West Coast Main Line franchise competition cancelled

Transport Secretary Patrick McLoughlin has today announced that the competition to run trains on the West Coast Main Line has been cancelled following the discovery of significant technical flaws in the way the franchise process was conducted.

The decision means that the Department for Transport (DfT) will no longer be awarding a franchise contract to run the West Coast service when the current franchise expires on December 9. It is consequently no longer contesting the judicial review sought by Virgin Trains Ltd in the High Court.

The flaws uncovered relate to the way the procurement was conducted by department officials. An announcement will be made later today concerning the suspension of staff while an investigation takes place.

The Government is resolving urgently the future arrangements for operation of the West Coast and will ensure that train services continue uninterrupted. Mr McLoughlin stressed today that passengers will continue to be served by the same trains and frontline staff.

The Transport Secretary has also:

• Ordered two independent reviews to be undertaken urgently: the first into what went wrong with the West Coast competition and the lessons to be learned, the second into the wider DfT rail franchise programme, both overseen by leading business figures;
• Asked officials to examine the options for the operation of the West Coast service after December 9, taking into account procurement and competition law;
• Paused all the other outstanding franchise competitions (Great Western, Essex Thameside and Thameslink) pending the independent reviews which are designed to ensure future competitions are robust and deliver best value for passengers and tax payers.

Mr McLoughlin said:

“I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.

“A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held.

“I have 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 franchise programme is fit for purpose.”

He added:

“West Coast passengers can rest assured that while we seek urgently to resolve the future arrangements the trains that run now will continue to run, with the same drivers, the same staff and timetables as planned. The tickets that people have booked will continue to be valid and passengers will be able to make their journeys as planned.”

DfT permanent secretary Philip Rutnam said:

“The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance.

“I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again.”

The first independent review will be an urgent independent examination into the lessons to be learned from the Department’s handling of this 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.

Evidence of significant flaws in the Department’s approach emerged while officials were undertaking very detailed evidence-gathering in preparation for legal proceedings in the High Court.

These flaws stem from the way the level of risk in the bids was evaluated. Mistakes were made in the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result.

The Department cannot be confident that these flaws would not have changed the outcome of the competition or that any of the four bidders would not have chosen to submit different offers.

The DfT has spoken to the four bidding companies to inform them of the flaws that the Department discovered. The DfT will reimburse their bid costs and has assured them that a fresh competition will be started as soon as the lessons of this episode are learned.