry, as soon as possible.

Ensuring future franchise competitions are delivered at a good pace based on sound planning, a clear timeline, rigorous management, and the right quality assurance.

Creating a simpler and clearer structure and governance process for rail franchise competitions, including the appointment of a single director general with responsibility for all rail policy and franchising.

Ensuring we have the right mix of professional skills, in-house, and where necessary from professional external advisers.

Report author Sam Laidlaw Said:

Building upon and confirming the conclusions from my initial findings, the final report provides an in-depth analysis of the events that led to the flaws whereby the InterCity West Coast competition was cancelled. Alongside this I have also made a series of recommendations for the future.

I have explained in detail the technical nature of certain errors, specifically around modelling flaws and the Subordinated Loan Facility sizing process. In addition, the report outlines an accumulation of contributory causes including a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight.

While it is clear that a number of serious and regrettable errors have occurred, I believe that if acted upon quickly and effectively, my recommendations will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement.

Transport Secretary Patrick McLoughlin said:

The final report from the Laidlaw inquiry makes extremely uncomfortable reading for the department. It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right.

We will not allow these mistakes to be made again and the department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance.

DfT Permanent Secretary Philip Rutnam said:

There is no question that this has been a serious blow for the department and I am determined that we learn everything we can from this episode. We will implement all of Mr Laidlaw’s recommendations, and go further, to ensure we have the right set of skills, support and training to ensure failures like this do not happen again.

It will also take into account the forthcoming NAO report into the lessons from the cancellation of the InterCity West Coast franchise and the conclusions of Richard Brown’s review of the future of the rail franchising programme, due to be submitted to the Secretary of State by the end of December.

Rail.co.uk will report on this final report when it is issued.


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