Rail Franchise Fiasco

Virgin Trains is launching court proceedings in a bid to hold on to its West Coast main line franchise.

The move came hours before the Government was due to sign off a controversial deal giving responsibility for the route to First Group.

Virgin said it had tried for three weeks to get “clarity” about the decision by the Department of Transport but had been “refused information”.

A spokesman said: “We are left with no choice but to commence court proceedings as we believe the procurement process has ignored substantial risks to taxpayers and customers of delivering First Group’s bid over the course of the franchise.”

The company claimed the bidding process had been geared to selecting the highest risk tender and that the procedure needed to be independently audited.

Virgin boss Sir Richard Branson said in a statement: “We had hoped that Parliament or an external review would be able to scrutinise this badly-flawed process before the franchise was signed.

“However that opportunity would be denied if the Department of Transport  follows through with its determination to rush through the process before Parliament returns next week.

“That ignores the wishes of more than 150,000 people who signed the Downing Street e-petition in 10 days, the Labour Opposition, two important Commons committees and many backbench Conservative MPs who wanted a debate before the decision is taken, not a post-mortem afterwards.

“We have not taken this decision lightly, but it is the only course now available to try to unravel this sorry process.”

Transport Secretary Justine Greening had said earlier that the contracts would be signed despite MPs wanting to examine the new arrangement.

Ms Greening also insisted that Virgin would have been “perfectly happy” with the bidding process had they won the right to run the line for the next 13 years.

First Group echoed the reaction in a statement on the legal challenge.

A spokesperson said: “There has been no complaint about the process, which was carefully described in advance, until Virgin Rail Group had lost commercially.”

Virgin Trains has managed the route for 15 years but the Government controversially awarded the new contract to First Group.

Sir Richard called the bidding process “insane” and later offered to run the route free of charge to allow for the decision to be re-examined.

Labour has backed calls for a review and tens of thousands, including Mo Farah, Lord Sugar and Jamie Oliver, have signed an online petition calling for a rethink.

However, Ms Greening said on Tuesday that the Government plans to “push on with signing the contract with First Group”.

She added: “Although I have a huge amount of respect for Virgin and the work they have done on the line, I suspect that, had they won the bid, they would have been perfectly happy with the process.”

Labour said MPs had been denied the chance to raise concerns about the deal because it was announced during the Commons summer recess.

In a letter to Mrs Greening, shadow transport secretary Maria Eagle also suggested First Group’s bid had only been accepted because it was worth more than Virgin’s.

She also warned about the impact on fares and levels and quality of services, as well as the risk of the contract being cut short.

 

There are a few things that Ms Greening  as a former Finance Manager should understand.
1. To achieve 10.4% annual revenue growth there needs to be either a huge hike in ticket prices, well  above the Retail Price Index  formula, alternatively another 26m passengers need to travel – that’ll be 56m versus the  current 30m.

Is that realistic?
2. Discounted Cashflows that are large at the end will easily give a big NPV number which is what First have done.

3. Level of risk from 10%+ growth rates is huge and should have been challenged.

It does suggest  that the Department of Transport is being complicit with huge ticket price rises.

The bids must be reviewed, before we see another rail franchise being handed back to the government  prior to the end of it’s term