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A department gone off the rails

YESTERDAY'S report into the collapse of the £5bn West Coast Mainline rail franchise deal blames "damning failure" at the Department for Transport (DfT) and once again raises issues about the competence of the Coalition Government.

It comes shortly after the announcement that Virgin Trains, which lost the bid, will continue to run the service between London and Glasgow until November 2014, while the original winner, Aberdeen-based First Group, licks its wounds.

In a statement, Transport Secretary Patrick McLoughlin admitted that the report made extremely uncomfortable reading for his department. The catalogue of failure included flawed and inconsistently-applied methodology about compensation to taxpayers, should the franchise-holder fail to make its payments or walk away from the contract. In fact, the report's author, Centrica chief executive Sam Laidlaw, concludes that the way the tendering process was conducted contravened its own rules.

The damage is compounded by the release of a second report today from the National Audit Office, which says the bidding process lacked management oversight and clarity, particularly regarding the level of risk that bidders were required to assume.

Admittedly, it is officials rather than ministers who face the heaviest criticism. Mr Laidlaw concluded ministers had not been told about the flawed process and had received inaccurate reports from officials. Nevertheless, the use of the DfT as a political staging post was part of the problem, according to both reports. It has seen no fewer than four permanent secretaries in two years, including two who approved this deal, despite widespread criticism of the FirstGroup bid as unsustainable. (The company's revenue projections were wildly optimistic.)

Had Virgin's Sir Richard Branson not taken legal action about the validity of the bid machinery and the way the competition was run, these fundamental failings at the DfT would have remained hidden with potentially dire consequences for taxpayers.

Though the Laidlaw Report found no evidence of a culture of bias against Virgin, this was the fourth time his company had lost a competitive tender to bidders that subsequently went bust or ran into serious difficulties, as Sir Richard has pointed out. That certainly suggests that, if nothing else, the way the bidding process operates is flawed. Long franchise periods are over-complicated and encourage bidders to promise what they cannot deliver.

Ultimately this goes back to a flawed model of privatisation that essentially replaced a state monopoly with a series of regional ones.

This should be a new golden age of rail travel, as it is in France and elsewhere. In the UK passenger numbers are rising, despite above inflation fare rises, a system constrained by capacity and an arcane and unfair fares structure. Rail travel is better than it was under cash-starved British Rail but it could be so much better if the DfT was well run.

This calamity will cost taxpayers at least £40m, which could have gone into lower fares or better services. The department will have to work hard to restore public faith. At present, it is not fit for purpose.

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