First Great Western has had its contract to run the West Coast Main Line franchise extended until October

Great Western franchise bidding scrapped

The Department for Transport has scrapped plans for a bidding competition for the franchise to run Great Western rail services.

The competition was one of three put on hold last October in the wake of the fiasco over the flawed awarding of the West Coast Main Line franchise.

Current operator First Great Western has had its contract extended until October and negotiations will start on a new two-year contract with the company, while plans for the longer term will be set out in the spring.

Meanwhile, operators of the two other franchises - Thameslink, Southern & Great Northern and Essex Thameside - will be offered interim two-year contracts while competitions are launched for longer-term franchises..

The department will grant a 28-week extension to the current Thameslink/Great Northern franchise operated by First Capital Connect after it ends in September and negotiate on a two-year extension. The franchise competition for a seven-year contract to run the service will be resumed

The competition for the Essex Thameside franchise, currently operated by c2c, will be resumed with a revised invitation to tender for a 15-year franchise issued to existing short-listed bidders over the summer.

The announcement was made in a statement to Parliament by Transport Secretary Patrick McLoughlin on the day of a highly critical report on the government's handling of the £5 billion West Coast Main Line franchise competition.

FirstGroup was told it had won its bid to take over the London to Scotland franchise from Virgin Trains in a 13-year contract, but the decision was scrapped after the discovery of "significant technical flaws" in the way the procurement was conducted.

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

A committee of MPs said the Transport Department embarked on an "ambitious, perhaps unachievable" reform in haste, and claimed that ministers and senior officials were lied to.

The DfT has estimated that the collapse of the competition and subsequent inquiries cost the taxpayer around £48 million, as companies demanded compensation for the cost of submitting bids.

But McLoughlin today made clear that he does not envisage compensating companies involved in the three franchise competitions which were suspended last October.

In a statement, the DfT said: "In keeping with the relevant invitations to tender, which made clear that bidders are responsible for their own costs, the Secretary of State does not believe it would be appropriate to reimburse bidders."

Today's announcement follows the publication earlier this month of the Brown Review, which found that the franchising system had made "a major contribution" to the rail network and should be restarted as soon as possible.

Announcing his decision, 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 benefiting fare-payers and taxpayers alike.

"As always our priority is to ensure these changes will not impact on services or our commitment to improving the railways. Our latest step towards delivering a high-speed rail network which will link many of our major cities by a new fleet of state-of-the-art trains is testament to how we are delivering on that commitment."

Mistakes in the award of the West Coast Main Line franchise came to light after Virgin Trains launched a legal challenge to the decision to give the new contract to First Group.

Virgin has now been told it can run the service until November 2014, when a new franchise competition is launched.

A government-commissioned report led by businessman Sam Laidlaw last month gave a damning indictment of how the competition was handled.

Three members of staff at the DfT were suspended over the episode.

The Transport Committee said in its report that embarking on the reform of franchising on the UK's most complex piece of railway was "irresponsible" and needed greater senior executive involvement and more technical expertise.

"A more direct description of what happened is that ministers and senior officials were lied to about how the outcome of the franchise competition had been reached," said the MPs' report.

"We cannot categorically rule out the possibility that officials manipulated the outcome of the competition not only to keep First Group in the running for as long as possible, as Mr Laidlaw suggested, but to ensure that First got the contract.

"We recommend that the DfT find a way of undertaking a full email capture, reporting to someone suitably independent, to help get to the bottom of why DfT staff discriminated against Virgin and in favour of First Group during the franchise competition."

The committee said that money which could have been spent on transport projects had instead gone to consultants, lawyers and review teams, on work which achieved nothing, and compensated train operators for the DfT's "incompetence".

Louise Ellman, chairman of the committee said: "This episode revealed substantial problems of governance, assurance, policy and resources inside the Department for Transport.

"Embarking on an ambitious, perhaps unachievable, reform of franchising, in haste, on the UK's most complex piece of railway was an irresponsible decision for which ministers were ultimately responsible. This was compounded by major failures by civil servants, some of whom misled ministers.

"Many of the problems with the franchise competition, detailed in the Laidlaw report, reflect very badly on civil servants at the DfT.

"However, 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."

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.

A DfT spokesman said: "Following the collapse of the West Coast refranchising programme, the Department for Transport was subject to two independent inquiries and an internal HR investigation. These have now concluded but the disciplinary process is ongoing.

"Independent experts concluded the collapse of the West Coast franchise programme was caused by a number of failures, including inadequate planning and weak governance structure but not systematic failings in the Department. The examination of emails from key officials found no evidence that this was anything other than simple human error.

"We are putting in place measures that will prevent this embarrassing episode from happening again and the Secretary of State has given an undertaking to keep Parliament updated on costs.

"While we are currently working to minimise the impact on the taxpayer, we estimate the failure of the competition and subsequent independent inquiries is around £48 million."

Bob Crow, leader of the Rail, Maritime and Transport union, said: "The day the lid was lifted on the sordid fiasco on the West Coast the government are at it again, doling out lucrative two-year contract extensions around the country with directly operated railways on hand to sweep up the mess if it all falls apart.

"The lies, deceit and racketeering of rail privatisation has to be called to a halt now."

Manuel Cortes, general secretary of the Transport Salaried Staffs Association, said: "The latest announcement is merely a sticking plaster to try and save the franchise system which is mortally wounded and bleeding to death before our very eyes.

"Rather than operate on a terminally ill patient, ministers would be better off scrapping the whole system and running the franchises in the interests of passengers rather than private shareholders.

"It is working perfectly well on the East Coast line. Why not do it on all the others?"

Mick Whelan, leader of the train drivers' union Aslef, said it was time to end the "flawed" franchising system and called for a review on how the UK's railways are run.

"This is not a problem that can be solved with sticking plasters. Successive governments have clung to a franchising system that was cobbled together by John Major's government to satisfy a political dogma that said private is good, public is bad.

"We need to look at alternatives to replace this sick system of franchising."

Shadow transport secretary Maria Eagle said: "As even more of the rail network is dragged into the chaos caused by the West Coast franchise fiasco, taxpayers deserve straight answers on the final bill they face as a direct result of ministerial decisions ruled irresponsible by a key parliamentary committee.

"There will be now be significant additional costs from having to re-run yet another major franchise competition from scratch, as well as the costs of restarting the other two stalled competitions and a huge bill for keeping the government's own rail company on stand-by.

"What is increasingly clear is that the final bill will far exceed the £40 million initially admitted by ministers."

Eagle added: "Since First Group are to continue running services on the Great Western main line for a period for which they previously declined the option to extend their contract to avoid more than £800 million of premium payments, ministers must ensure that taxpayers are to now receive payments in full from the company for this period.

"Having now handed lucrative contracts without competition to both companies involved in the West Coast franchise dispute, ministers must be clear that this is not simply some quid pro quo arrangement to prevent legal challenge and get the Department off the hook using taxpayers' money.

"Ministers must also explain why they have ignored a key recommendation from the Brown Review and propose to stick dogmatically to longer 15-year franchises despite the greater risks to taxpayers.

"This deeply worrying decision suggests that ministers have learnt nothing from this fiasco and are intent on putting their ideological obsession with this failed policy ahead of protecting public money."

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