West Coast deal torn up as DfT throws franchises into chaos

Transport Secretary Patrick McLoughlin today placed a large question mark over the future of UK rail franchises as he halted the handover from Virgin Trains of the main line operation to First Group and launched an investigation into the "flawed process".

Shares in First Group fell 20% by midday Wednesday after the news emerged overnight. Louise Ellman, Labour MP for Liverpool Riverside and chairman of the Commons Transport Select Committee, said the discovery of serious procurement flaws was "astonishing" and left the system in "disarray". She said she would call the Transport Secretary to appear before the committee to explain what had happened.

The Department for Transport issued a lengthy statement which said "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 statement continued: "The decision means that the DfT will no longer be awarding a franchise contract to run the West Coast service when the current franchise expires on 9 December. 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 Transport Secretary also ordered two independent reviews to be undertaken urgently: one into what went wrong with the West Coast competition; and secondly into the wider DfT rail franchise programme.

Officials will also examine the options for the operation of the West Coast service after 9 December, taking into account procurement and competition law.

All other outstanding franchise competitions on the Great Western, Essex Thameside and Thameslink lines have been frozen pending the outcome of the independent reviews.

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."

First Group responded in a statement to the London Stock Exchange: "We were notified late last night that the DfT has apparently discovered significant technical flaws in the way their franchise process for the InterCity West Coast was conducted and have consequently cancelled the competition for this franchise.

"We understand the DfT has ordered two urgent independent inquiries into the West Coast competition and the wider DfT rail franchise programme. Until this point we had absolutely no indication that there were any issues with the franchise letting process and had received assurances from the DfT that their processes were robust and that they expected to sign the contract with FirstGroup soon.

"We are extremely disappointed to learn this news and await the outcome of the DfT's inquiries. The DfT have made it clear to us that we are in no way at fault, having followed the due process correctly. We submitted a strong bid, in good faith and in strict accordance with the DfT's terms. Our bid would have delivered a better deal for West Coast passengers, the taxpayer and an appropriate return for shareholders."

Issuing its own response, Virgin Rail Group said: "We welcome today's frank announcement by the Secretary of State, acknowledging the flaws in the way the InterCity West Coast competition was assessed and launching a review into franchising more widely.

"We are ready to play a full part in assisting the review to help deliver a franchising system that better serves passengers, taxpayers and the interests of all bidders.

"In the meantime, we will assist the Department for Transport in ensuring continuity of service for the millions of customers who depend on train services on the West Coast mainline."

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