FCC trains at Kings cross courtesy of  Phil Marsh

Financial Fallout from West Coast Franchising debacle carries on to next general election

Published 07th March 2013

Millions of pounds have been lost by companies and taxpayers in West Coast Franchise Frenzy

Under the curious title of their ‘expanding and improving the network’ banner, the Department for Transport (DfT) has announced their proposals for dealing with the consequences of abandoning the West Coast Franchise competition five months ago. The DfT was also tendering for operators of three other franchises at the same time which were also put on hold last October.

In what the DfT says is “a major step in delivering a more robust and improved rail franchising system” the government announced via a written statement, its plans for extending the three live other affected franchises.

And the losers are:

Transport Secretary Patrick McLoughlin announced that the Great Western (GW), Essex Thameside (ET) and Thameslink, Southern and Great Northern (TSGN) franchise competitions would be delayed and franchises extended as an interim measure.

Mr McLoughlin said:

These plans mark an important step on the way to restarting the franchising programme, and while I am determined this should happen as quickly as possible we do need time to get this right.

We have had to take some tough decisions regarding franchising, and while they may provide a challenge in the short term, I believe the lessons we have learnt will help deliver a more robust system in the future benefitting fare payers and taxpayers alike.

The department will now commence negotiations with current operators to negotiate new short-term franchises while longer-term options can be explored.

What happens next?

Resumption of the Essex Thameside franchise contest currently operated by National Express (NE) as C2C with a revised invitation to tender for a 15-year franchise as well as an interim contract of up to two years

The Great Western (GW) franchise competition has been summarily terminated and the current franchise now runs to October. This was after the DfT exercised its contractual right to extend the current contract with First Great Western by 28 weeks. This somewhat ironic as FGW declined to exercise their three year option on the franchise a year ago triggering the new competition!

Negotiations for an additional two-year contract, as with C2C, will also commence with FGW while longer-term proposals will be set out in the spring. These will no doubt take into consideration the electrification and resignalling of the Great West Main Line and the associated introduction of the new train fleet.

The Thameslink, Southern and Great Northern (TSGN) franchise competition will be resumed with the DfT looking at a seven year contract award. The services are operated by First Capital Connect (FCC) and their franchise ends in September but has also been extended by 28 weeks. Again, negotiations will commence for a further two year contract as part of the finalisation of the wider franchise programme.

Just in case…

Running alongside these negotiations, the DfT owned subsidiary Directly Operated Railways will also be undertaking necessary preparations to take over services in case terms cannot be agreed. They have operated East Coast Trains for three years since the collapse of National Express on that route.

Who pays?

The DfT announced that bidders signed up to a clause saying that bidders are responsible for their own costs and the Secretary of State believes it would be inappropriate to reimburse bidders. This has not gone down well with bidding teams and as they say, they were not responsible for the errors and that the West Coast debacle was all to do with the DfT.

Bidders see no difference to the WCML franchise and bidders had their costs refunded by the DfT in this case and obviously expected similar treatment for the GW franchise as this was cancelled as a direct result of the WCML errors.

National Express went public on having to pay their bid costs and reckoned it was £10m down the drain. They have gone on recently to win a couple of rail franchises in Germany and are now looking for further opportunities in Europe.

What does this mean?

The DfT now has to simultaneously manage FOUR franchise competitions in the immediate aftermath of being branded incompetent which some have interpreted as a sign of panic. Then of course the proposed schedules, with seven and 24 month extensions of each franchise takes everyone to General Election time in May 2015.

Called to Account as Parliament says £50m wasted

Margaret Hodge MP, Chair of the Committee of Public Accounts, has announced that “The DfT’s complete lack of common sense in the way it ran the West Coast franchise competition has landed the taxpayer with a bill of £50 million at the very least”.

She reported that the cost to taxpayers could be much larger if you factor in the cost of delays to investment on the line, and the potential knock-on effect on other franchise competitions.

They said:

“The Department made fundamental errors in calculating the level of risk capital it would require bidders to put on the table. Faced with the possibility of legal challenge, it cancelled the competition.

“The franchising process was littered with basic errors. The department yet again failed to learn from previous disasters, like the Metronet contract. It failed to heed advice from its lawyers and failed to respond appropriately to early warning signs that things were going wrong.

“Senior management did not have proper oversight of the project. Cuts in staffing and in consultancy budgets contributed to a lack of key skills. “The project suffered from a lack of leadership. There was no single person responsible from beginning to end and, therefore, no one who had to live with the consequences of bad policy decisions. For three months, there was no single person in charge at all. Not only that, there was no senior civil servant in the team responsible for the work, despite the critical importance of this multi-billion pound franchise.

“We are astonished that the Permanent Secretary did not oversee the project because he was told he could not see all the information which might have enabled him to challenge the processes, although it was one of the most important tasks for which the department is responsible.

" The Department needs to get its house in order and put basic principles and practices at the heart of what it does, with an appropriately qualified and senior person in charge of the project throughout and an accessible leadership team ready and willing to hear and act on warning signs.”

First Group Statement

Tim O’Toole, Chief Executive said: “The extension of First Great Western and First Capital Connect provides continuity and consistency for our passengers and enables us to continue to deliver considerable improvements to services. At both these franchises everyone has worked tirelessly to enhance services and we have a record of successfully delivering major projects, working together with Government and our industry partners.

Written by Phil Marsh

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