Thameslink contract: rip it up and start again

8 Sep 11
Karel Williams

Most commentators agree that the award of the £1.5bn Thameslink rail contract to Siemens rather than Bombardier was a bad decision. Perhaps it’s not too late to reconsider

Despite the summer recess, the Bombardier-Thameslink story hasn’t gone away. The Transport Select Committee evidence session yesterday required an overflow room to accommodate all the interested parties.

It’s worth recapping how this all began. In June the Department of Transport awarded the £1.5bn Thameslink rail contract to a consortium led by Siemens, which meant the carriages would be built in Germany. As a consequence, Derby-based Bombardier announced 1,400 redundancies with its long-term future as the UK’s last surviving train manufacturer in doubt.

Inside the Committee room yesterday, an interesting parallel developed. The first panel comprised the vanquished and dissenters, the second panel the victor and assorted while the third panel was dominated by the extraordinarily well briefed Transport Secretary Philip Hammond complete with sympathy for the workers, for Derby and the rail users, but no concessions.

But some things have changed. The coalition has changed tack and tone from the initial reaction of (predictably) blaming the outcome on the Labour shadow ministers who had originally drafted the contract in 2009. While government ministers maintain the no concession standpoint, most politicians and commentators still agree with thousands of petitioners from Derby that this as a bad decision.

Few can deny there is disquiet about the outcome but other than to argue to give the contract to Bombardier, there is less clarity about how things might be put right. The key problem was of ‘bundling’, and the definition of the public interest. This point is covered in a report, Knowing what to do? How not to build trains, published by the Centre for Research on Socio-Cultural Change (Cresc) based at the University of Manchester.

The Thameslink tender was a (PFI) style contract that covered the building of carriages, their maintenance, plus the lease finance. This ‘bundling’ of carriage building and financing helped tip the balance when the Department of Transport used narrow judgements about which company could build better and cheaper trains and raise lease financing more cheaply.

This never was a level playing field when Siemens had an A+ credit rating and Bombardier a BB+. On a back-of-an-envelope calculation (and in the absence of information from the government) this probably gave Siemens a finance cost advantage of around £500m-£700m.

The Cresc report demonstrates that it does make economic sense to award the contract to Bombardier once the broader social costs are added in. But that is little consolation to the stoic Derby workers who came to Parliament to campaign for their jobs.

But there is a solution. Both the EU representative and Hammond agreed, we could rip up the contract and start again.

Karel Williams is a co-director of the Centre for Research on Socio-Cultural Change and is one of the authors of the Knowing what to do? How not to build trains report


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