By Richard Johnstone | 6 December 2012
Virgin Trains’ contract to run services on the West Coast mainline has been extended until November 2014, following the scrapping of the original award to rival operator First Group.
Today’s announcement coincides with publication of the inquiry into the Department for Transport’s botched handling of the tender, which led to the decision to cancel the award in October. Centrica chief executive Sam Laidlaw’s report found flaws in the methodology used to assess the risk capital needed.
Under the extended deal with Virgin, the DfT will take on all revenue and cost risks from operating services, Transport Secretary Patrick McLoughlin revealed today.
Usually the franchise operator assumes the revenue risk, but Virgin has agreed to operate under a government management contract for the next 23 months. The firm will receive 1% of the total revenue from operating services as payment.
McLoughlin initially hoped to agree a deal with Virgin for another nine months.
A competition for a short interim franchise, open to all bidders, was then to be held, followed by a full franchise after two inquiries into the flaws in the original award were completed.
However, today’s announcement means there will now only be one competition for a new long-term franchise after the two independent inquiries have reported, and any reforms implemented.
Laidlaw’s inquiry concentrated on the lessons to be learned from the department’s handling of the West Coast competition. The second, by Eurostar chair Richard Brown, is examining whether changes are needed to the way risk is assessed in the wider rail franchising programme. This is expected to report by the end of December.
Laidlaw’s report concludes that the DfT used a flawed and inconsistent methodology when guiding bidders on the amount of risk capital they would need to offer to guarantee their franchise against default. The guidelines were applied in a way that contravened franchise competition rules, he said.
However, the report says there is ‘nothing… to suggest that the flaws discovered in this franchise competition exist in any other DfT procurements’.
McLoughlin said: ‘The final report from the Laidlaw Inquiry makes extremely uncomfortable reading for the department. It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right.
‘We will not allow these mistakes to be made again and the department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance.’
