No anti-Virgin bias in west coast mainline decision, says McLoughlin

Transport secretary clears path for franchising process to resume, saying Laidlaw inquiry has exonerated ministers

There were serious flaws but no evidence of anti-Virgin bias in the west coast mainline fiasco, the transport secretary has told the Commons.

Patrick McLoughlin claimed the Laidlaw inquiry had exonerated ministers and showed the problems did not spill over into other government procurement – paving the way for the paused rail franchising process to swiftly resume.

McLoughlin said the Laidlaw report confirmed that the Department for Transport (DfT) wrongly calculated the risk capital bidders would have to take, but that ministers – the reshuffled Justine Greening and Theresa Villiers specifically – made the original 14 August award of the west coast franchise to FirstGroup without being told of the flaws or given accurate reports.

McLoughlin said: “There is nothing in the report that suggests that the flaws in this competition exist in other competitions.” Three other franchise awards have been paused.

He added that there was no evidence of bias against Virgin. Laidlaw had asked for a trawl for rumoured “anyone but Branson” emails.

McLoughlin announced a single director general in the department would now look after all rail policy and franchising – a job cut by the coalition.

However, Labour said the report was damning for ministers too. The shadow transport secretary, Maria Eagle, said: “For all the effort by the government to pin the blame on civil servants and hide … it was decisions by ministers – who decided to change franchising policy … and oversaw a bizarre reconstruction of the department leaving no one in charge of rail.”

She added: “It was ministers who failed to act when warning after warning was flagged up to them. It’s clear that ministers failed completely in their responsibilities.”

“No one is going to fall for the government’s attempt to wriggle off the hook and evade responsibility for this shambles.”

However, McLoughlin responded that the report made clear that inaccurate information was given to ministers, who he said acted in good faith.

The report from Sam Laidlaw, the Centrica chairman and a non-executive director of the DfT, was commissioned by McLoughlin in October when what he called “unacceptable flaws” in the process meant he had to scrap the award to FirstGroup.

After producing damning initial findings, which listed failings by the DfT, Laidlaw presented his full report to the department last week. Laidlaw’s published report is likely to be heavily redacted as one of three suspended department officials, Kate Mingay, is mounting a legal challenge over her treatment. Mingay’s court case is due to continue on Friday. It is reported that the three civil servants will soon return to their posts.

Earlier on Thursday the government announced that Virgin Rail would continue to run the west coast mainline for a further 23 months – without the competition for a short-term interim franchise that McLoughlin had promised.

Instead of the three-stage process, Richard Branson’s firm will be granted rights to operate trains on the route from London to Glasgow until 9 November 2014 – possibly terminating any time from March 2014 in the unlikely event that another long-term franchise can be awarded earlier.

The deal, only three days before Virgin’s 15-year franchise was due to expire, is believed to have been held up by legal concerns about EU procurement rules and the potential for further lawsuits from rival bidders, but also by last-minute financial negotiations.

Virgin’s new deal is a management contract, with the DfT taking the revenue and the risk, and Virgin receiving a fee equivalent to a margin of 1% on revenue for operating the services – although there is a clause that both parties can still agree revised commercial terms.

Branson is expected to announce later that Virgin Group’s share of the fees – some way below the £12.4m profit made from Virgin Rail in the first six months of this year, split with partners Stagecoach – will go to good causes, if not charity.

On his blog, Branson wrote: “Our lawyers said we had a less than 10% chance of winning after the government originally awarded the franchise to FirstGroup. One of the key things we have learned from this episode is to never give up if you think right is on your side.”

Virgin, which has run the west coast trains since 1997, was one of the last two of the original four shortlisted bidders as the decision approached for the winner of a 13-year franchise due to start on 9 December. But in August the DfT announced the franchise had gone not to Virgin but to FirstGroup.

After Branson, who called the decision “insane”, mounted a legal challenge, investigations at the DfT led to McLoughlin scrapping the process, admitting “serious flaws”. Three DfT officials were suspended and negotiations were started with a view to getting Virgin to run the line for between nine and 13 months before a short interim franchise was offered, followed by a longer one later.

Thursday’s news means the government has altered its plans for the immediate future of the line, in that the Virgin temporary deal is for far longer and there will be no interim franchise before the long-term one is introduced.

Unions criticised the deal. The RMT general secretary, Bob Crow, said: “Although the extension announcement has been made this morning it only exposes the reckless high-wire act that has taken the negotiations between Virgin and the DfT right to the very brink of the contracts’ termination this weekend.

“Because of the shocking ineptitude right at the top of this rotten government Richard Branson has muscled his way into a monopoly provider position on this mainline route and has extracted a longer extension than expected, leaving it wide open to legal challenge.”

FirstGroup has not ruled out legal action after the franchise debacle precipitated a slump in the company’s value. However, FirstGroup’s chief executive, Tim O’Toole, has spoken of the need to restore the wider franchising process as soon as possible and keep the rail network in private hands, a goal shared by McLoughlin.

FirstGroup is likely to receive a similar franchise extension for the Great Western trains it currently operates.

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