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26.02.13

West Coast fiasco will cost ‘far more than £50m’ – Hodge

Another high-profile committee of MPs has attacked the way the West Coast Main Line franchise was awarded and blamed a “complete lack of common sense” among senior officials at the Department for Transport.

Civil servants were blinkered and rushed, according to a new Public Accounts Committee report, which says expensive upcoming contracts relating to HS2 and Thameslink are at risk too unless lessons are quickly learnt.

Committee chair Margaret Hodge said the final cost of the scrapped competition, which awarded the franchise to FirstGroup before taking it away again and giving an extension to Virgin, will end up being far larger than the £50m admitted to so far.

She said: “The franchising process was littered with basic errors. The department yet again failed to learn from previous disasters, like the Metronet contract. It failed to heed advice from its lawyers. Cuts in staffing and in consultancy budgets contributed to a lack of key skills.

“There was no single person responsible from beginning to end and, therefore, no one who had to live with the consequences of bad policy decisions.

“We are astonished that the permanent secretary did not oversee the project because he was told he could not see all the information which might have enabled him to challenge the processes, although it was one of the most important tasks for which the [DfT] is responsible.

“Given that the department got it so wrong over this competition, we must feel concern over how properly it will handle future projects, including HS2 and Thameslink. The department needs to get its house in order and put basic principles and practices at the heart of what it does, with an appropriately qualified and senior person in charge of the project throughout and an accessible leadership team ready and willing to hear and act on warning signs.”

The report follows previous inquiries into what went wrong and what should be done in the future by Sam Laidlaw, Richard Brown, and the Transport Select Committee.

Its conclusions on the essence of what went wrong are similar to those raised before: “The [DfT] made a number of mistakes when identifying the amount of risk capital (called the subordinated loan facility) it required from bidders to balance the riskiness of their bid. It failed to include inflation in its calculation and also applied discretion in deciding the amount it asked from bidders which was not allowed in the stated process.

“These errors led to the department asking FirstGroup for a lower subordinated loan facility than was needed to protect itself from the recognised additional risk in the bid. A higher subordinated loan facility was requested from Virgin Trains. This opened the department to the risk of legal challenge and ultimately led to the cancellation of the franchise competition.”

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