Summing up on the West Coast Rail procurement / franchising failure

It’s a week since the Laidlaw and the National Audit Office reports on the West Coast Rail franchising problems came out, so let’s try to sum up and simplify the problem right down to the basics. If I’ve got it right, the core story is this.

The bidders were first of all told that DfT would use considerable discretion in determining one of the key financial factors.   This was the risk capital (known as the Subordinated Loan Facility) they would need to offer to guarantee their franchise against default.

Then bidders were told that the Department did have a structured method for determining the SLF. But the firms were given a tool to work it out that didn’t actually reflect how DfT were planning to calculate it - because DfT knew their internal model wouldn’t stand up to scrutiny if they shared it with the suppliers.  But then finally DfT went back to plan A and DID use discretion rather than the tool.  So the fundamental issue was one of bidders not having transparency about how their bids would be evaluated. And that’s a well known reason for successful challenges, with a fair amount of historical  case-law.

There was also a calculation error in the model with confusion about whether or not the numbers took inflation into account. However, this was a secondary issue – even if this hadn’t happened, the first point above would still have been a problem.

Finally, the whole matter was exacerbated when the challenge came in, because officials did not tell top management and Ministers about the issue with the model and the fact that they hadn’t followed the process as laid out in the original documentation.

It’s the factors that Laidlaw says contributed towards the problem that take us beyond pure human error (and clearly there was plenty of that) into systemic and organisational failure. We noted when the issue first broke that key people left the DfT in 2010, and the single Rail Directorate was broken up and dispersed when the then Director-General of Rail (Mike Mitchell) retired. That was a bad decision which we will lay at the door of Robert Devereux, who was the DfT Permanent Secretary until September 2010, when he moved to DWP.

Splitting responsibility for Rail, arguably the most important area of work within the Department, was a mistake and now of course DfT will no doubt revert back to a structure with a single Rail Directorate. Horses and stable doors some to mind. Other systemic failures identified by Laidlaw and NAO included -

  • Planning and preparation were inadequate
  • Resources were stretched due to spending constraints and other priorities
  • Governance wasn’t clear and there was a lack of senior level involvement generally
  • Risks were identified but weren’t escalated or resolved and were subordinate to the time pressure

What is clear is that some of those points at least were picked up through the process, not least by a Cabinet Office Gateway type review in March this year. So on Monday we’ll take a look at the role of the Cabinet Office in all this, and also draw out a few more thoughts for the future.

Voices (4)

  1. Dave Orr:

    What about the assurance given by the private consultants involved?

    Previously you named three private consultants to the project that the report exonerated:
    =======================================================

    …..The external advisers however escape blame – Atkins and Grant Thornton clearly didn’t have anything to do with the issues. But in the case of Eversheds, the external legal advisers, it is less clear cut. “There is in my view a real issue as to whether Eversheds should have done more to ensure that its concerns as to the process followed by the CAC in sizing the SLF requirements were expressed more forcefully…” Laidlaw says. They did however point out some of the issues to DfT officials, so in the end, “Eversheds did discharge its agreed role”.

    =======================================================

    That begs the question of why pay the cost of their (usually expensive) advice if these problems still occurred and what assurance does that consultancy project spend give you?

    Presumably no part of the costs can be recovered from any of them either (including Eversheds)?

    Clearly posts were cut that were actually needed and that no effective succession planing occurred when key staff & skills were lost.

    Will any of the top people who were in charge and have moved on (one to the DWP and one to HMRC) be held to account?

  2. vegaschild:

    So, if they shared a model with the bidders that they thought would stand up to scrutiny, why couldn’t the DfT have just used that?

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