Taxpayer likely to face big bill for West Coast Main Line fiasco

THE botched process over the awarding of the West Coast Main Line franchise is likely to cost taxpayers a significant amount – possibly almost £50m, the National Audit Office has warned.

Delivering a stinging criticism of the Department for Transport over its handling of the matter, the spending watchdog said the failed process was a clear sign of serious problems within the department.

It has suggested that tighter management structures should be introduced within the department to ensure there is no repeat of the fiasco.

The watchdog has concluded that the full cost to the taxpayer for what happened is unknown but it said with £1.9m in staff and adviser costs, £2.7m in legal costs and £4.3m on external advisers for the reviews ordered into the process plus suggestions that compensation to the four bidders could be around £40m, the bill was likely to be significant.

Amyas Morse, head of the NAO, said: “Cancelling a major rail franchise competition at such a late stage is a clear sign of serious problems. The result is likely to be a significant cost to the taxpayer.

“The failure of essential safeguards raises questions about the department’s broader management approach, as well as this specific matter.”

The independent inquiry into the cancellation of the franchise has concluded the process failed because of an accumulation of significant errors related to inadequate planning and preparation, complex organisational structure, and a weak governance framework.

Transport Secretary Patrick McLoughlin had asked Sam Laidlaw, the chief executive of Centrica and a non-executive DfT board member, to conduct the urgent investigation following the discovery of unacceptable flaws in the procurement process that led to the franchise competition being cancelled on October 3.

The Laidlaw report concludes:
•    the DfT used flawed and inconsistent methodology when guiding bidders on the amount of risk capital (known as the Subordinated Loan Facility) they would need to offer to guarantee their franchise against default
•    the SLF figures resulting from the flawed methodology were then varied in a way that contravened franchise competition rules
•    ministers made the original August 14 provisional contract award without being told about the critical flaws and having been given “inaccurate reports”

It has recommended that accountability and governance structures should be strengthened, while has concluded there was no bias against Sir Richard Branson’s Virgin Trains. It added there was nothing to suggest the flaws in this franchise competition existed in any other DfT procurements.

The DfT said it would act on the findings and would be implementing measures to restore confidence in the department.

These include creating a simpler and clearer structure and governance process for rail franchise competitions, including the appointment of a single director general with responsibility for all rail policy and franchising.

Mr Laidlaw said: “The report outlines an accumulation of contributory causes including a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight.

“While it is clear that a number of serious and regrettable errors have occurred, I believe that if acted upon quickly and effectively, my recommendations will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement.”

Mr McLoughlin admitted the final report made “extremely uncomfortable reading” for the department.

“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,” he said.

Virgin is continuing to operate the franchise for a further two years following a deal with the DfT. Boss Sir Richard Branson has pledged that any profits from the service will be donated to charity.