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IEP and Thameslink deals leave taxpayers at risk, say MPs

The Department for Transport’s decision to buy the new trains for Intercity Express Programme and Thameslink itself has left taxpayers bearing “all the risk”, MPs have warned. 

The cross-party Public Accounts Committee’s new report, ‘Procuring new trains’, says the DfT’s decision to lead the procurement, despite having no previous experience of doing so, was a significant break from its previous approach of leaving it to the ROSCOs and operators to buy trains. 

By buying the fleets directly, the DfT has taken on the risk of passenger demand forecasts being wrong. 

If demand proves lower than forecast, taxpayers would have to cover the costs of any financial shortfall, the influential panel of MPs stated. The added that these two major projects also demonstrate, yet again, that the DfT has limited capacity and capability to manage large-scale procurements, and that it remains overly reliant on consultants. 

Margaret Hodge MP, chair of the PAC, said: “The Department has no previous experience of running a procurement of this kind, let alone two with a combined value of £10.5bn. Yet it has chosen to break with its previous approach of leaving it to rolling stock companies and train operators to buy trains, transferring risk away from the rail industry back to government. 

“This means that if passenger forecasts are wrong and fewer new trains are needed in future taxpayers will have to pick up the bill. The only way the Department can limit this risk is by requiring train operating companies to use these new trains to run their services regardless of whether they best fit the services they would like to offer. 

“We are concerned that the Department did not appear to have looked at whether there were better ways of achieving its objectives. Furthermore the Department’s decision to take over the procurement has led to confusion over the respective roles and responsibilities of government and the industry which need to be clarified.” 

New carriages 

The 866 new carriages procured from the Hitachi-led consortium (Agility Trains) under the Intercity Express programme will replace ageing stock on the Great Western and East Coast main lines. 

Siemens, in the Cross-London Trains consortium, will supply 1,140 new Thameslink carriages which are needed as part of a wider improvement programme, increasing the capacity and improving the frequency of this cross-London commuter service. The contracts will run for 27.5 and 20 years, respectively. 

In defensive response to the report, a DfT spokesman told RTM: “The Intercity Express Programme and Thameslink are huge projects that will bring enormous benefits to passengers. Successive governments have considered how best to deliver these orders and have come to the same conclusion, that government should lead with expert support and advice from the train operating companies. 

“IEP and Thameslink are making excellent progress and are on track to deliver very good value for taxpayers and improved services for passengers. They are also creating thousands of new jobs across the UK rail industry.” 

Mitigating the impact of incorrect forecasts 

Within the report, the Committee has recommended that the DfT needs to calculate the potential impact of its decision on the taxpayer and put in place plans to mitigate that impact, if demand for train services means it is not economical for train operating companies to use these trains as expected. More broadly, the Department needs to develop with the industry a rolling stock strategy, setting out what rolling stock will be replaced, when and by whom to provide certainty to the industry. 

Also, the MPs want to see the DfT work with the industry through the Rail Delivery Group to clarify the respective roles and responsibilities of government and industry, and to address weaknesses in the system including the lack of appropriate incentives to achieve a high-performing network, including good quality trains and low track maintenance costs.  

Value for money was undermined by the lack of certainty at the start of the procurement process, added PAC. The MPs noted that, with regards to Intercity Express, the original procurement notice was for between 500 and 2,000 trains, “a very wide range”, and it requested bids for trains on routes which were later excluded from the procurement. 

The Department, working with key partners such as Network Rail, train operating companies and rail manufacturers, has been advised to develop a long-term, integrated strategy covering infrastructure, rolling stock and franchising, so that major decisions can be taken in a “logical order” which provides the industry with greater certainty. 

“After Sir Andrew Foster completed a review into the value for money of Intercity Express in 2010, the original successful bidder Agility Trains came back with a revised bid that was 38% cheaper than its original one,” said Hodge. “Had it not been for the Foster review, the taxpayer could have been badly ripped off.” 

Before starting any procurement in the future, PAC says the DfT should develop its knowledge of the supply market and underlying costs to inform its procurement strategies, to determine whether bidders’ proposed prices are reasonable, and to help negotiate prices with suppliers. 

The Department should be more assertive in using its powers to require information on, for example, supply chain proposals, to ensure that the UK economy and UK-based industry benefit from large capital public sector investment programmes. This was after it was revealed that Siemens would be manufacturing the Thameslink trains outside the UK. 

The DfT was also criticised for having a “very small number” of senior staff in the Department with the skill and experience to oversee large complex procurements. This must be addressed, going forward, added the MPs. 

Mick Whelan, general secretary of ASLEF, the train drivers’ union, said: “From the report it is quite clear that the lessons that led to the West Coast debacle, of not having sufficient trained staff at the DfT, combined with, as highlighted in the report, a failure to put any long-term strategy for the rail industry in place, has once more led to additional burdens, and risk, for the British taxpayer. 

“ASLEF deplores such a strategy for procurement that does not add value for passengers, employees, apprentices or the future of the railway in this country.” 

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