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December 5, 2012

Virgin Trains wins extension to West Coast Main Line interim contract

Virgin Rail Group has secured an additional 23 months of operating the much-disputed West Coast Main Line franchise, while the UK Government addresses its franchising problems. Railway-technology.com reports on the new contract and the final report of an inquiry into the DfT's flawed bidding process.

By Chris Lo

Virgin Rail Group will continue to run the WCML

The UK Government has announced that Virgin Rail Group will continue to run the West Coast Main Line (WCML) franchise for a further 23 months, until 9 November 2014.

"Virgin’s extended WCML contract comes after the cancellation of FirstGroup’s original contract to take over."

Virgin’s extended WCML contract comes after the cancellation of FirstGroup’s original contract to take over the franchise from Virgin, which has operated the line since 1997. The WCML runs a service from London to Glasgow via the major hubs of Birmingham, Liverpool and Manchester.

After the deal collapsed, Virgin was originally awarded an interim contract to run the line for nine to 13 months while a more permanent long-term franchise could be set up.

The company’s new 23-month contract can reportedly be shortened by up to six months if the Department for Transport (DfT) is able to prepare a long-term franchise more quickly than expected.

Virgin will initially earn a fee equivalent to one percent of revenue with reduced cost risk, although the company said it was working with the DfT to seek revised commercial terms to increase Virgin’s share of revenue and risk in the future.

Improving service on the WCML

Despite the WCML’s franchise chaos, the line has increased capacity with the early introduction of 106 new Pendolino carriages and a new hourly service between London and Glasgow, which is set to start on Monday 17 December to address increasing demand on the route.

"Virgin Rail Group CEO Tony Collins said the company had received strong support from staff and customers."

UK Transport Secretary Patrick McLoughlin announced the new hourly Glasgow service and said the DfT would work with Virgin Trains to explore other possible service improvements.

"We are determined to ensure not only that passengers continue to experience the same levels of service they have in the past, but that services improve," said McLoughlin.

Virgin Rail Group CEO Tony Collins said the company had received strong support from staff and customers in the past few months and will repay that loyalty with better service.

"We will not be sitting back in the coming months, but are keen to introduce more improvements to the service, which is already the most popular long-distance service in the country," Collins said.

DfT’s flawed bidding process: the final report

FirstGroup’s original contract was cancelled due to errors in the bidding process; a subsequent inquiry into the WCML bidding, led by Centrica chief executive Sam Laidlaw, revealed that DfT officials had not followed the proper guidelines, failed to account for inflation in their calculations and ignored warnings in the run-up to the failed FirstGroup deal.

Pendolino_video_link

Laidlaw’s final report, published by the DfT on 6 November, concluded that the department used inconsistent methodology when advising bidders on the amount of risk capital they would need to offer to guarantee their franchise against default. The already flawed risk capital figures were then varied in a way that contravened franchise competition rules.

Laidlaw also found that ministers made the provisional contract award to FirstGroup based on inaccurate reports that did not inform them about flaws in the bidding process.

However, the final report did not find any evidence of institutional DfT bias against Virgin Rail Group, despite inconsistencies in the way in which Virgin and FirstGroup were treated during the franchise process.

The DfT has issued a response to the report, committing the department to a series of actions to bring its franchising programme up to speed, including creating a clearer structure and governance process for rail franchise competitions and ensuring the department has enough in-house expertise and access to professional external advisers.

"McLoughlin said the DfT is determined to ensure all future franchise competitions are well-planned."

McLoughlin said the DfT is determined to ensure all future franchise competitions are well-planned, rigorously risk-tested and with the proper levels of quality assurance.

"The final report from the Laidlaw inquiry makes extremely uncomfortable reading for the department," said McLoughlin.

"It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right."

Report author Sam Laidlaw said: "While it is clear that a number of serious and regrettable errors have occurred, I believe that if acted upon quickly and effectively, my recommendations will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement."


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