UK transport department knew rail bid model was flawed - report

LONDON (Reuters) - The Department for Transport (DfT) was aware that its forecasting model for the West Coast rail franchise was flawed before it awarded the contract, a report into the botched tender has found.

The findings of an initial report into the debacle, published on Monday, are a further embarrassment for the government after it was forced to pull the contract it had awarded to FirstGroup ahead of the incumbent Virgin Trains.

The 13-year franchise, due to begin in December, was pulled this month after the DfT said that serious flaws in the process were uncovered while it was preparing for a legal challenge from Virgin.

In Monday's report, Sam Laidlaw, a DfT non-executive board member and chief executive of Centrica, said the inquiry had seen credible evidence that the DfT knew in advance of faults in the process.

The DfT required bidders to put up a performance bond, season ticket bond and subordinated loan facility (SLF), which they would lose if they failed to fulfil the contract. The size of the SLF depended on the DfT's evaluation of the risk in the respective bids.

However, Laidlaw's report said that the companies were not provided with adequate information to predict the likely size of any SLF requirement, undermining the capital structure of their bids.

"The DfT was aware of a lack of transparency in the SLF process and decided nonetheless to continue with the franchise process and to accept the risk of a bidder challenge," the report said.

In a statement to the House of Commons on Monday transport secretary Patrick McLoughlin said that Laidlaw's report made "uncomfortable reading" as he outlined the findings.

The bungled process, which led to the suspension of three DfT employees and the freezing of other franchise competitions, has cost taxpayers about 40 million pounds in compensation to the four shortlisted bidders.

The report said that inadequate planning and preparation, a complex organisational structure and weak governance had all contributed to the flawed process.

The DfT has since asked Virgin to continue operating the service, which runs from London to Scotland, for at least nine months from December while it runs a competition for an interim agreement.

As well as technical flaws and a lack of transparency in the bidding process, Laidlaw's report said that the DfT's published guidance was not followed when bids were being processed and there were inconsistencies in the treatment of bidders.

Laidlaw's final report will be published by the end of November.

(Additional reporting by Neil Maidment; Editing by David Goodman)

Source: http://news.yahoo.com/uk-transport-department-knew-rail-bid-model-flawed-185318622--finance.html

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