Inadequate planning and weak governance led to "flawed" West Coast procurement

Centrica chief executive Sam Laidlaw was commissioned by the Department for Transport (DfT) to lead an independent inquiry after it cancelled its decision to award control of the line to FirstGroup at the beginning of this month. A full report is due to be published at the end of November, while a wider review of the DfT's rail franchise programme will follow.

Laidlaw stressed that firm judgements and wider conclusions should not be drawn from his investigation at this stage.

"In the limited time available this is necessarily only a preliminary report," he said in a statement released by the DfT. "What is clear however is that in seeking to run a complex and novel franchising competition process, an accumulation of significant errors, described in the report, resulted in a flawed process. These errors appear to have been caused by factors including inadequate planning and preparation, a complex organisational structure and a weak governance and quality assurance framework."

Presenting the report to the House of Commons, Transport Secretary Patrick McLoughlin described Laidlaw's findings as "uncomfortable reading".

"It is clear that the Inquiry has identified a number of issues which confirm that my decision to cancel the franchise competition was necessary," he said. "We will look at these with interest and care, although ... we will need to see the final report before we can comment further.

McLoughlin also confirmed that Virgin Trains would continue to operate the line for "a short period of up to 14 months" after its contract ends on 9 December, to allow the Government time to run a new competition for an interim agreement. The company has proposed "improved services" over this period and an enhanced compensation scheme for passengers that experience delays, he said.

The announcement of FirstGroup as the Government's preferred bidder for the West Coast franchise, due to run for a period of up to 15 years, was made on 15 August. Virgin announced that it would be pursuing a judicial review of the decision later that same month. Evidence of "significant flaws" by the DfT in the procurement process, stemming from the way the level of risk in the bids was evaluated, emerged during its evidence-gathering in preparation for the case.

The DfT has suspended its three outstanding rail franchise competitions - Great Western, Essex Thameside and Thameslink - pending the outcome of the independent review process. All four bidders for the cancelled West Coast tender are to have their bid costs reimbursed, at an estimated cost to the Government of £40 million.

Issues identified by Laidlaw in his interim report included a lack of transparency in the bidding process, the fact that published guidance was not complied with when bids were being processed, inconsistencies in how bidders were treated and confirmation of technical flaws in the model used to calculate the amount of capital bidders were asked to provide to protect against risk.