Inadequate planning, a complex organisation structure and a weak governance framework led to the failure of the West Coast franchise competition, the Laidlaw inquiry has found.
The report was published by the Department For Transport (DfT) this morning following an earlier announcement that Virgin was to continue to operate on the West Coast Main Line for the next two years while a long-term competition is drawn up.
An independent inquiry was ordered to look into the failed competition, which originally awarded the franchise to FirstGroup, after the DfT discovered ‘significant errors’ in the process.
The final report found that:
The DfT used flawed and inconsistent methodology when guiding bidders on the amount of risk capital (known as the Subordinated Loan Facility) they would need to offer to guarantee their franchise against default (Inquiry report paragraph 4.31, p22);
The Subordinated Loan Facility figures resulting from the flawed methodology were then varied in a way that contravened franchise competition rules (3.4, p11);
Ministers made the original August 14 provisional contract award without being told about the critical flaws (2.12, p8) and having been given “inaccurate reports” (3.8, p12).
The report also said there was nothing to suggest that the flaws discovered in this franchise competition exist in any other DfT procurements or that a culture of bias towards Virgin exists in the department.
In response to the report, the DfT has pledged to create a simpler structure and governance process for franchise competitions and appoint a director general to oversee all rail policy and franchising.
Sam Laidlaw said: “I have explained in detail the technical nature of certain errors, specifically around modelling flaws and the Subordinated Loan Facility sizing process.
“In addition, the report outlines an accumulation of contributory causes including a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight.
“While it is clear that a number of serious and regrettable errors have occurred, I believe that if acted upon quickly and effectively, my recommendations will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement.”
Patrick McLoughlin said: “The final report from the Laidlaw Inquiry makes extremely uncomfortable reading for the department. It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right.
“We will not allow these mistakes to be made again and the department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance.”