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‘We were right’, says Branson as McLoughlin apologises

The Government has cancelled the award of the West Coast franchise to FirstGroup after “technical flaws” emerged in the bid evaluation process, forcing the whole thing to be scrapped.

It is unclear this morning who will run services on the line after December 9 – Virgin or state-owned Directly Operated Railways.

New transport secretary Patrick McLoughlin called his department’s mistakes “deeply regrettable”. The DfT is expected to announce the suspension of officials involved in the process, and has confirmed it will no longer contest the legal case brought by Virgin.

The errors came to light as the DfT prepared evidence for a legal challenge brought by incumbent Virgin Trains after it lost out on the contract. Sir Richard Branson suggested that FirstGroup’s bid was unsustainable and was a recipe for financial disaster.

In a blog post, Sir Richard Branson said: “They have basically acknowledged that what we had been saying is correct. The same procedures were not followed and ‘deeply regrettable and completely unacceptable mistakes’ were made by the department.”

FirstGroup said: “We are extremely disappointed to learn this news and await the outcome of the DfT’s inquiries. The DfT has made it clear to us that we are in no way at fault, having followed the due process correctly.”

All bidders will be reimbursed in full for their costs relating to the tender process – which could cost the taxpayer as much as £40m – and a new competition for the contract will begin.

The Government will also pause three other rail franchise competitions currently out to tender – Greater Western, Essex Thameside and Thameslink – as it launched two reviews into the bidding process.

The first review will be led by Centrica chief executive Sam Laidlaw and former PricewaterhouseCoopers strategy chairman Ed Smith, which will examine the West Coast franchise in particular, and is due to report by the end of October.

A second review, led by Eurostar chairman Richard Brown, will investigate the wider rail franchising programme to see whether any changes are needed in the way risk is assessed. Brown is due to report by the end of December.

Previously the Government had suggested the West Coast line would be renationalised if the judicial review pushed back proceedings after December 9, rather than allowing Virgin to continue running services. Now that option has been left open, while the DfT stated it will not be FirstGroup.

McLoughlin said: “I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.

“A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held.

“I have ordered two independent reviews to look urgently and thoroughly into the matter so that we know what exactly happened and how we can make sure our rail franchise programme is fit for purpose.

“West Coast passengers can rest assured that while we seek urgently to resolve the future arrangements the trains that run now will continue to run, with the same drivers, the same staff and timetables as planned. The tickets that people have booked will continue to be valid and passengers will be able to make their journeys as planned.”

He told the BBC’s Today Programme. “There are lessons that need to be learnt from this.”

Philip Rutnam, DfT permanent secretary, said: “The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance.

“I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again.”

Shadow transport secretary Maria Eagle accused the Government of “shambolic incompetence” and said the East Coast Main Line should not be put out to franchise and instead continue to be run by state-owned Directly Operated Railways.

A Virgin Rail Group spokesperson said: “We welcome today's frank announcement by the Secretary of State, acknowledging the flaws in the way the InterCity West Coast competition was assessed and launching a review into franchising more widely.

"We are ready to play a full part in assisting the review to help deliver a franchising system that better serves passengers, taxpayers and the interests of all bidders.

"In the meantime, we will assist the Department for Transport in ensuring continuity of service for the millions of customers who depend on train services on the West Coast Main Line."

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