Virgin's interim West Coast franchise award is the right solution, says expert

Patrick Twist of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Department for Transport (DfT) abandoned plans to tender for an interim, short-term franchise on the Scotland to London link. Incumbent operator Virgin will instead run the line until a long-term franchise can be agreed.

The announcement coincided with the publication of businessman Sam Laidlaw's report into what went wrong during the DfT's previous franchise competition, which was cancelled in October following the discovery of "significant technical flaws" in the way in which the procurement process was conducted by officials. DfT had previously announced that, following a tendering process, FirstGroup had been awarded preferred bidder status over Virgin for a new 15-year contract to operate the line from 9 December.

In his report Laidlaw, who is the chief executive of Centrica and a non-executive DfT board member, discovered an "accumulation of significant errors" related to inadequate planning and preparation, complex organisational structure and weak governance within the department.

However, Laidlaw did not find any evidence of a "culture of bias" against Virgin and there was nothing in the report to suggest that the same flaws existed in any other DfT procurements. The department has 'paused' three outstanding rail franchise competitions - Great Western, Essex Thameside and Thameslink – pending the outcome of an independent review of its wider bidding and evaluation processes. Richard Brown of Eurostar has been commissioned to conduct this review, the findings from which are expected before the end of the year.

The announcement of FirstGroup as the Government's preferred bidder for the West Coast franchise, due to run for a period of up to 15 years, was made on 15 August. Virgin announced that it would be pursuing a judicial review of the decision later that same month. Evidence of mistakes by the DfT in the procurement process, stemming from the way the level of risk in the bids was evaluated, emerged during its evidence-gathering in preparation for the case.

Responding to the report, Transport Secretary Patrick McLouglin said that the Government would follow through on Laidlaw's recommendations. Actions it would take would include the appointment of a single director general with responsibility for rail policy and franchising, sound planning and rigorous management in all future franchise competitions and placing greater reliance on professional external advisers where necessary.

"The final report from the Laidlaw inquiry makes extremely uncomfortable reading for the department," he said. "It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right. We will not allow these mistakes to be made again and the department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance."

"As expected, the Laidlaw Report has produced some pretty damning criticism of the original West Coast franchise letting debacle," Twist said. "At the same time the Department has lifted the suspension of three of its officers who had been 'stepped down' in the wake of the cancellation of the franchise competition; and to cap the day off it has had to drop the interim franchise competition which Patrick McLoughlin originally announced as part of the new process for letting the long-term franchise."

However, the proposed interim arrangement had "always looked as if it would give rise to procurement issues", Twist said, suggesting that the Virgin deal was the right decision for the department.

"No doubt this is the right solution and the Department will surely have gotten itself comfortable that no other train operators will challenge this if they believe there will now be an open competition for the long-term franchise," he said.

The short-term arrangement is expected to run until 9 November 2014, although the DfT will be able to shorten this period by up to six months if it can come to a permanent franchise arrangement more quickly than anticipated. It will operate as a management contract, with both revenue and cost risk being borne by the Government.

Passengers are set to benefit from an additional 28,000 seats a day on the route, following the early completion of a Government-backed deal for 106 new Pendolino carriages. A new hourly service between Glasgow and London will also be introduced. Virgin also plans to introduce an improved 'passenger charter', including better compensation for severe delays, from next year.