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Committee report lays East Coast franchise failings at DfT’s door

3111356 west coast main line

The Transport Committee has concluded that the Department for Transport (DfT) must shoulder “responsibility” for the failure of the InterCity East Coast franchise.

A Committee report into why the franchise’s contract was terminated in June concluded that the DfT failed to conduct “appropriate due diligence” which led to the failings of the joint venture between Stagecoach and Virgin.

The report adds that the “franchise failed because the revenue projections underpinning the Virgin Trains East Coast (VTEC) bid were over-optimistic and it simply ran out of money”.

However, the Committee concludes that the DfT is to blame for setting “unrealistic benchmarks in the Invitation to Tender” which encouraged overbidding as well as failing to implement robust financial stress-testing of the bids.

Network Rail is absolved of any blame, with the report determining that the rail operator “does not bear any responsibility for the early termination of the franchise”.

It adds: “The Committee found that the Department’s failure to provide Network Rail with formal sign-off of the infrastructure assumptions for the route would have undermined the franchise in future years.

“However, to date, Network Rail have provided all the infrastructure upgrades that it had formally committed to when this franchise was let.”

Transport Committee chair Lilian Greenwood added: “Franchises should be able to withstand normal fluctuations in the economic cycle.

“Naivety, over-optimistic expectations and a mismanaged bid process all played a role in the failure of this franchise – the third in little over a decade.”

She added: “The Secretary of State pointed the finger at Stagecoach and Virgin for getting their bids wrong, but the Department is not blameless. Even now, there is no concrete plan, nor timescales, for the interim operator of this franchise.

“From our inquiry, we cannot be sure, and cannot reassure passengers or public, that the arrangements for the East Coast Partnership will more successfully overcome the systemic difficulties presented by the current set-up.

“Following the failure of the East Coast line, there is talk that the Prime Minister has ordered a major review of rail franchising – we await more details. However, if this or any other future Partnership arrangement is truly going to deliver a step-change in performance for the passenger, more fundamental reform of our railways is required.” 

In response a spokesperson for the DfT said that new measures to deter over-bidding have been introduced as well as higher stress testing.   

“We have introduced new measures to deter over-bidding for franchises and improved our financial modelling and stress testing. Bids are now assessed with a greater emphasis on overall value for the passenger,” the spokesperson said. 

“We are now preparing for East Coast Partnership - bringing together the operation of track and train to deliver a high quality service to passengers and value for money for the taxpayer. We want train companies to have a greater role in infrastructure planning to help them act as stewards for the rail network and deliver the greatest possible benefits for passengers.”

A Stagecoach Group spokesman said: “We welcome the Committee’s endorsement of the high quality of service and investment provided for passengers by Virgin Trains East Coast and the operational success of what it acknowledges was a profitable franchise. We’ve operated railways on behalf of the government for more than 20 years and in developing our plans we used the same bold, ambitious and meticulous approach which delivered strong success in the past. As the Committee makes absolutely clear, there was no incentive to deliberately overbid and there was no taxpayer bailout in the unfortunate premature end to the contract.

“Most importantly, we are pleased the Committee has supported our positive suggestions to reform franchising, including more appropriate risk-sharing, making the system more accountable and robust, and ensuring that the customers and communities who rely on the railway see promised infrastructure and service improvements in full and on time.”

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