Latest Rail News

10.09.12

Franchise rule change raises questions over West Coast bid

A change to the Great Western franchise shows the terms of the West Coast bid were flawed, incumbent Virgin Rail has said – but the DfT says that each bid process is ‘unique’.

The bidders have been told they must put up extra bank-guaranteed risk capital that they will lose if they abandon the contract. If the same rules had applied to the West Coast case, winners FirstGroup would have had to bid nearly £400m rather than £265m for its performance bond, season ticket bond and subordinated loan facility (SLF).

Today the Transport Select Committee is taking evidence from Virgin and FirstGroup about the controversial contract.

All franchise bidders are required to put up a subordinated loan facility (SLF), which depends upon the DfT’s evaluation of risk from that company. FirstGroup had to bid £190m, compared to just £40m from Virgin.

Bidders on the Great Western franchise will be required to provide a higher SLF; previously 60% of the risk-adjusted figure, now it will be 100%.

The bidders are National Express, the Deutsche Bahn-owned Arriva, Stagecoach and FirstGroup.

A Virgin Rail spokesman said: “Such a significant change in the way the DfT assesses risk suggests that it now realises there were insufficient safeguards in place in the West Coast franchise process to protect the taxpayer and passengers from the kind of highly aggressive bid submitted by FirstGroup.”

But a DfT spokesman said: “It is not accurate to suggest that the Great Western franchise bid terms have in any way been influenced by the West Coast situation – they've been in place since before West Coast announcement was made. Each franchise is unique, terms differ to reflect this.”

Also today, it has emerged that the West Coast franchise could be nationalised if the contract with FirstGroup is not finalised before December 9. The Government could be forced to transfer the contract to the state-owned Directly Operated Railways, which operates the East Coast Main Line, if the judicial review launched by Virgin continues to delay the process, the DfT suggested.

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