West Coast Rail Franchise – dodgy procurement, start again!

After the UK Department of Transport (DfT) decision to award the West Coast rail franchise to First Group, we were generally supportive of the decision and not very positive about Richard Branson and his complaints about the process. Sour grapes, we thought, and some of our readers commented that the Virgin Trains track record wasn’t exactly perfect (neither was First Group’s to be fair).

So the announcement at midnight last night from the Department that, oops, sorry, we got our figures wrong, isn’t what we expected!

Transport Secretary Patrick McLoughlin has today announced that the competition to run trains on the West Coast Main Line has been cancelled following the discovery of significant technical flaws in the way the franchise process was conducted.

How on earth could this happen? Those readers who commented in terms of how quickly the evaluation was done are perhaps vindicated. But such a high profile decision, and DfT have been running these competitions for years – it’s not as if this is the first time. It seems extraordinary. Now the whole competition will be re-run, costing millions for the taxpayer in both additional internal costs and because the Department has agreed to re-imburse suppliers’ bid costs. (I suspect we’re talking a £10M + cost of this fiasco - editor's addition - now estimated at £40M as at 10am) .

And this was an interesting comment in the press release -

The flaws uncovered relate to the way the procurement was conducted by department officials. An announcement will be made later today concerning the suspension of staff while an investigation takes place.

So is this incompetence amongst staff?  Is every public sector procurement person who runs a poor process going to get suspended from now on?  Are there even hints of something more sinister in that remark?  Here is the meat of the DfT statement in terms of what went wrong, which sounds like a pretty technical error rather than anything dodgy:

These flaws stem from the way the level of risk in the bids was evaluated. Mistakes were made in the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result.

The Department cannot be confident that these flaws would not have changed the outcome of the competition or that any of the four bidders would not have chosen to submit different offers.

The Department has also ordered two independent reviews to be undertaken urgently: “the first into what went wrong with the West Coast competition and the lessons to be learned, the second into the wider DfT rail franchise programme, both overseen by leading business figures”. All other current franchise procurements have been paused whilst the reviews are carried out.

Not the best start for Melinda Johnson as DfT’s new Procurement Director, although clearly all this happened before she arrived.  And the staff involved won’t all have been procurement people, so we’ll have to see what emerges from the independent reviews.

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

You can say that again, Philip!

Voices (14)

  1. John Jones:

    Have to agree with other commentators….this whole episode is utterly depressing….its a bit like committing perjury in.court….getting something this big, so wrong, undermines the whole procurement system.

    Three further observations, I suspect there will be a whole lot more challenges to other large deals plus, as hinted in today’s FT….perhaps, just perhaps, those highly paid consultants actually did a good job in past procurements.

    You have to ask what ERG and the MPA were doing…asleep at the wheel?

    1. life:

      I agree – and as an advisor at times of course you’d expect me to say there is a business case for external advice – but I would also like to point out that Gateway reviews (which again don’t appear to be so well respected by current incumbents) are / can be staffed by independent public sector personnel, so it can’t even all be blamed on an idealogical/political position that externals are artful thieves with no commitment to their customers’ success. I also don’t think that best advice up to Minisiters from civil servants is now taken as seriously either, as they now are also seen as part of the “problem”. Those close enough to the real problem aren’t empowered to do anything about it, and those in a position to do so aren’t close enough to understand or in a frame of mind that they would trust advice. At this higher level you could say it was a classic scenario to be assisted by external support, but such is the distrust this will clearly be an option only halfway down the list at best. Consultants haven’t helped themselves over the years by failing to demonstrate enduring value in many areas, but there are times when it is crystal clear that more specialist advice and support is required and would pay for itself many times over. A lot of good government work is “boring”, detailed, administration, but unfortunately it quickly gets less boring when it goes wrong…

      1. Final Furlong:

        Another one of my ‘transport’ favourites. After a lengthy procurement process, Westminster Council (that low profile ‘beacon’ council) awarded their parking contract to a new provider. The incumbent challenged the decision, due to flaws in the procurement process – the challenge is upheld. They re-run the procurement and then award it to the incumbent. The new provider then challenges and the Council settles out of court for a huge sum (rather than spend £4m fighting a lost cause).

        http://www.standard.co.uk/business/revealed-fiasco-of-westminsters-parking-contract-6469407.html

        http://www.localgov.co.uk/index.cfm?method=news.detail&id=97415

    2. Phoenix:

      Hang on a minute. For all the speculation, we still don’t really know what mistakes were actually made, or who is really at fault. We don’t know how much the problem might even be one of policy, rather than practice. The Secretary of State for Transport says – surprise, surprise – that it wasn’t his or his predecessor’s fault, it was the civil servants, but we only have this politician’s word for it. To write off £billions of public sector procurement entirely because of one (or even a few) particularly high profile cock-up is absurd, especially as we wouldn’t have heard quite so much about the West Coast franchise had it not been for Virgin’s massively effective PR machine. The plain fact of the matter is that we’ve seen incompetence of one kind or another in both public and private sectors lately. But private sector cock-ups (G4S, NatWest’s IT contractor) come to light far more rarely. And, let’s face it, crappy private sector procurement just doesn’t make good copy. Let’s get some perspective on this.

      1. life:

        You are right of course, and a good point, most of us are yet to know. But, in the immortal words of David St Hubbins, we already have got perspective, too much * perspective. And one of the reasons some have, perhaps, is because most people reading this will already recognise all the myriad reasons why this has gone wrong (even if we don’t quite know yet the exact blend), and also know simultaneously how easy it can be to get right, with of course the things in place. It is personally depressing if you are in anyway involved, especially if you believe that we were pretty good at things like this in the past.

  2. Jon Hughes:

    Very disappointing that there are so many dodgy procurements. I’d like to advocate though that we also take a much broader perspective. The really big issue is that if we look at the different types of major procurement and commercial activity, not just in transport but across the whole of public procurement, we just don’t have the correct strategies, structural operating models or commercial competence needed. Margaret Hodge was arguing this morning on the radio that there is a need for greater accountability and competence. Totally agree, but that also applies to Maude, Hodge and other key politicians. It is always easy to criticise retrospectively, but where is the proper policy perspective across government that highlights the major inadequacies and is prepared to accept the accountability from ministers down for a properly resourced plan to tackle them, particularly on the leadership, people, remuneration and competence front. Without that it is just an endless round of continually looking in the rear view mirror. If we were doing a scorecard on PFI, defence, major capital acquisition, infrastructure, transport, health service and even tactical consolidation such as ERG, I think we’d have to conclude that very little of it is currently fit for purpose, and the gap between current competence and capability, and what is required, is immense. That is not about tinkering at the margins, it is about persuading politicians and key leaders to take the area seriously. Not just find the latest whipping boy. Time to start lobbying the politicians again.

  3. Roger Conway:

    When you look at the graphs and see that the ‘First’ bid was only ‘better’ in the latter years, where it would be subject to adjustments and variations or even another ‘walk-away’ at a miniscule penalty, to ensure the “undeserving public” would be robbed yet again.
    Branston is no white knight, just not as greedy as the rest.
    Here’s an idea. If we are operating a business that has a finite controlling facility (the track system) and we need to slot in the physical variables (the trains) to provide a comprehensive public service, why not aggregate it all into one entity, with one senior management structure and one set of management rules and a clearly understood pricing structure. If we also make that organisation totally answerable to the electorate we might have half a chance to rid ourselves of the opportunities that those who seek political office to hide behind (& ultimately blame taking) staff.

  4. life:

    As discussed previously, they probably just didn’t have the resources to do a good job, and the various “high ups” probably don’t know / didn’t think through what it takes to actually pile through all the paper and models, and then do a good QA prior to clearance, and/ or actually understand how the models work. I wonder whether it was Gatewayed? – some v large activity has been stopped previously following review once the board realised they didn’t actually understand the model / implications of it – and that was without errors!

  5. Dave Orr:

    Peter: Once this was going to court, as light was shone on the secret corners, I always thought this was a possible outcome.

    I signed the Virgin petition as First simply walked away from the SW and then bid again without ANY reputational penalty. If a builder or garage let you down, would you use them again as if nothing had happened?

    Whither (or is that wither) HS2 then?

    Telegraph: Yet by yesterday afternoon rumours were starting to circulate in Whitehall that ministers may have been better informed about some of the details of assessing franchise bids than it first appeared. The DfT says mistakes were made in the way projections for inflation and passenger numbers were calculated. Unconfirmed reports suggest that ministers were told months ago that the method being used to forecast inflation in the West Coast bids was the same as that being used for HS2, the London-to-Birmingham high-speed rail project. There are also claims, again unconfirmed it must be stressed, that ministers were warned that if the method for calculating inflation was changed for both projects then HS2 would no longer be viable.
    =======================================================

    If the HS2 candidate for White Elephant of the Decade also gets de-railed then good.

    Why don’t we use the HS2 money for flood prevention infrastructure right across England & Wales, thus spreading the money around, boosting local economies and taking 1,000s of homes in/near flood zones out of the un-insurable/un-saleable trap?

    Fancy blaming only the civil servants. Bet that there expensive consultants hired from the usual BigCo suspects.

    Meanwhile, Maude wants to Americanise our civil service and effectively have political appointees instead. Has he thought how that might work when one Government changes to another party? Would we then have a merry-go-round of change overs with all continuity lost?

    Would make the passage of money from lobbying (via Ministers & MPs) to influence policy to then fund lobbied interest quicker though…..

    1. bitter and twisted:

      Ahah! So this is stalking horse to shoot h2s

  6. October:

    More on the BBC website

    http://www.bbc.co.uk/news/business-19810845

  7. Final Furlong:

    So, the old Iron Horse has finally crashed. All aboard? I think not. There’s no doubt that this gravy train has been on a remarkable journey. They thought it would be just the ticket, but, clearly, this one went completely off the rails, well before it got to the end of the line and hit the buffers. This is one train that should never have been allowed to leave the station. I hope someone with an inside track can tell us what went wrong (but let’s hope they don’t do anything to cover their tracks). One train of thought is that the squeaky wheel got the oil on this one and simply derailed the process. Right track wrong train, they said. Let’s hope there’s light at the end of the tunnel.

  8. Phoenix:

    But I also heard this morning on BBC R4 that there was a policy change in the way franchise bids are evaluated, which would suggest that ministers should at least share the blame for this. Previously the ‘cap and collar’ method of allocating risk in forecasts for inflation and passenger numbers meant that risk could be shared with Government in a way that could be evaluated. The new model, instigated as a result of Government policy, allocated all risk with the franchisee, which was (we were told) incapable of effective assessment in the evaluation process. Presumably, bidders can just make wild forecasts, saying they would take the risk, when history has shown it just ends up in franchises being given up. Shifting the blame wholly on the civil servants for a policy change like this would be really shameful, if true.

  9. Dan:

    is it coincidence that this happens just after a new Transport Minister is appointed?

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