29/10/2012 20:42 GMT

West Coast Rail Line Bid Process 'Flawed', Transport Secretary Patrick McLoughlin Tells MPs

An accumulation of "significant errors" by the Department for Transport (DfT) resulted in a "flawed" West Coast rail franchise process, MPs were told tonight.

The judgment came in initial findings from an independent inquiry into the halting of the West Coast bidding process.

The report was published today by Transport Secretary Patrick McLoughlin, who made the decision earlier this month to scrap the West Coast bidding process, blaming mistakes by DfT officials.

In August, the DfT announced that transport giant FirstGroup, rather than Sir Richard Branson's rail company Virgin Trains, had won the battle to operate a new 13-year West Coast franchise.

Sir Richard, whose company had run West Coast since 1997, dubbed the bidding process "insane" and launched a legal challenge to the decision.

Today, senior business figure Sam Laidlaw, who is leading the first of the inquiries, asked the DfT to release the following statement: "In the limited time available this is necessarily only a preliminary report.

"What is clear, however, is that in seeking to run a complex and novel franchising competition process, an accumulation of significant errors, described in the report, resulted in a flawed process.

"These errors appear to have been caused by factors including inadequate planning and preparation, a complex organisational structure and a weak governance and quality assurance framework. The full causes and the lessons to be learnt will be addressed in the final report of my independent inquiry to be published at the end of November."

Former transport secretary Justine Greening, who presided over the original FirstGroup decision, and her successor, Mr McLoughlin, have both defended the bidding process.

But it was while preparing to defend the Branson court challenge that mistakes in managing the West Coast bidding process were found.

Mr McLoughlin scrapped the bidding and suspended bidding on other franchises. In addition, three DfT civil servants were suspended.

Mr McLoughlin also announced that two independent inquiries would be carried out - the first to look specifically at the West Coast bidding process and the other to investigate franchise bidding generally.

In a statement to MPs tonight, Mr McLoughlin said Mr Laidlaw's initial findings made "uncomfortable reading" but provided "a necessary and welcome further step in sorting this (the West Coast franchise) out".

Mr McLoughlin went on: "It is clear that the inquiry has identified a number of issues which confirm that my decision to cancel the franchise competition was necessary."

He added that these included:

A lack of transparency in the bidding process;

The fact that published guidance was not complied with when bids were being processed;

Inconsistencies in the treatment of bidders;

Confirmation of technical flaws in the model used to calculate the amount of risk that capital bidders were asked to provide to guard against the risk of default.

Mr McLoughlin said the Laidlaw inquiry also mentioned factors "that appear to have caused or contributed to the issues raised".

He continued: "We will look at these with interest and care, although once again we will need to see the final report before we can comment further."

FirstGroup had been due to take over the London to Scotland West Coast route on December 9. Virgin has been asked to carry on for the time being, with a two-year interim franchise to be offered later followed by a longer, permanent franchise.

Tonight, Mr McLoughlin told MPs that the DfT was making good progress in its discussions with Virgin on how the company will operate the line "for a short period of up to 14 months while a competition is run for an interim agreement".

In his report today, Mr Laidlaw said: "There is a body of evidence that strongly suggests that the DfT's approach to the evaluation of the financial robustness of bids in the ICWC (Inter-City West Coast) franchise process was developed late, in a hurry and without proper planning and preparation."

He went on: "In my view there are firm indications that the organisational changes and structure of the DfT resulted in a lack of clarity around allocation of responsibility for the ICWC refranchisng competition.

"As a general observation the organisation has undergone significant reduction in size accompanied by frequent changes of leadership at a time when the DfT's agenda has been expanding."

Mr Laidlaw said the factors identified in his report "raise potentially significant issues about the ability of the DfT to effectively conduct rail franchise competitions".

A FirstGroup spokesman said: "We note the release of preliminary findings into the cancellation of the West Coast franchise competition and the significant technical flaws which the DfT say they discovered in their process.

"The Secretary of State has repeatedly confirmed that FirstGroup is in no way at fault, having acted entirely in accordance with the DfT's process throughout."

The spokesman went on: "Nevertheless we are extremely disappointed and dissatisfied that, as a result of the Government's reversal of its decision, taxpayers and West Coast passengers will not benefit from the better deal that our strong bid would have delivered."

Meanwhile Government spending watchdog the National Audit Office said tonight that it would be examining the cancellation of the West Coast franchise and planned to publish its report before Christmas.

Virgin Trains said tonight: "Today's interim report shows just how important our calls were in the summer to find out what went on behind closed doors when deciding the future operator of the West Coast franchise and that it should be opened up to proper detailed scrutiny.

"As well as the technical errors the review has identified, it raises fundamental questions around why more favourable treatment was given to one bidder over another and the lack of a clear and consistent account of how and what decisions were made.

"All of this is a matter of serious concern and we hope these issues will be explored in greater detail in the final report by Sam Laidlaw."

Virgin went on: "Regardless of the catalogue of problems identified with the assessment process itself, we remain very clear that our own bid was robust and deliverable.

"Lessons must be learned to prevent the process failures we saw with the West Coast competition from happening again and to protect the taxpayer and passengers from phoney bids that game the system."

Eurostar chairman Richard Brown is heading the second inquiry - into rail franchise bids generally.

Virgin said tonight: "Looking to the future and the current Brown review, the priority must be to get the rail franchising system back on track as quickly as possible on a sustainable basis. We need a franchising process that guarantees a level playing field, and a system built around quality and value for money.

"This will help ensure we deliver the best result for the passenger and taxpayer, as well as getting the best out of the private sector and the key role it plays in a successful UK rail system.

"In the meantime, we are making good progress in our negotiations with the Department for Transport towards agreeing an extension to the current franchise that will deliver continuity for both passengers and our staff."

David Sidebottom, director of Passenger Focus, said: "In the short term passengers will need to be reassured by the Government that their day-to-day service won't be affected by the cancellation of the competition to run the West Coast franchise.

"Longer term, the Government will need to work hard to restore confidence in the franchising process as these decisions affect millions of passengers on a daily basis.

"Passengers will also want to know that the burden of costs arising from this cancelled process will not be directly passed on to them through hikes in fares."