That’s the first, and most bleeding-obvious question about the West Coast Mainline shambles.
- Was it a pathetic attempt to bury “bad news” under the weight of a major human-interest story (for the tabs) and Miliband’s speech (for the serious papers)?
- Was it timetabled to miss all but the late editions (if so, it didn’t work)?
- Or have we got a cock-up of mega-proportions here (actually, unquestionably, yes)?
So to the meat and two veg:
The government has scrapped a decision to let FirstGroup take over the route from Virgin after “technical flaws” were found in the competition process.
Three Department for Transport civil servants have been suspended.
Transport Secretary Patrick McLoughlin said the mistakes in evaluating the relative merits of the four bids received to run the route had been made by Department for Transport staff.
The estimated cost of reimbursing the companies for the cost of their bids will be £40m.
This is a debacle on a par with closing down Heathrow or blowing up the M1 motorway. Suddenly the main artery between five major cities is up for grabs. We now have a situation in which the both main rail-links, the only two rail-links, between five British major cities (including two capitals) have been re-nationalised. Going on half the rest of the rail network is left dangling because all the other rail franchises are put into abeyance — and that doesn’t sound as simple as “technical flaws”.
That may yet be the silver lining.
The story so far doesn’t answer any of the real questions. Robert Peston takes a shot at the monetary bit:
What the Department for Transport appears to have got chronically wrong in the case of the West Coast Main Line franchise is its assessment of the risk that attaches to projections by bidders of revenues in the latter years of the 15-year franchise.
To put it in terms that we can all understand, if I expect to earn a pound from my work tomorrow, that pound is much more likely to materialise than a pound that I might expect to earn in 2025 (if anyone will still employ me then).
By extension, when First Group and Virgin made their bids to run the line that connects London with Manchester and Glasgow, it would have been reasonable to expect the Department for Transport to put a much greater weight on revenues the companies expect to generate in the first five to ten years than in the latter five years.
However the Department seems to have understated the long-term risks when awarding the contract to First Group.
Or to put it another way, the Department made unrealistic assumptions about the growth of passenger numbers and inflation towards the back end of the franchise period – which had the effect of making First Group’s bid seem significantly more attractive, because First Group was massively more optimistic about how passengers and revenues could grow after 2021 than was Virgin.
If that’s the long and the short of it, most of us could have made a shot at that weeks back, on 15th August, when the franchise was awarded to First Group. The main weight of the commentariat made precisely those points at the time.
But, soft! what light through yonder window breaks?
The word “shambles”, particularly with the prefix “omni-” in front of it, has been overused recently. But it’s the word that most readily applies to today’s news that the government is to scrap the deal awarding the West Coast Main Line franchise to Firstgroup. And the reason why? In the words of Patrick McLoughlin, “completely unacceptable mistakes made by my department in the way it managed the process”. Apparently, as the Department for Transport press release puts it, “These flaws stem from the way the level of risk in the bids was evaluated.”
The fiscal cost to the DfT is, as these things go, quite small: £40 million will have to be reimbursed to the various parties in the deal. But the embarrassment is huge. It was only a few weeks ago that the then Transport Secretary, Justine Greening, was deflecting Richard Branson’s concerns with the words, “I suspect that, had [Virgin] won the bid, they would have been perfectly happy with the process.” Yet now the Virgin Boss has been broadly vindicated. Thanks to errors committed along Whitehall, Virgin is now back in with a shot at the contract. FirstGroup’s shares have plummeted in price.
Now we can’t have the share-price falling, can we?
FirstGroup shares are down 47.4p at 196.6p, wiping around £230m off the company’s stock market value… Go-Ahead is down 27p at £13.14, National Express is 2.2p lower at 207.9p but Stagecoach has added 2.2p to 285.5p on revived hopes its Virgin joint venture could retain the franchise after all.
But observe that ConHome piece astutely: a finger is being pointed:
It was only a few weeks ago that the then Transport Secretary, Justine Greening, was deflecting Richard Branson’s concerns …
The ConHome irregulars were quick to take the point and offence:
Shambles isnt the right word for this – Justin Greening should be asked to explain this as it happened on her watch. Just as well for her that she has been moved or calls for her to be sacked would have been very loud
That, to date, has thirteen approvals. The natives are restless and the lady is for burning.
Was there a timetable?
When did Cameron know about this debacle? And did it have anything to do with moving Greening? And I’d add a third question – isn’t there a case for her resigning over this fiasco anyway?
To which Malcolm adds:
Is there something even more sinister here?
Three Department of Transport officials suspended for doing their jobs, working to the established rules? They are blamed for significant technical flaws in the bidding process. Hold on a moment!
We speak of a franchise that will run until 2027/28, for which FirstGroup bid £13.3 billion, and Virgin underbid with £11 billion. Those, bear in mind, are billions. FirstGroup would have had to ante-up £190 million “caution money”. Ms Greening, who approved the bid, is an accountant. Are we convinced that lawyers, for the Department, the bidders, and the bidders’ bankers were not poring over every jot and tittle? Why else was Richard Branson so quick off the mark, looking for legal redress?
Oh, one last piece of good news. Iain Martin’s headline in the Telegraph:
The West Coast rail shambles: this is the sort of incompetence that will cost Cameron the election
Note that will. He doesn’t say “may”.
And “incompetence” could be the least of Cameron’s problems.