Posted 17th December 2014 | 9 Comments

DfT's new trains policy caused 'confusion', say MPs

THE Department for Transport has been heavily criticised by a Parliamentary committee for leaving taxpayers to take all the financial risk associated with three major rolling stock contracts worth a total of £10.5 billion.

The DfT decided all the terms for procuring new trains for Thameslink from Siemens, and two fleets from Hitachi for the Great Western and East Coast Main Lines, but the Commons Committee  of Public Accounts described the Department’s approach as ‘confusing’ for the industry and also ‘poorly managed’ in the case of the Intercity Express fleets.

MP Margaret Hodge, who chairs the Committee, said: “The Department for Transport’s decision to buy the new trains for Intercity Express and Thameslink itself has left the taxpayer bearing all the risk.

“The Department has no previous experience of running a procurement of this kind, let alone two with a combined value of £10.5 billion. Yet it has chosen to break with its previous approach of leaving it to rolling stock companies and train operators to buy trains, transferring risk away from the rail industry back to government.

“This means that if passenger forecasts are wrong and fewer new trains are needed in future taxpayers will have to pick up the bill.

“The only way the Department can limit this risk is by requiring train operating companies to use these new trains to run their services regardless of whether they best fit the services they would like to offer.

“We are concerned that the Department did not appear to have looked at whether there were better ways of achieving its objectives. For example, it could have addressed the lack of incentives that mean train operating companies do not have an interest in buying trains which minimise maintenance costs to Network Rail.

“Furthermore the Department’s decision to take over the procurement has led to confusion over the respective roles and responsibilities of government and the industry which need to be clarified.”

The report also expressed concern about the potential cost of the Intercity Express fleets and the management of the early stages of the IE Programme. The Hitachi-led consortium Agility Trains reduced its bid by 38 per cent after an internal DfT spending review, and the Department admitted that this reduction ‘raised questions’ as to whether the original tender had been ‘inflated’.

The report said: “Agility Trains’ offer of a large unsolicited reduction at a late stage in the procurement process, when it was the only bidder, demonstrates that the procurement process was poorly managed and that the Department’s oversight of the likely programme costs was weak.”

It also warned that value for money had been ‘undermined’ by the wide nature of the invitation to tender for anything between 500 and 2,000 trains, and also by uncertainties about the forms of traction. It said: “The Department began the procurement without a clear idea of how many trains would be needed, which routes they would run on and what form of power would be required. In addition, the Department decided in 2009 to electrify the Great Western main line which significantly changed the requirement. Its specification therefore is goldplated to handle both diesel and electrified options and this is likely to mean higher prices and higher fares.”

A DfT spokesman said: “The Intercity Express Programme and Thameslink are huge projects that will bring enormous benefits to passengers. Successive Governments have considered how best to deliver these orders and have come to the same conclusion, that Government should lead with expert support and advice from the train operating companies.

“IEP and Thameslink are making excellent progress and are on track to deliver very good value for taxpayers and improved services for passengers. They are also creating thousands of new jobs across the UK rail industry.”

Hitachi has yet to respond to a request for a comment.

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • jak jaye, ramsbottom

    Er excuse me for asking but wasnt the main reason for privatising BR the elllimantion of tax payers paying for running a railway? When are we ever going to wake up and smell the coffee rail privateisation is and has been an utter disaster to everyone except the pigs in the trough TOCs and' Not Work Fail' sub-contracters

  • david c smith, milton keynes

    Several people have mentioned the unsatisfactoriness of procurement being administered by DfT - Whitehall are generaally not good at such things. This seems to exemplify the general state of "pretend privatisation" on the passenger railway.

    All significant decisions are now made by government, service patterns and levels as well as procurement with the TOC''s raking off shareholder profit for no more than day to day running. I had thought that 20 years ago,the whole justification for privatisation was TOC enterprisee, innovation and associated investment ?

  • Melvyn Windebank, Canvey Island, Essex

    This situation has arisen for several reasons with the first being the way ROSCOs have been a weak link in rail privatisation with their failure to order new trains on an ongoing basis in the same way as bus companies buy buśes to update their fleets . I am not talking about large numbers which major projects like Crossrail and Thameslink need but let's say 100 carriages per ROSCO per year would have meant no 1000 day famine post privatisation and would have no doubt delivered some new DMUs !

    The other problem was the collapse of the rail franchise system and the need for DOR to run ECML meaning their was no long term franchisee for ECML when new trains were ordered. It's inteesting to speculate that had Stagecoach - Virgin won the franchise earlier whether they would have opted for Pendolino trains for ECML ?

    Of course the offer by Hitachi to set up a train assembly factory offering employment opportunities was attractive to government !

    As for talk of ending up with to many trains it's worth remembering the same thing happened with the order for Class 313 trains for the Great Northern electrification but these surplus trains soon found new homes and some of the new IC trains could be used on MML . Especially if electrification beyond Sheffield makes through running to Manchester an option !

    Finally a solution to the problem ROSCOs have in ordering new trains needs to be found or they should be replaced by a system similar to the way Southern has ordered new trains* but this depends on longer franchises.

    (*The recent Southern train orders -- Classes 377/387 -- were DfT-inspired, partly to compensate for delays in signing off the order for Siemens Class 700s for Thameslink (which would in turn have prevented the cascade of Class 319s to the north of England for several years yet). Southern acted as the DfT's procurement agent. Many of the new trains were then subleased to First Capital Connect (now Govia Thameslink Railway), and this process is continuing, with the first 387s due to enter service on GTR this month.--Editor.)

  • Tony Pearce, Reading

    A guide for Civil Servants on how to negotiate a 'Good Deal'. Firstly work out as carefully as you can the actual cost of building these new trains. Then add a margin of around 5 - 8 % (less if its a big order) to the price. This is the Profit Part and all Companies will want to make something. That is now the figure you are aiming at. Never push a Supplier so low that they don't make anything at all - they'll go bankcrupt and you will be the loser. Never negotiate unless you are prepared to walk away if the cost is too high. You may well have to do that at least once during the negotiations. A lease-rental agreement may be cheaper than outright purchase. Private Firms regard all Government negotiators as 'suckers' with good reason. Its not their money and they have no financial incentive to get the best deal. Always have at least 2 firms bidding. If there's only one you will have problems - and you should ask why you haven't got firms fighting each other for your money. Delivery times must be part of the deal with financial penalties for over-runs. Start with a small order - and add to it if things go well. (See ordering Planes from Manufacturers.) I hope this helps to get a better deal next time.

  • Adam, Birmingham

    Not sure what the fuss is about really. It's not as if these trains would sit in a siding unused if the passenger figures were not met - they could equally be used on other parts of the network to either replace older stock, allow other stock to be transitioned to other routes, or complement existing stock

  • andrew blurton, Stafford

    Why do politicians create so much confusion with the travelling public & all the UK taxpayers like this when they cannot make correct decisions more wisely & sensibly themselves with all the train companies & manufacturers in the UK where the taxpayers do not have any train factories built or even operating & also not even making any new train when they are required.
    Do all politicians even cannot design or develop a correct estimate or not even check how much it can cost the UK taxpayers with a correct figure or a correct budget or operating cost with a manufacturer more accurately & all cost prices for making new rolling stock with companies to build the new trains they urgently require.
    If all UK politicians keep getting all their own mathematics & estimates & forecast & statistics wrong with all the train companies more carelessly & selfishly & disgracefully & dishonestly & also refusing to listen to all the concerns with the train operators & the serious problem's & situation's all the time with travelling public too often & too frequently & annoyingly in a personal bad manner where they cannot give anybody a correct estimate or a plan & framework setup or designed.
    Would all the hard working staff & management who are working in the rail industry & network & also operating all the rail services everyday be more annoyed with the government & politicians if they were not co-operating or responding & identifying with what they urgently require to keep their trains operating more safely when they are being heavily criticised too often & too much by these politicians dangerously & irresponsibly & stupidly & foolishly & furiously & also a lack of awareness explaining a more careless operation operating & are these politicians endangering the travelling public who are travelling & who are commuting to work everyday.

  • Tony Pearce, Reading

    I realise that the sums involved are huge - but could this process not have been done through the Private Sector ? I have experience of Civil Servants spending moeny - and they never ever got involved in the haggling that reduced costs as was done in the Private Sector. Unfortunately Politics and 'votes' always get in the way (not just Railway deals), and deals are done to secure Jobs in certain areas - regardless of getting value-for-money.

  • David Rose, Birmingham

    The railway should be nationalised and use British Industry.

  • Lutz, London

    Nothing more than political posturing; the Committee knows full well the background to the reasons the DfT took on these procurement projects but it's political leadership is more inclined to dogma than reason.