Insight on Virgin / FirstGroup West Coast Train franchise from our readers

The west coast rail operating franchise row rumbles on, as Virgin announced yesterday that they are challenging the decision to award the franchise to FirstGroup. As Justine Greening, the Minister, pointed out, Virgin didn’t question the process all the way though – and the Department for Transport made everything very transparent. So the complaint will have to be around how the process was executed, I suspect, rather than the process itself.

We’re also entering truly entering surreal territory now - more of that tomorrow. But first, a couple of very good comments on our previous posts (here and here).

Clark Kent talked about the focus of the process seemingly being financial rather than customer focused.

“It seems to me that the fault – and why Branson’s objections are so disingenuous – lies with the structure of what was asked of bidders. Bidders were asked to make bids for which the ultimate beneficiary was the network and the treasury, when in the end its the train user who loses out whoever picks up the franchise. I understand there is a need to fund infrastructure improvements, but the thrust here has been to maximise that at the expense of the customer. The old adage “it doesn’t matter who you vote for, the government still gets in” applies equally here to the train operators.

I was also very interested in a comment we had from Graham Hooper, who appears to have a good understanding of the franchise process history – certainly way better than I do! His comment bears repeating in full;

“A couple of points. Virgin soaked up far more taxpayers money than all other First Franchises combined. First Capital Connect for example contributes more to the Government than it receives in subsidy. FGW did not walk away from the franchise. It was to run until April 2013, (now July 21st 2013) First did not take up the OPTIONAL 3 year franchise extension. The disruption due to the total route modernisation was not in the original franchise agreement.

Yes, First avoided paying £793m, but it also avoided receiving about £1.2bn in compensation payments for the disruption from Network Rail (taxpayer). The DfT and the Treasury were very happy about this. In 2002 Virgin threatened to walk away from its VWC franchise unless it received more subsidy, happened again in 2005. In 2006 they lost Cross Country to a company willing to put some longer trains into service after Virgin refused.

The network cannot afford to have “cherry pickers”, it needs operators prepared to take on the commuter routes and the socially necessary services as well. Virgin went for Inter City services only. First have a large rail engineering department, many of them ex-Virgin staff who were made redundant by Virgin contracting out, and it’s the engineering expertise that will make the difference in cost control”.

Now there’s a different perspective that we haven’t seen much of on the mainstream media – thanks Graham.

And I come back to a fundamental question – can you imagine the outcry if Virgin had been awarded the contract despite being £700 million “more expensive” than the competition? Cries of bias, politicians being too close to Branson etc. And you can bet the Labour party opposition – now calling for a review – would have been calling for a review of the opposite decision.

Justine Greening said on TV yesterday – before the challenge - that the contract signature process would go ahead once the “standstill period” was over. (Under EU regulations, you have to give other bidders 10 days during which period they can challenge the decision before you sign a contract). But now Virgin have challenged, she has a tough decision to make. The Department can legally still go ahead and sign, but that might make the consequences worse if the challenge were successful. Or do you hold off, given the challenge could take literally years to get resolved?

I suspect they’ll sign. And more tomorrow from us on the topic....

Voices (9)

  1. On the Sidelines:

    This is a glaring example of “is the King wearing any clothes”. The issue is not about whether Virgin or First should be declared the winner but is very much more about whether the adopted process for awarding the deal to any organisation is actually fit for purpose? My answer absolutely NO IT IS NOT! The so called “rail market” is nothing of the sort, and financial and funding structure of the rail landscape in mainland UK is massively convoluted and complex in terms of investment and subsidies. So the government prediliction for perpetrating the delusion that it can make the rail network function as a franchised commercial marketplace regulated by competitive tender is simply ridiculous. Clearly we are not likely to see the detail (and dogma) of the decision making analysis – how the bids were evaluated and scored in relative terms, or more importantly if, or whether, DfT invested any effort in constructing a “should cost” baseline model in order that (a) they could be sure that the content and cost treatment of bids was undertaken on a consistent basis and (b) demonstrating (or not) that that progressively reverting to public ownership and operation was not a better option.

  2. Roger Conway:

    I’ve just had a spiffing idea. As we have a fixed set of tracks, managed by a state owned company, why not go the whole hog and run the trains that way as well.
    No front ended profit rip out and running away from the contract when it is time for the tax payer to receive any benefit, but an opportunity to recruit and train quality people to provide an efficient and public benefit service.
    Go on, you know it makes sense!

    1. Sam Unkim:

      Or just Tarmac over the whole bloody lot & let the coach companies take the business.

    2. Peter Smith:

      I have some sympathy conceptually to this idea, but I can tell you why it’ll never happen in two words – Bob Crow.

  3. Dave Orr:

    Contractor profits are front-loaded into the first few years, whilst taxpayer payback returns are back-loaded into the last few years.

    This is not a functioning market but is an entirely artifical construct – a pseudo market.

    First Great Western are my regional train company into London (from Taunton). In the first years of franchise operation, the service was so bad that they were nicknamed “Worst Late Western” (a nickname open to partial e-use in future by the way).

    The fares were so high to London (even booked in advance) that I regularly travelled the 60-mile round trip to Yeovil to catch the much cheaper but slower train by SW Trains (a consistently good service).

    The service did eventually improve and I did find early booked fares that were OK and then guess what?

    First Great Western gave up the franchise 3 years early and dodged a promise to pay taxpayers £800m back. You can argue that the contract was c**p to allow that (bet it hasn’t been changed) but nevertheless they broke a commitment.

    In our own lives then a company that did that to us and where we had choice (garage, insurance company, bank etc) we simply would stop using them and move our business elsewhere.

    Does any of First’s past track record count in a fresh bid. Nope.

    What a farce. Nothing will change.

  4. Tracey Wagstaff:

    And if they sign? What happens about the guaranteed licence to increase the rail fares by a massive 11%!!
    I for one will be abandoning the railways and using my car as I’m sure other commuters will do. Let’s see ‘first group’ achieve a 10.6% growth p.a then!
    It should never have been privatised and now is the opportunity for the voters to at least be consulted on what they want from the service instead of being dictated to.

  5. Phoenix:

    Richard Branson has said that if they are proved wrong then Virgin Trains will “bow out gracefully”. Will he also refund the Government (i.e. the taxpayer) ALL its legal and management expenses arising from this challenge, I wonder?

    I personally like travelling by Virgin Trains, but this time Branson’s PR machine has left a sour taste in the mouth. Getting his new (paid) “ambassador” and national hero Mo Farah to get his 450,000 Twitter followers to back the cause doesn’t strike the right note for me. I think the Virgin brand could really suffer for this if he’s not careful – and, I’m really sorry to say, Mo Farah’s too.

  6. Sam Unkim:

    Just sign the damn thing.

    To do anything else would be a sign of weakness and lack of faith in the contracting team.

    1. Odd Wellingtons:

      Unless you happen to be a user of the service. Go on a virgin service, then on a first group service. Then tell me its the right thing to do…

      Sometimes the contracting process and team aren’t the main focus.

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