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West Coast fiasco suspends all franchise contests

6 November 2012

The very public collapse of the West Coast franchising process has thrown a spotlight on the waste, complexity and huge amount of guesswork involved in the granting of the multi-billion pound contracts.

Franchising Timetable

News of the errors in the Department for Transport’s processes broke in the early hours of 3 October, the day before Virgin’s judicial review was due to be heard. The new Transport Secretary Patrick McLoughlin released a statement saying that ‘significant technical flaws in the way the franchise process was conducted’ had been discovered.

These are said to centre on the value of the surety bond that franchise holders must give to the DfT, which would be retained in the event of their collapse. Virgin had claimed this should have been set at £600 million rather than the £190 million the DfT accepted. Further errors were said to include the baseline assumption on growth and inflation figures used by the DfT to evaluate each of the bids. Due to the 13 year length of the franchise, small changes in the first years can result in very different outcomes towards the end of the contract.

There has also been speculation that cost-cutting resulted in the DfT failing to use external auditors, who would normally be used to verify the assumptions in major contracts.

The West Coast decision also derailed the string of franchise verdicts due in the coming months, with Great Western, Thameslink and Essex Thameside (c2c) routes now needing either extensions to their current franchises or taking over by the publicly-owned Directly Operated Railways.

Bids for Essex Thameside (currently c2c) had been submitted just a week before the process was scrapped, whilst the much larger Great Western proposals were due to be submitted within weeks and would have been in the final stages of preparation.

The bid preparation costs of the four West Coast applicants will be refunded at a cost of £40-50 million to taxpayers, whilst the further charges for the other processes, First’s loss of earnings and the extension of current franchises may take the bill to £100 million.
 

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