Posted 20th August 2012 | 10 Comments
West Coast bid may face critical scrutiny
FIRSTGROUP'S £5.5 billion bid for the Intercity West Coast franchise may face critical scrutiny from several directions in the next few weeks. Reports say that two Parliamentary committees have expressed concern about the bid, while loser Virgin is understood to have just over a week in which to decide whether to press for a judicial review.
A war of words has also broken out between Virgin founder Richard Branson and FirstGroup chief Tim O'Toole, who has described Virgin's reaction to losing West Coast as 'hysterical'.
It is understood that two committees of MPs are looking closely at the Department for Transport's calculations, amid concern that the contract signed by First delays the bulk of the premiums due until later in the franchise than the competing proposal from Virgin.
Attention is expected from both the Transport Committee and the Public Accounts Committee. Meanwhile, Virgin is taking urgent advice from lawyers on the strength of its case for a judicial review.
The Public Accounts Committee has previously accused the DfT of failing to show 'due diligence' over the granting of a major intercity contract.
The East Coast franchise ended prematurely in November 2009 after National Express said it would have to surrender the contract because revenue had been less than expected, and East Coast is still being run by a government-owned company as a result. The Government intends to return East Coast to the private sector in December 2013.
The latest developments on West Coast suggest that a crisis may be looming. First should now be preparing to take over West Coast on 9 December, and its plans could be jeopardised should Virgin gain permission from the High Court for a judicial review.
Criticism from Parliamentary Committees cannot in itself stop the transfer of West Coast to FirstGroup, but if the Department attempted to back out of last week's contract First could now be expected to launch a legal challenge of its own, accompanied by a claim for substantial compensation.
Meanwhile, FirstGroup chief executive Tim O'Toole has responded to bitter criticism of the decision from Virgin founder Richard Branson by describing his stance as 'hysterical'.
Sir Richard had accused the Department for Transport of 'insanity' after Virgin lost the bid, and said it was 'extremely unlikely' that Virgin would bid for any more rail franchises under the present system.
But Mr O'Toole dismissed the Virgin founder's attack, saying that his reaction showed that Richard Branson is a 'poor loser', who had 'spread fear' among staff on West Coast.
The FirstGroup chief told the Financial Mail: "Branson has lost and he is off the field now. What he is saying is simply not true. We are not going to be cutting staff – staff levels will be about the same.
"But there are two things which are particularly outrageous. Had he won, he was planning to cut twice as much as he said we would have cut. And if he had won with his bid, he would have made a huge amount of money. Maybe that explains his hysteria."
Sir Richard has not been available for further comment after making his statement last week.
Reader Comments:
Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.
Billy Bell, Beith, UK
Let's see - First group abided by their contract with FGW.
Virgin - Were the franchisee at the time of a £billions investment by the government
I think even woolworths could make a rail franchise successful with that level of investment so it's hardly a fair comparison.
Martin, Aylesbury
Lets see, First Group - handed back the keys of FGW early
Virgin Rail Group - stuck out the whole franchise and increased passenger numbers by 50%
oh and First Group need to increase passengers by 10%p.a for 14 years, shame there is neither the capacity on rail or in the trains unless people want to travel at "silly" times of the day and night.
Melvyn Windebank, Canvey Island, Essex
Richard Branson has now announced he will start a London to Manchester air service (no doubt using tax free aviation fuel - why is fuel used on domestic flights tax free?) after boasting about how good rail was compared to air when he launched Virgin Trains!
I reckon Richard Branson should find him self a Time Lord and then arrange to be train-sported(!) back to 1997 and then he could set up his own ROSCO to own his new trains.
As to complaints about how bad First is at running other franchises its worth remembering that they have always found themselves with rubbish rolling stock that is years old so lets see how well the do with Pendolinos and Voyagers!!
As to Richard Branson not bidding for rail franchises this is more to do with his relationship with David Cameron and how he wants an apology from Cameron.
The question now is whether First should retain both GWR and Thameslink or be made to withdraw their bids now they have won the WCML? A problem brought about by DFT bunching franchises together!!!!
Billy Bell, Beith, UK
Lee in Manchester, are you jumping on the 'Railway bashing' bandwagon? I have checked national rail enquiries and the cheapest one way fare on Friday 2nd November departing at 1016 is £16. The most expensive fare all day is £60. The cheapest ticket is also available for the 1216, 1416 and 1616 departures. Direct service too, so no need to change trains anywhere.
Total journey for both of you returning on the Monday costs £70, that's an amazing £17.50 per person each way or 0.09 pence per mile per person.
Fly and you could be paying 4 times the price!
Lee, Manchester
It seems the DfT have a questionable way of awarding franchises and rolling stock contracts if West C|oast and Thameslionk rolling stock are anything to go by. The problem dosen't seem to be with private companies but with the Government department alledgedly supervising them. Maybe it is time to turn the railways over to people who know and understand how they operate rather than civil servants who generally don't? As far as Branson goes, I suspect his new London-Manchester domestic flight service will be a success if it is cheaper and faster than the train. My partner and I are trying to get return tickets to Edinburgh from Mancheater, three months in advance. So far the cheapest fare for both of us by rail is over £110 one-way, a return air fare is £80! Dosen't the DfT and its masters realise their ticket pricing and handling of the railways is actually encouraging people onto other modes? Then again, I also suspect that may be intended strategy.
Tony Pearce, Reading
HS2 (if built) will cream off the high paying First Class travellers on the West Coast Mainline who contribute so much to the profits on that line. Maybe thats what Branson fears and why his bid is so low. Maybe the winners are betting that HS2 costs will quadruple (like the Olypmics, Channel Tunnel, Millenium Dome etc.) and never be built. The West Coast franchise will then be quids in.
jak jaye, sutton coldfield
Instead of dragging this on and on why not let Virgin Rail run the East Coast Franchise and let Branson put his money where his mouth is? the more railway privatization goes the worse it will get and the more billions will go into the coffers of second rate 'bus companies like FirstGroup/Stagecoach
Claydon William, Norwich, Norfolk
'Hysterical'. I would say that description of Branson is pretty accurate.
We heard the exact same bellyaching from him when Lufthansa sold 'bmi' to British Airways/IAG rather than Virgin Atlantic, and now this.
If Branson was so keen on delivering West Coast services, he could relatively easily set up 'open access' operations from London-Manchester/Glasgow; he could even approach 'Chiltern' for a marketing deal and seats on their London-Birmingham services.
Exactly the same scenario in aviation. Branson could launch his own Heathrow-Manchester/ Scotland services; he owns unused slots there now; but won't because he knows the competition is too hot. He won't run 'open access' rail services because there won't be those nice chunky cheques arriving each month from the taxpayer. He's all mouth I'm afraid.
Branson owns 51% of Virgin Trains, £51 out of every £100 of profit went to Branson himself, and thats the reason why he's sore.
Paul Southall, London
The transport mp needs to step outside and look at the picture as a whole. Virgin's bid is considerable lower than firstgroup only because virgin is looking at the 15 year future of the wcml. The new high speed link will "pinch" a large percentage of its potential passengers as well possible disruptions of the increasing traffic of freight trains. But also, the transport mp wants britain to have the best railway service in the uk, all you need to do is look at the complaints first great western, first hull trains and other services firstgroup have and compare it with virgin trains.
Perhaps common sense isn't so common any more
Windsorian, UK
I'm not sure MPs are the right people at this stage; an Audit Commission inquiry would seem more appropiate and avoid any claims of political bias.
The 11 car Pendolinos started to be introduced in April this year and all should be on-line by the new franchise in December. What I cannot understand is why the proposed payments are so low in the early years, as Virgin had little in the way of start up costs ?