Thursday, January 31, 2013

Cost cuts and poor governance blamed for rail fiasco

LONDON (Reuters) - Cost-cutting, a lack of governance at the Department for Transport and mistakes by ministers contributed to the mishandling of the award of the West Coast Main Line rail franchise, according to a parliamentary report into the fiasco.

The 13-year contract to run the London to Scotland route was awarded to FirstGroup late last year, but the government was forced to pull the award after flaws were found in the bidding process following a legal challenge by the losing bidder Virgin Trains.

"This episode revealed substantial problems of governance, assurance, policy and resources inside the DfT," Louise Ellman, the chair of Britain's transport committee said on Thursday as part of a review into the botched tender.

"Ministers approved a complex, perhaps unworkable, franchising policy at the same time as overseeing major cuts to the Department's resources. This was a recipe for failure which the DfT must learn from urgently."

FirstGroup made a 5.5 billion pounds bid to operate the franchise, while Virgin Trains, a venture between billionaire businessman Richard Branson's Virgin Group and Stagecoach, offered 4.8 billion pounds to continue with the franchise.

The DfT also required bidders to put up a subordinated loan facility (SLF), which they would lose if they failed to fulfil the contract. The size of the SLF depended on the DfT's evaluation of the risk in the respective bids.

The department has since admitted it wrongly calculated the amount of risk capital that bidders would have to offer to guarantee their proposals against default.

The bungled process, which led to the suspension of three DfT employees and the freezing of other franchise competitions, has so far cost taxpayers about 40 million pounds in compensation to the four shortlisted bidders.

As part of its report, the committee called on the DfT to explain why ministers and senior officials were misled about how SLFs were calculated.

The committee also urged the DfT to further investigate whether any officials manipulated the outcome of the competition to ensure First Group was awarded the contract.

Virgin Trains will continue to operate services on the route until a new franchise competition is launched.

(Reporting by Rhys Jones)


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