Branson firm to run route until new long-term deal is awarded as transport secretary prepares to publish report on franchise fiasco
Plans for an interim franchise while the west coast main line’s future is resolved look set to be scrapped when the transport secretary, Patrick McLoughlin, announces a deal for Virgin Rail to keep operating the route for the next two years.
Richard Branson’s firm will be given the rights to run trains from London to Glasgow until the end of 2014 without the competition for a short-term interim franchise that McLoughlin promised when FirstGroup’s award was scrapped in October. An announcement is expected today.
Instead of the three-stage process, Virgin look likely to continue to run the service until another long-term franchise can be awarded. The deal, coming only three days before Virgin’s 15-year franchise was due to expire, is believed to have been held up by legal concerns over EU procurement rules and the potential for further lawsuits from rival bidders.
Martin Griffiths, the chief financial officer of Stagecoach, which owns 49% of Virgin Rail, said he anticipated a solution that would allow the two partners to continue operating the trains regardless. He said: “We are the operator of the service – the cancellation [of the franchise] was nothing to do with us.”
In a broad hint that the government was about to backtrack on its interim franchise solution, he said: “We would not be keen on that – no one in the industry is keen on bidding for a short-term franchise. I’m optimistic that we’ll see something that everyone can be comfortable with.”
FirstGroup has not publicly ruled out legal action after the debacle that saw the government retract its award of the lucrative west coast franchise up to 2026. The U-turn came after a legal challenge by Virgin that ultimately led to the discovery of serious failings in the Department for Transport’s bidding process.
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. O’Toole also leads the industry body, the Rail Delivery Group, which has privately lobbied for shorter, tailored franchises as the government reviews its rail policy.
McLoughlin is also set to publish a redacted version of Sam Laidlaw’s final report into what caused the franchise fiasco which has landed the taxpayer with a bill that could run to hundreds of millions of pounds. His interim findings suggested that an under-resourced department for transport breached its own guidelines and treated FirstGroup and Virgin differently, raising “significant issues about the ability of the DfT effectively to conduct rail franchise competitions”. At least one of the three civil servants suspended is suing the department, and Labour has accused the government of scapegoating officials for a crisis that had “cabinet ministers’ fingerprints all over it”.
Officially, negotiations have been continuing, and unions denounced the government’s “recklessness” in effectively dismissing the option of bringing in Directly Operated Railways, the state-owned company, to run the line. Bob Crow, leader of the RMT transport union said: “RMT reps have been told to expect an announcement that just 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 and he and his Virgin Trains shareholders will be laughing all the way to the bank.”
The contract is likely to reflect Sir Richard Branson’s promise to run the trains on a not-for-profit basis made pending the judicial review he sought. Profits from the Virgin Group’s majority shareholding will be pledged for “good causes” such as renewable energy research.
Branson’s partners Stagecoach meanwhile reported a 39% leap in pre-tax profits to £123m for the first half of the 2012-13 financial year, boosted by revenue support for the East Midlands train franchise and Olympic work. The transport operator made £4m profit on an £18m contract to bus athletes and spectators to Olympic venues in the summer. Its regional bus networks account for the majority of its profits, with a hefty 17% margin on revenues of £488m. The group announced an increased dividend that will net chief executive Sir Brian Souter’s family around £4m.