The Followers of the Apocalypse have clearly been remiss in not bidding for UK Rail Franchises. With the announcement of a £40m pot to compensate for bidding costs from the Department of Transport (DfT), I could be writing this post from somewhere entirely sunnier today.
It’s interesting that compensation (and so much compensation) is being offered. The “Invitation to Tender” (large pdf document) (ITT) explicitly says that:
“The information contained in this document does not purport to contain all of the information that a prospective franchisee or shareholder may require. Neither the Secretary of State, nor any of his employees, agents or advisers (“representatives”), makes any representation or warranty (express or implied) (and no such representatives have any authority to make such representations and warranties) as to the accuracy, reasonableness or completeness of the information contained in this document.
All such persons or entities expressly disclaim any and all liability (other than in respect of fraudulent misrepresentation) based on or relating to any such information or representations or warranties (express or implied) contained in, or errors or omissions from, this document or based on or relating to the recipient’s use of this document ,or the use by any of its subsidiaries or the respective representatives of any of them in the course of its or their evaluation of any franchise or the shares of any franchisee or prospective franchisee or any other decision.
[…]
The Department reserves the right at any time to issue further supplementary instructions and updates and amendments to the instructions and information contained in this document as it thinks fit.
[…]
The Department will not be responsible for the costs or expenses of any Bidder in relation to any matter referred to in this document howsoever incurred, including the evaluation of the InterCity West Coast franchise opportunity, the award, or any bid for the award of the InterCity West Coast franchise, or negotiation of the Franchise Agreement.”
which makes a pretty strong case for arguing that there is no way anyone should be getting any compensation for bidding under any circumstances. You’ll note it allows for changes to the instructions (and thus the process) at any time.
Now this is boiler-plate stuff. It, or something similar, will be in every invitation to tender that comes from the DfT (and there are similar clauses in most other public sector ITTs). It is there for a reason – to ensure that taxpayers money is not put at risk by any errors in the process that may creep in. It is nearly impossible to offer compensation for bidders costs – I know this, because I did it once (in 2003/4) at HEFCE and had to basically get permission from the Chancellor of the Exchequer. And this was for sums of up to £1,000 (I don’t recall that anyone claimed).
Rail Franchises are a stupid, stupid, stupid idea and they always have been. That said, the DfT have been running these competitions for nigh-on 20 years, so you’d suspect that processes would be pretty solid by now. And running a bidding exercise is not an unheard-of activity in the civil service – I’ve run more than I care to remember.
What I think this tells us is that there is a political motivation to offer compensation. There is nothing in the terms of the bidding competition to say that compensation should (or indeed could) be offered.
Because of this long-existing large scale civil service capacity to do this stuff, I’ve been having a look into what has changed this time round. If there has been an error (and I am not convinced entirely that there has been), it must be due to a recent change in the process.
And the process was changed, in 2011, to allow for “longer, less prescriptive franchises that will give the industry more freedom to innovate“. This suite of changes was complex, and criticised widely. The Rail Professional article (as subscribers probably recall!) ends with a lovely summary of the central issue:
“It would be nice, some day, to have a calm, government-led thinkthrough of franchising policy, inspired by nothing more than a desire to devise the best balance of risks and rewards. The likelihood is that franchising policy will continue to be re-examined amid crises, and the results skewed by the need to tackle a single, perceived problem. The outcomes, like this one, will also be flawed but robust enough to see out a parliament before another unfortunate minister needs to rethink them.”
This – like previous rethinks of the rail system – was fire-fighting a single perceived issue – the need for rail companies to contribute more to infrastructure upkeep – with a single “magic bullet” – helping franchisees to make larger profits. However, it didn’t even last a parliament.
What appears to have happened is that the likelihood of the non-payment of amount of money the “successful bidder” (FirstGroup) offered for the opportunity to run the West Coast line was not properly insured against by DfT. FirstGroup had offered to pay £13.3bn over three years, and DfT asked for £180m to be deposited with them as a deposit which could be kept if payments were not met. You might think that £180m is a hell of a lot less than £13.3bn and you would be right. It is. Virgin’s argument was that this wasn’t enough – and DfT already has the right to demand an additional bond from a franchisee if it thinks it hasn’t got enough.
I suspect we’ll never know what actually happened – but it is unlikely to be a matter of a civil servant getting his sums wrong.
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