THE fight for the (pounds) 1.5bn contract to run ScotRail for the next seven years began in earnest last night after companies submitted their final bids.

National Express Group, the incumbent, FirstGroup and Arriva have been shortlisted for the contract by the Scottish Executive.

The Strategic Rail Authority, which is acting as agent for the executive, will choose a preferred bidder early next year.

National Express's contract to run ScotRail has been extended by six months until at least October next year, when the next seven-year deal is due to start.

The executive has budgeted to pay the winning company a (pounds) 210m-a-year subsidy to run the current timetable of 2000 daily services, most of which lose money.

That (pounds) 210m figure is only a rough estimate and the bidders have been asked to say how much subsidy they would need to run the timetable and new services that will be introduced over the franchise period.

Under SRA rules, none of the bidders is allowed to disclose its plans for ScotRail.

However, Gordon Dewar, commercial director of FirstGroup in Scotland, said it was interested in taking day-to-day control of signalling, time-tabling and planning away from Network Rail, the track and station owner

Mr Dewar said that could improve train performance and benefit passengers. He said FirstGroup was not interested in owning the tracks or becoming responsible for track maintenance.

Phil White, chief executive of National Express, said his bid would focus on customer service and improving performance. He added that the company would be asking for a realistic subsidy because seeking too little would harm passengers.

''What we want is a viable business. It is not in anyone's interest if the numbers don't add up because investment stops and quality drops off.''

National Express and FirstGroup are seen as the front-runners, although FirstGroup could be ruled out by the Office of Fair Trading.

Arriva is the outside bet, but Euan Cameron, managing director, said: ''We believe that we have developed an innovative bid which will provide both value for money and high-

quality services.''