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McLoughlin sets out terms of franchising reviews

Transport secretary Patrick McLoughlin has set out the details of the two reviews investigating the errors made in the West Coast franchise process, and the wider impacts this will have on other franchise competitions.

Sam Laidlaw, chief executive of Centrica, and a board member of the DfT, has been appointed to conduct a review into the handling of the West Coast franchise – to identify lessons to be learned and recommend measures the department should implement to ensure the sound running of future competitions.

The review’s initial findings are expected by the end of October, with a full report at the end of November – though some commentators have suggested this timeline is overly optimistic.

Richard Brown, chairman of Eurostar, has been appointed to conduct a review into the other franchises up for renewal, which are currently paused to allow the investigation.

McLoughlin has asked Brown to look at the implications of the West Coast debacle for the remainder of rail franchising programme, whether changes are needed to the way risk is assessed and to the bidding and evaluation processes, as well as how to get the other competitions back on track as soon as possible.

The terms of the Laidlaw review are as follows:

1. The Inquiry shall identify the lessons to be learned from the Department’s handling of the franchising process for ICWC in order to ensure the Department maximises benefits to transport users and value for money for taxpayers in future franchise competitions.

2. The Inquiry will comprise an immediate study of the lessons learned following the discovery of significant technical flaws in the way the franchising process for ICWC was conducted which resulted in the cancellation of the ICWC franchising process on 3 October 2012, in particular:
a. The course of events in DfT that led to these technical flaws in order to identify what happened and why it happened up to the point that the intention to award the contract was announced on 15 August 2012;
b. The roles and responsibilities of different advisory and decision-making parties within DfT and externally in relation to these flaws, including the Board Investment and Commercial Committee, the Contract Awards Committee and the Rail Refranchising Programme Board; how well these committees performed their roles, and what can be learned from this about the appropriate structure for governance and assurance of major contract awards;
c. The arrangements for ensuring appropriate review of the technical elements of contract award and appraisal and appropriate quality assurance.

3. The Inquiry should make recommendations on the basis of its findings.

4. The Inquiry will be led by Sam Laidlaw, DfT’s lead Non-Executive Board Member who also leads on procurement among Government Non-Executives. He will draw on others as he sees fit, including from other Non-Executive Board Members. By agreement, Linklaters and Ernst & Young have been appointed to provide an external perspective to the Inquiry.

5. The Inquiry should be completed as soon as possible. Initial findings shall be made available to the Department by 26 October.

6. The Inquiry will be taking place in parallel with the Department’s HR investigations. The Laidlaw Inquiry Report will be published no later than end November 2012. 

The remit of the Brown review, to report no later than the end of the year, are as follows:

1. The review should consider the implications for the remainder of the rail franchising programme of the position reached on the InterCity West Coast competition.

2. This review should take careful account of the points and lessons learned identified in the Laidlaw Inquiry and should also consider:

a) How to structure risk transfer between the Department and rail franchisees in order to create optimum incentives in the long-term interests of passengers and taxpayers, and the ability to adapt to changing circumstances.

b) How to structure the bidding and evaluation processes to ensure a robust and fair competition, including evaluation of the risk presented by different bids as a basis for decisions that take these risks appropriately into account.

c) The timing of the remainder of the franchising programme, so that it can be resumed on a robust basis as soon as possible.

d) How the Department can take the learning points from the Laidlaw Inquiry and facilitate a clear and proportionate framework for franchising which balances Government's administrative and commercial judgements with the need for the market to have predictability, transparency and a proportionate application of legal rules.

3. The review should make recommendations on the basis of its findings.

4. The Terms of Reference may be refined further following the publication of the Laidlaw Inquiry. The review shall be completed by 31 December 2012 and published thereafter.

5. The review will be led by Richard Brown, Chairman, Eurostar.

6. The review team should include external expertise as well as expertise from within Whitehall, and some cross-membership as appropriate with the review of lessons learned.

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