PAC slams DoT over West Coast rail fiasco

The Public Accounts Committee (PAC) has criticised the Department of Transport (DoT) over its disastrous handling of the InterCity West Coast rail franchise fiasco that ended up costing the taxpayer millions of pounds.

The PAC's scathing comments were published in its report on the DoT's decision on 3 October 2012 to cancel its decision to award the InterCity West Coast franchise to First Group due to errors in the procurement process.

The department's failure to properly manage the competition will cost taxpayers at least £50m - most of which will be spent on compensating bidders. There is also a significant opportunity cost resulting from delays in investment in the franchise.

PAC chair Margaret Hodge, said: 'The DoT's complete lack of common sense in the way it ran the West Coast franchise competition has landed the taxpayer with a bill of £50m 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 franchising process was 'littered with basic errors' and the department had 'yet again failed to learn from previous disasters, like the Metronet contract'.

Hodge continued: 'Senior management did not have proper oversight of the project. Cuts in staffing and in consultancy budgets contributed to a lack of key skills.

'The project suffered from a lack of leadership. 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.

The DoT spent £1.9m on staff costs and external advisers to run the franchise competition-significantly less than the estimated £10m each bidder spent on their bids.

The PAC report said the department's attempt to make cost savings in running the competition, for example by not employing external financial advisers, 'ended up costing the taxpayer tens of millions of pounds'.

One of the key failures surrounded the amount of risk capital - the subordinated loan facility - required from bidders to balance the riskiness of their bid. The report found that the DoT failed to include inflation in its calculation and also applied discretion in deciding the amount it asked from bidders which was not allowed in the stated process.

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