An interim report has identified a catalogue of blunders at the Department for Transport (DfT), claiming late changes to the Government's rail policy and staff cuts at the department had contributed to the West Coast line fiasco.
In one of the most explosive findings, report author Sam Laidlaw, whose roles include chief executive of energy firm Centrica, said the DfT was aware of a "lack of transparency" in the bidding process in the first quarter of this year but decided "to accept the risk of a bidder challenge".
A 13-year contract to run the London to Glasgow service was awarded to Aberdeen-based FirstGroup in August but the decision was overturned by Patrick McLoughlin, the Transport Secretary, on October 3 following a legal challenge by Sir Richard Branson's Virgin Trains, the current operator.
The Passenger Focus pressure group said the report's revelations showed the Government now had a lot of work to do to restore faith in the rail industry.
The review, the first of two ordered by Mr McLoughlin, focused on the problems surrounding the Intercity West Coast (ICWC) contract but also posed fresh questions for the Government's rail franchising system, saying it raised "potentially significant issues about the ability of the DfT effectively to conduct rail franchise competitions".
Three rail franchise bids have been put on hold in England and a number of others could be delayed, including the cross-border East Coast service, which is due to return to the private sector in December next year after it was temporarily nationalised in 2009. Three DfT staff have also been suspended.
Announcing its findings in the House of Commons, Mr McLoughlin said: "It is clear the inquiry has identified a number of issues which confirm my decision to cancel the franchise competition was necessary."
A spokesman for Virgin Trains said: "The interim report shows just how important our calls were in the summer to find out what went on behind closed doors when deciding the future operator of the West Coast franchise and it should be opened up to proper detailed scrutiny. As well as the technical errors the review has identified, it raises fundamental questions around why more favourable treatment was given to one bidder over another and the lack of a clear and consistent account of how and what decisions were made.
"All of this is a matter of serious concern and we hope these issues will be explored in greater detail in the final report by Sam Laidlaw."
A FirstGroup spokesman said: "We note the release of preliminary findings into the cancellation of the West Coast franchise competition and the significant technical flaws which the DfT say they discovered in their process. The Secretary of State has repeatedly con-firmed FirstGroup is in no way at fault, having acted entirely in accordance with the DfT's process throughout."
The interim report confirmed earlier leaks which pinned the blame for the franchise award on civil servants' use of a financial model used to calculate how much collateral bidders had to provide in case their growth predictions proved overly optimistic.
However, the report went further, identifying a change in Government policy towards awarding longer, 15-year rail franchises and changing the way risks were shared between the Government and private sector as contributing to problems at the DfT.
Organisational changes had produced a "lack of clarity", with fewer staff left to administer an expanded workload. A number of senior staff had left the department, leaving the bidding process to be overseen by civil servants who were "relatively junior and inexperienced" compared with their counterparts in the rail companies competing for the franchise, Mr Laidlaw said.
"There is a body of evidence that strongly suggests the DfT's approach to the evaluation of the financial robustness of bids in the ICWC franchise process was developed late, in a hurry and without proper planning and preparation," he concluded.
The DfT has asked Virgin to continue operating the West Coast service for up to 14 months from December while it runs a competition for an interim agreement.
David Sidebottom, director of Passenger Focus, said: "In the short term, passengers will need to be reassured by the Government that their day-to-day service won't be affected by the cancellation of the competition to run the West Coast franchise. Longer term, the Government will need to work hard to restore confidence in the franchising process as these decisions affect millions of passengers on a daily basis.
"Passengers will also want to know the burden of costs arising from this cancelled process will not be directly passed on to them through hikes in fares."
Mr Laidlaw's final report will be published by the end of next month and the Government spending watchdog, the National Audit Office, said it would be examining the cancellation of the West Coast franchise and planned to publish its report before Christmas.
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