National Audit Office: Department for Transport has learned lessons from West Coast rail debacle – but risks remain

The Department for Transport has addressed the causes of the failed West Coast rail franchise, the NAO spending watchdog finds – but risks remain to future competitions as work on HS2 delays the new West Coast franchise by six months

By Suzannah Brecknell

24 Nov 2015

The Department for Transport (DfT) is “better placed to deliver value for money” after learning lessons from the failed Intercity West Coast rail franchise, according to a National Audit Office report published today.

The report finds that DfT has “largely addressed” the problems with management and oversight of the franchise competition which had to be stopped in 2012 following errors in the procurement process.

However new risks are emerging, the report warns, particularly as the revised franchising programme is impacted by delays and uncertainty over infrastructure projects. The DfT reset its franchise programme in 2013, staggering 15 franchises over eight years and including 12 short-term ‘direct award’ contracts which would maintain rail services while the staggered competitions took place.

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Amyas Morse, head of the NAO, said: “Results of early franchise competitions indicate that returns to taxpayers could be higher than in the past. However, important risks remain. There is considerable uncertainty and volatility around the rail infrastructure improvement programme.”

Ongoing uncertainty over plans for the High Speed 2 programme have already caused a six month delay to the new West Coast franchise competition, and if HS2 is delayed further then the department will have “no further options to extent the current contract” and may need to appoint the government-owned Directly Operated Railways to run the franchise, says the report. 

The decision to delay this franchise may also impact plans to encourage close working between the companies operating the West Coast and TransPenine Express franchises, which were due to be run simultaneously.

Delaying franchises also means that “the schedule for 2016 and 2017 is tight and the department’s resources could be stretched,” the report said. It adds that: “There is a risk that the department will receive fewer expressions of interest than it might have, had the schedule remained more staggered.”

This is a particular concern as the department has only received three expressions of interest for each of the three competitions run since 2013.

“By the department's own measure, if it receives fewer than three bids it may reduce value for money,” says the report. It notes that the department is “trying to encourage new entrants to the market, and maintain interest from existing operating companies” but it has not decided how it will preserve value for money if market interest falls.

A Department for Transport spokesperson said the department welcomed the NAOs findings but was "not complacent".

They added: "We listen to passengers and recognise there are challenges to overcome. We continue working hard to address them.”

The NAO welcomed moves to improve capability and strengthen leadership in DfT’s rail franchise teams since 2013, and noted that organisational changes have resolved the problem of staff in different parts of the department working on a franchise competition.

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