Virgin begins court action over Government's decision to award West Coast rail franchise to rival

The company said it had "no choice" but to begin a judicial review of the decision, which will take effect when the current franchise period ends on 9 December, because the Department for Transport (DfT) had "ignored the substantial risks to taxpayers and customers of delivering FirstGroup's bid over the course of the franchise".

"We had hoped that Parliament or an external review would be able to scrutinise this badly flawed process before the franchise was signed," said Virgin Group founder Richard Branson in a blog post. "However that opportunity would be denied if the DfT follows through with its determination to rush through the process before Parliament returns next week."

The decision to award control of the line to FirstGroup for a period of up to 15 years was announced by the Government on 15 August. The new operator has pledged to introduce around 12,000 extra seats a day on the line, expand the range of stations covered and to cut the cost of its 'Standard Anytime' fares by an average of 15% within the first two years of the new arrangement. It will also spend "at least £22 million" on a station investment programme at 17 maintained stations along the route.

Virgin said that although First's bid promised higher premium payments to the Government overall in return for the contract, it was unclear whether the DfT had "correctly risk adjusted" for the fact that "all of its supposed incremental value" would not fall due until after 2022. Its own bid, it said, had been assessed by the DfT as being "more deliverable and a lower risk".

"The current process is geared to selecting the highest risk bid and needs to be independently audited to prevent a repeat of former franchise failures," the company said in a statement.

The deal marks the first of the new longer franchises promised by the Government earlier this year, which it has claimed will deliver a more affordable and efficient rail network. Presenting a paper on rail reform to Parliament in March, Transport Secretary Justine Greening said that the new arrangements would give train operators "the flexibility they have been asking for", with more time to deliver bigger investments.

Transport law expert Patrick Twist of Pinsent Masons, the law firm behind Out-Law.com, said that the company had a "high hurdle to leap" if it was to be able to show that the Government's decision was unlawful.

"Branson will need to show that there was something wrong with the process or that the decision was irrational such that it was wholly unreasonable for the Department to have decided as it did," he said. "He will no doubt say that the Department failed properly to take into account the uncertainties around the higher premium which FirstGroup was prepared to pay and, in particular, adequately to discount that premium because it is so loaded to a time well into the next decade. The Court won't substitute its judgment for that of the Department but the time delay will mean that these subjects are likely to be aired in the political arena before - rather than after - the contract is signed."

He added that it would have "shown real weakness" if the DfT had not stood by its decision, made at the end of "a very lengthy process", in the face of public pressure from Virgin. Since the franchise was awarded to FirstGroup a fortnight ago more than 150,000 people have signed an online petition calling for the decision to be overturned while Louise Ellman, chair of the Transport Select Committee, has called for a delay in completing the contract.

In a statement, FirstGroup said that it had "every confidence" in the DfT's process, and pointed out that there had been "no complaint ... until Virgin Rail Group had lost commercially".

"Our focus is to ensure a smooth transition with continuity for staff and passengers alike," it said. "We want to get on with delivering the many benefits and improvements we are offering without delay or disruption. We will continue to prepare for a successful start up of the new franchise on 9 December 2012."

A spokesman for the DfT said that the Department was "confident" its process was robust and had led to "absolutely the right" decision for taxpayers and passengers. "We expect to sign the contract soon," he added.