Government scraps flawed rail deal in embarrassing U-turn

The government
has torn up a deal awarding one of its biggest rail franchises to a
private operator, in a humiliating U-turn that raises doubts about the
government's handling of the privatised railways.

Ministers froze three more rail
franchise competitions on Wednesday after the Department for Transport
(DfT) announced that "completely unacceptable" flaws had been uncovered
in its handling of bids to run the West Coast Main Line, a jewel in the
crown of the rail network that links London and Scotland.
The
debacle is damaging for the ruling Conservative Party, which began a
difficult programme of rail privatisations in the 1990s that has been
dogged by fatal accidents, financial crises and political infighting.
Rail
operator FirstGroup Plc, the shares of which tumbled 18 percent by 0946
GMT, bid 6 billion pounds ($9.7 billion) to secure the 13-year
franchise in August. Virgin Trains, a venture between Richard Branson's
Virgin Group and Stagecoach, mounted a legal challenge, claiming that
the winning bid was unrealistic.
The
Conservative-led coalition, trailing in the polls and accused by the
Labour opposition of "shambolic incompetence", is already under pressure
over the stagnant economy, public spending cuts and an unpopular budget
this year.
Transport Secretary
Patrick McLoughlin said the mistakes would cost the taxpayer at least 40
million pounds, a relatively small but politically awkward sum at a
time of recession and squeezed household budgets.
"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,"
McLoughlin said in a statement.
Staff
in his department may be suspended after officials made serious
mistakes in how they calculated the bids. McLoughlin's position looks
safe, however, having replaced Justine Greening as transport minister
only last month in a government reshuffle.
The
DfT will no longer award a contract to run the West Coast service when
the current contract expires on December 9. Trains will continue to run
with the same drivers, staff and timetables while the problems are
resolved, the government said.
Most
of the rail network was in public hands between 1948 and the mid-1990s,
though Britain's passenger rail services are now operated by 16 private
train operating companies that have signed legal contracts with the
government.
The three active
franchise competitions have been suspended while the handling of the
awards is investigated. These franchises are to run the c2c service
between London and Esاللهم اهدني in southeast England, the Thameslink route from
the capital to Brighton on the south coast and Great Western services
from London to central England.
Another
nine franchises were due to be awarded over the next three years. The
timetable for all of these is expected to slip backwards.
"The
direct impact clearly falls on FirstGroup, where the shares had priced
in the franchise win," said Jefferies analyst Joe Spooner. The delay in
the franchising would also be a negative for UK transport groups
Go-Ahead and National Express, who are shortlisted in the contests, he
added.
'SHAMBOLIC INCOMPETENCE'
Labour
transport spokeswoman Maria Eagle said: "The West Coast rail franchise
fiasco has yet again exposed the shambolic incompetence of this Tory-led
government."
The RMT rail union,
meanwhile, described rail privatisation as a "sorry and expensive
shambles", insisting that the process should be halted. "Instead of
re-running this expensive circus, the West Coast route should be
renationalised on a permanent basis," said RMT chief Bob Crow.
FirstGroup
said in a statement that it was disappointed with the government move
and that it had only been told of the issue late on Tuesday night.
"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," it said. "We submitted a strong
bid, in good faith and in strict accordance with the DfT's terms."
In
its trading update on Tuesday, FirstGroup had said that it was getting
ready to run the West Coast line and was planning for a successful start
on Dec 9.
Branson welcomed the government announcement.
"They have basically acknowledged that what we had been saying is correct," he said in a blog post.
"From
the moment we found out that FirstGroup had been made the preferred
bidder with a completely unrealistic bid, we questioned the way the
offers had been assessed and asked government to review and explain how
it came to its decision." ($1 = 0.6196 British pounds)

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