West Coast rail fiasco 'will cost taxpayers £50m'

MPs concerned that basic mistakes could be repeated in HS2 and Thameslink projects

Virgin is carrying on running the West Coast service until November 2014, with a new bidding process starting after that (Getty Images)

Civil servant failures over the West Coast rail contract will cost taxpayers “at least £50 million”, a report by MPs said today.

There was a lack of leadership at the Department for Transport (DfT) and a failure to "get basic processes right" over the West Coast fiasco, the report from the House of Commons Public Accounts Committee said.

MPs said they were concerned that these basic mistakes could be repeated in future projects such as the London to Birmingham high-speed HS2 scheme and the London Thameslink project.

The report said the department failed to learn from mistakes made in previous projects and senior managers failed to apply common sense during the West Coast bidding process.

They also said senior managers had "missed clear warning signs, including from the (rail) industry, that there were serious problems with the (bidding) competition".

The committee said: "We are astonished that there was no senior civil servant in the team despite the critical importance of this multibillion-pound franchise".

The MPs added that they were also "astonished that the (DfT) Permanent Secretary (Philip Rutnam) did not have a detailed understanding and oversight of the (franchise) competition".

After DfT errors in the process had been identified, Transport Secretary Patrick McLoughlin scrapped the bidding which had seen Virgin Trains lose out to rival transport company FirstGroup in the battle for a new, 13-year West Coast franchise.

Instead, Virgin is carrying on running the West Coast service until November 2014, with a new bidding process starting after that.

In today's report, the committee said it was concerned that the department "could yet again fail to apply basic processes, which could affect its future projects, including HS2 and Thameslink".

The MPs said the DfT made a number of mistakes when identifying the amount of risk capital it required from bidders to balance the riskiness of their bid.

The report said the department's "blinkered and rushed approach meant the competition was not run properly" and that it had been a mistake "not to have a single person responsible for the project from beginning to end".

Launching the report today, the committee's chairman Margaret Hodge (Lab: Barking) said: "The DfT'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."

She went on: "The franchising process was littered with basic errors. Senior management did not have proper oversight of the project. Cuts in staffing and in consultancy budgets contributed to a lack of key skills.

"We are astonished that the Permanent Secretary did not oversee the project because he was told he could not see all the information which might have enabled him to challenge the processes, although it was one of the most important tasks for which the department is responsible.

"Given that the department got it so wrong over this competition, we must feel concern over how properly it will handle future projects, including HS2 and Thameslink."

Bob Crow, leader of the RMT transport union, said: "The stench from the fall-out of the West Coast franchise continues to hang over Britain's transport industry as it becomes clearer with every examination that the ministers responsible for this shambles could not be trusted to run a whelk stall let alone multi-billion Government contracts.

"No wonder the Thameslink/Siemens fleet contract remains unsigned nearly two years on with these jokers at the helm, and the case for that work to go to Derby and not Germany remains rock solid.

"Underpinning all this is the fact that privatisation is a corrosive and expensive political project doomed to repeated and costly failure, twice on the East Coast and now on the West.

"Fiddling with processes won't work. It's the whole, rotten policy that needs dumping with a return to public ownership."

Today's report follows a Whitehall-commissioned independent inquiry into the West Coast bidding led by Centrica boss Sam Laidlaw. The inquiry report was extremely critical of the DfT.

Responding to the Public Accounts Committee report today, a DfT spokesman said: "The independent Laidlaw inquiry published in December identified the unique and exceptional circumstances which led to failures in the West Coast franchising programme and crucially what steps the department should take to prevent this from happening again.

"The department has accepted all the recommendations and has taken immediate steps by bringing together all rail activity under a single director general and recruiting a senior director to lead the franchising programme, as well as improving internal governance and strengthening oversight and accountability.

"Not only will these reinforce the franchising process but will also protect rail infrastructure projects such as HS2 and the biggest programme of rail electrification."

The decision to award the franchise, initially, to FirstGroup, was made when Justine Greening was Transport Secretary and Theresa Villiers was Rail Minister.

Ms Greening became International Development Secretary in last autumn's Government reshuffle, while Mrs Villiers was appointed Northern Ireland Secretary.

Shadow transport secretary Maria Eagle said today: "It's time that David Cameron took responsibility for the rail franchising fiasco, instead of allowing ministers to hide behind their civil servants.

"The Government must accept the committee's finding that it was the short-sighted decision by ministers to axe external audits of multi-billion pound contracts that ended up with at least £50 million of taxpayers' money going down the drain.

"It is a disgrace that every politician responsible for the bungled franchise deal has either remained in the Cabinet or been promoted to it."

Richard Hebditch, campaigns director of Campaign for Better Transport, said: "The mistakes with the West Coast are clear for everyone to see. But the biggest problem is a franchise system where the only deciding factor is who promises the biggest payment back to government. What the Public Accounts Committee report shows is that we can't even rely on the figures for that decision.

"Franchising needs to be completely reformed so that what counts are improvements to the service on offer, rather than complex calculations of profit and loss that don't stack up."

PA