Virgin legal challenge delays finalisation of new West Coast rail franchise contract, Government says

Theresa Villiers told MPs on Monday that the "competition" for ownership of the West Coast main line franchise remains "live" as a result of legal action. Virgin, which currently runs the franchise, welcomed the decision. The current franchise period for the West Coast main line ends on 9 December.

"As a result of a legal challenge, which the Government intends to defend robustly, we have not yet signed the contract with First West Coast, and consequently the competition remains live," Villiers said in a written statement. "I cannot give the full commercial details of the winning bid, or indeed of the other bids. Nor is it usual or appropriate – once litigation proceedings have commenced – for the Government to comment on the detail of that, other than to say that our legal advisers are fully engaged in addressing and responding to those proceedings."

Last month the Government announced that it had decided to award control of the West Coast main line to FirstGroup for a period of up to 15 years. 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.

However, Virgin has labelled the Department for Transport's (DfT) decision making process as "badly flawed". The company said it had "no choice" but to seek a judicial review of the decision because DfT had "ignored the substantial risks to taxpayers and customers of delivering FirstGroup's bid over the course of the franchise".

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".

However, Villiers said that she was confident that passengers would see "significant improvements" at a "good return for the taxpayer" from FirstGroup running the franchise. That suggestion was questioned by Virgin.

"We note the Minister's assessment of the First Group bid and take strong exception to the view it provides better value than Virgin Trains," Tony Collins, chief executive of Virgin Trains said in a statement.  "We have submitted a strong and deliverable bid with more commitments on new trains, new routes and new on-board services. In total we have outlined £800 million of new investment compared to £350 million announced by First Group."

Collins added that he hoped Ministers would agree to the company's proposal that there should be an "independent review of the decision to award the contract to First Group."

Transport law expert Patrick Twist of Pinsent Masons, the law firm behind Out-Law.com, said that the West Coast main line franchise contract may not be signed before the end of the current franchise period if Virgin wins the right to a full judicial review in court.

"If Virgin wins permission to proceed it could be several months before the judicial review hearing takes place," Twist said. "Teresa Villiers’ statement suggests that the Department will try to kick out the challenge at the permission stage."

"If they are unsuccessful in this then there will probably be a lengthy delay in contract signature pending the final decision because the Department won’t wish to sign the contract with FirstGroup now and expose itself to the opprobrium of having signed a contract and then be told it made he wrong decision and, more importantly, to the risk that Virgin may have a claim for damages," he added.

Twist previously said that Virgin, which was founded by entrepreneur Richard Branson, 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."

FirstGroup has previously said that it has "every confidence in the DfT’s process" and described it as "rigorous, detailed and fair" and one in which bids had been "thoroughly tested".