Lessons From Cancelling The Intercity West Coast Franchise Competition

The Department for Transport competition to let the Intercity West Coast franchise lacked management oversight and the governance of the project was confused, according to the National Audit Office. The full cost to the taxpayer is unknown but likely to be significant, with at least £1.9 million in staff and adviser costs, £2.7 million in legal costs and £4.3 million on external advisers for the reviews that it has commissioned. The refranchising process was a major endeavour, with considerable complexity and uncertainty. The objectives of the Department for Transport were insufficiently clear during the franchise competition. The Department delayed the issuing of the invitation to tender by eight months because it had not finalized how it would implement recent policy changes. There was also confusion among Department staff about some aspects of the process. The subordinated loan facility was a particular area of confusion. A subordinated loan is capital provided by the parent company which guarantees franchise payments will be made to the Department should the franchisee get less passenger revenue than expected. However, there were significant errors in the tool the Department used to calculate how big a loan it would require bidders to have. The competition lacked strong project management and there was no clear route for the project team to get approval for major issues. No one person oversaw the whole process or could see patterns of emerging problems.

The Department for Transport's complete lack of common sense in the way it ran the West Coast franchise competition has landed the taxpayer with a bill of £50 million at the very least. If you factor in the cost of delays to investment on the line, and the potential knock-on effect on other franchise competitions, then the final cost to the taxpayer will be very much larger. The Department made fundamental errors in calculating the level of risk capital it would require bidders to put on the table and it did not demand appropriate levels of capital from both bidders. Faced with the possibility of legal challenge, it cancelled the competition. The Department failed to learn from mistakes made in previous projects. Recommendations made in the Committee's report 'The failure of Metronet' (HC 390, session 2009-10, ISBN 9780215544216) to prevent a lack of oversight and information were clearly not applied in this competition. Cuts in staffing and in consultancy budgets contributed to a lack of key skills. There was no single person responsible from beginning to end and, therefore, no one who had to live with the consequences of bad policy decisions. For three months, there was no single person in charge at all. Not only that, there was no senior civil servant in the team responsible for the work, despite the critical importance of this multi-billion pound franchise. Given that the Department got it so wrong over this competition, there is concern over how properly it will handle future projects, including HS2 and Thameslink

Embarking on an ambitious, perhaps unachievable, reform of rail franchising, in haste, on the UK's most complex piece of railway was irresponsible. Many of the problems with the franchise competition, detailed in the Laidlaw report, reflect very badly on civil servants at the DfT. However, ministers approved a complex - perhaps unworkable - franchising policy at the same time as overseeing major cuts to the Department's resources. This was a recipe for failure which the DfT must learn from urgently. While the Department has already published a response to the Laidlaw report which Mr Laidlaw described as 'very encouraging', and has initiated a review of franchise MPs warn that a number of matters remain to be adequately resolved. The Committee calls on the Secretary of State and the Department for Transport to: explain why ministers and senior officials were misled about how subordinated loan facilities were calculated, if necessary after disciplinary proceedings against staff have concluded; complete a full email capture and get to the bottom of whether or not any officials manipulated the outcome of the competition to ensure First Group were awarded the contracts; provide a comprehensive breakdown of costs arising from the cancellation of the West Coast Mainline franchise competition. The Committee also wants to establish what lessons current and future ministers must learn from this episode

The Department for Transport has done well so far to contain the infrastructure costs for the Thameslink Programme within the original budget. Phase one of the Programme cost £1.704 billion, was completed on time and was £143 million under budget. However, delays of more than three years in agreeing the contract to buy new trains mean that delivering value for money from the Programme as a whole is at greater risk than the National Audit Office would have expected at this stage. There continues to be a robust transport case for the £3.552 billion (at 2006 prices) Programme. Thameslink services have consistently been among the most crowded London routes with passengers amongst the least satisfied with space on trains; and demand is forecast to increase. The Department estimates that the Programme will make net present benefits of £2.9 billion through reduced journey times, reduced overcrowding on trains and quicker interchanges between services. The Department needs to manage a complex interaction between completing the infrastructure project; buying new trains; and letting a new franchise. Delays to any of these projects can delay significantly or complicate delivery of other parts of the Programme. The award of the estimated £1.6 billion contract to buy new trains is currently delayed by over three years and this has implications for the rest of the programme. And until the contract is let it will not be clear whether delivery of the whole Programme by 2018 is still feasible.

In this early examination of progress by the Department for Transport in planning for the High Speed 2 rail network, the National Audit Office expresses reservations about the Department's business case. The Department has poorly articulated the strategic need for a transformation in rail capacity and how High Speed 2 will help generate regional economic growth. The Department's methodology for appraising the project puts a high emphasis on journey-time savings, but the relationship between these savings and the strategic reasons for doing the project, such as rebalancing regional economies, is unclear. The benefit-cost ratio calculated for phase one has twice contained errors and the Department has been slow to carry out its own assurance of the underlying analysis. The most recent benefit-cost ratio (published in August 2012) is 1.4 to 1 but is likely to change as the ratio is sensitive to changes in data underpinning assumptions, such as GDP growth forecasts. It does not, however, reflect the Department's current assumption on the relationship between passenger numbers and GDP growth. The Department should also carry out research into how business travellers use their time on trains. HS2 Limited has also not yet analysed the effect on passenger demand, revenues and the benefit-cost ratio of charging passengers premium prices. The NAO estimates that there is a £3.3 billion funding gap over four years (2017-18 to 2020-21) which the government has yet to decide how to fill.

Dated July 2013. The Brown review published as Cm. 8526 (February 2013, ISBN 9780101852623)

The government published its Civil Service Reform Plan (the Plan) in June 2012 (www.civilservice.gov.uk/reform). It followed the publication of the 2011 Open Public Services White Paper (Cm.8145, ISBN 9780101814522) which called for a smaller, more strategic civil service that does less centrally, and commissions more from outside. The Plan has many themes in common with previous initiatives that attempted to reform the civil service, and adapt it to the changing needs of governments and public service users, but is arguably the broadest such reform programme since 1968. This Memorandum is intended primarily to inform the Committee's discussions with the leadership of the civil service about the Plan. Given that the Plan is less than a year old, it is not an evaluation of the reforms in the Plan, the progress made against them, or the implementation arrangements in place. It is designed to support the Committee to engage with the breadth of the Plan, so that they can use their influence to help ensure that its implementation improves efficiency, reinforces Parliamentary accountability and protects value for taxpayers and citizens. The Civil Service, in its present form as of 2012, employs 459,000 people across 106 departments and other bodies. The annual spend on Civil Service pay is £16 billion. The projected cost reduction for the Civil Service, between 2010 to 2015 is £80 billion and the projected reduction in the number of full-time equivalent civil servants over the same period is 110,000 representing about 23% of total staff.

The Laidlaw Inquiry investigated the Department for Transport (DfT) handling of the competition to run passenger trains on the West Coast main line, which was cancelled following the discovery of significant technical flaws in the way the InterCity West Coast franchise process was conducted. It finds that, in seeking to run a complex and novel franchising competition process, an accumulation of significant errors resulted in a flawed subordinated loan facility (SLF) process. (This is the process where the DfT addresses the risk posed by the thinly capitalised nature of the bidders, requiring commitments from the owning groups for an SLF.) The responsibility for this flawed process lies with the Dft rather than with any of its external advisers. Chapters include: scope and work undertaken; the course of events in relation to the SLF sizing process; findings concerning the GDP resilience model; external advisers; contributory factors; lessons to be learned and recommendations. The Inquiry produces a number of specific recommendations on: inadequate planning and preparation; deficiencies in organisational structure and resourcing; lack of efficacy in governance framework. Improvements in quality assurance procedures are essential. Rapid implementation of the recommendations should help to restore confidence in the DfT's ability to conduct effective railway franchising and procurement.