West Coast retender "could take up to 18 months" says Transport Secretary

Speaking to Sky News, Patrick McLoughlin said that it would likely take "between 12 and 18 months to rerun" the competition, which saw FirstGroup awarded preferred bidder status over incumbent operator Virgin Trains. McLoughlin said that he would make an announcement next week on who will run the Scotland-London link from 9 December, when Virgin's existing contract expires.

Meanwhile the BBC's business editor Robert Peston said that he had "learned a bit more" about the mistakes made during the original procurement run by the Department for Transport (DfT). In a blog post, the journalist said that all four of the original bidders were given "erroneous information" by civil servants when preparing their bids.

"One consequence is that all the bidders were offering far too little protection to taxpayers against the risks of collapse by a franchise holder," he wrote. "In other words, if the mistake had not been picked up, taxpayers would have been excessively exposed to potential losses at some point during the 15-year life of the franchise."

He also suggested that "a number of the failed bidders" expected compensation payments from the Government to run into "hundreds of millions of pounds" rather than the £40 million figure that has been widely reported. FirstGroup alone could sue the government for "substantial damages resulting from the way it was first awarded and then stripped of the franchise", he said.

The announcement of FirstGroup as preferred bidder for the West Coast franchise, to run for a period of up to 15 years, was made by the Government on 15 August, while Virgin announced that it would be pursuing a judicial review of the decision later that same month.

According to the DfT, evidence of "significant flaws" stemming from the way the level of risk in the bids was evaluated emerged during evidence-gathering in preparation for the court hearing. It said that its mistakes related to "the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result". It added that it could not be "confident" that the competition would not have had a different outcome without these mistakes.

Infrastructure law expert Patrick Twist of Pinsent Masons, the law firm behind Out-Law.com, said that it would be "surprising" if "talk of suing the Government for hundreds of millions" was to develop into a successful claim.

"The Transport Secretary made clear straightaway that the Government would reimburse all bidders their wasted costs as a result of the cancelled new franchise procurement," he said. "Government is likely to have reserved the right to cancel the competition at any time before signature of the new franchise and it would be unusual if FirstGroup could demonstrate that they had suffered a loss of this magnitude which was caused by the Minister's wrongful cancellation of the competition in breach of some obligation owned to them. The other bidders would not have won if the competition had continued, so getting their costs back and having a second bite of the cherry looks like a good result."

What was becoming apparent, however, was that what had happened was "not just a mistake in inputting data into a model", he said.

"There may be fundamental flaws in the structure of the bidding process and the evaluation of bids for the new longer franchises," he said. "Richard Brown of Eurostar will be reporting on his review of the franchising process by the end of the year. His report will be awaited with trepidation by a number of those involved to date."

The Government has ordered two independent reviews; one into "what went wrong" with the West Cost franchise competition and a wider review of the DfT's rail franchise programme. Richard Brown, chairman of Eurostar, is due to report back by the end of December on whether changes are needed to the DfT's bidding and evaluation processes and the way it manages risk. An initial report into the West Coast decision itself is due by the end of this month.

The DfT has "paused" its three outstanding rail franchise competitions - Great Western, Essex Thameside and Thameslink - pending the outcome of the independent review.

Pinsent Masons' infrastructure law expert Jonathan Hart said that the number of "active participants" in the UK franchise market was "relatively restricted", despite the entry of a number of major state-owned or state-run European rail entities.

"Perhaps this pause may cause some reconsideration by those who are currently active and those contemplating or discounting involvement," he said.