West Coast Main Line
(12 years ago)
Lords ChamberRead Hansard Text Read Debate Ministerial Extracts
Earl Attlee
My Lords, with the leave of the House, I would like to repeat the Statement made by my right honourable friend the Secretary of State for Transport in another place. The Statement is as follows:
“Mr Speaker, with permission I would like to make a Statement on the progress we are making to put right arrangements for the west coast main line and rail franchising.
First, I will update the House on the Laidlaw inquiry. Secondly, I will explain how we will ensure not only continuity of service on the west coast line after 9 December but an enhanced service.
On 3 October I announced the cancellation of the competition to run the intercity west coast franchise because of the discovery of unacceptable flaws in the procurement process run by the Department for Transport. I made it clear at the time, and do so again today, that this was a very regrettable decision prompted by mistakes that should never have happened. I also launched two independent inquiries, one of which has reported its interim findings to me and which I am today delivering to the House.
I asked the first inquiry, led by Centrica chief executive Sam Laidlaw, to look into what happened and why with the aim of establishing the lessons to be learnt. I also asked the second review, led by Eurostar chairman Richard Brown, to focus on any lessons to be learnt for the future rail franchising programme. I promised that both would conduct their investigations thoroughly, independently and urgently.
Given the public interest in this matter, the Laidlaw inquiry was asked to deliver an interim report to me by 26 October, and a final report by the end of November. I am grateful to the inquiry for meeting this first deadline, and working tirelessly to meet the second. I stress that today’s findings are precisely that—an interim report. There is more work to do. These findings are clearly a first stage. As Mr Laidlaw explains, they set out what went wrong, and from that basis he will now carry out further investigations into why this happened. From the start, my aim in dealing with this situation has been to be open and come forward with information for the House at the earliest opportunity. It is in that spirit that I make this Statement today. In the interests of complete transparency, I am publishing this interim report, with its provisional findings, and placing copies of it in the Libraries of both Houses.
To be blunt, these initial findings make uncomfortable reading, but they provide a necessary and welcome further step in sorting this out. The Government will need to see the full and finished report before they can comment in detail on any conclusions. This is crucial because of the independent nature of the Laidlaw inquiry and the need for the Government not to prejudge its eventual findings. But it is clear that the inquiry has identified a number of issues which confirm that my decision to cancel the franchise competition was necessary. These include a lack of transparency in the bidding process; the fact that published guidance was not complied with when bids were being processed; inconsistencies in the treatment of bidders; and confirmation of technical flaws in the model used to calculate the amount of risk capital that bidders were asked to provide to guard against the risk of default.
The Laidlaw inquiry also mentions factors,
‘that appear to have caused or contributed to the issues raised’.
We will look at these with interest and care, although once again we will need to see the final report before we can comment further.
Secondly, I would like to update the House on the progress we are making to ensure continuity of service on the west coast main line once the current franchise expires on 9 December. As I have said previously, we will ensure that passengers continue to be served by the same trains, with the same front-line staff, the same services, using the same tickets and, I am pleased to say, enhanced future timetables.
The department is making good in its discussions with Virgin on how it will operate the line for a short period of up to 14 months while a competition is run for an interim agreement. We are discussing its proposals for improved services over this period and an enhanced compensation scheme for delayed passengers. In dealing with this my department has been frank and open about its mistakes and is absolutely determined to find out exactly what happened. In the mean time, we will keep delivering for passengers and continue with the unprecedented levels of investment in trains, stations and railway lines. Combined with our decision to limit train fare rises to an average of inflation plus 1%, instead of RPI plus 3%, for the next three years, this demonstrates this Government’s total commitment to Britain’s railways”.
I commend this Statement to the House.
Lord Davies of Oldham
My Lords, from time to time the noble Earl has a moment of difficulty at the Dispatch Box, but never one of such ignominy as to have to address himself to this Statement, which has already been delivered in the other place. It is noticeable that when Ministers are in control of their departments and the departments are carrying out their policies efficiently, you often hear them refer to “my department”. I repeat part of the Statement, although the Minister has already read it out, which states,
“because of the discovery of unacceptable flaws in the procurement process run by the Department for Transport”.
How remote that body appears, given that the Secretary of State is commenting on it. Like all other Ministers, the Secretary of State wants to be as remote as he possibly can from the shambles represented by today’s Statement and the answers we have had to Parliamentary Questions in the interim period. Nothing is more indicative of the failure of the Government than for the Minister again to emphasise today the independent nature of the reports being carried out. One of them will be carried out by a member of the departmental board. I have no criticism at all of Mr Laidlaw, who I know to be an extremely independent minded, efficient and proper individual. However, to ask him to carry out an independent review not just of the board but of Ministers as well when he is a member of the board, serving those Ministers, beggars description in terms of what this Government are prepared to defend in the wake of this shambles.
I have one or two precise questions to ask the noble Earl but I want him to be absolutely clear that the way in which Ministers have set about tackling this great difficulty with which they are confronted is not acceptable, and that they will have a difficult time on every occasion when they discuss these matters in one House or the other. We now know that some indication of difficulties with regard to this process was discovered as early as May 2011, with one executive telling the Financial Times with regard to the spreadsheet analysis of the bid:
“The spreadsheet contained certain assumptions that looked odd to our economic modellers, so we went back to the department and pointed it out”.
What did the department do? It ploughed on in its reckless way. Ministers did not intervene. Is it conceivable that when these difficulties arose Ministers were not informed? What grip did they have on the department when such a significant process was undertaken? I emphasise that this is the first of a series of decisions which have to be taken on these franchises. There are many more to come. Therefore, this matter ought to have been worked on in a very real sense as the model which dictated how all the others would subsequently be analysed. However, we have Ministers purporting to be so distant from the process that they knew nothing about these difficulties until months after the relevant events occurred. In fact, action was not taken by the department but when one party decided to take the issue to the High Court the department was forced to initiate a review. I take it that at that point Ministers at last took an interest in what was going on and forced the department to analyse criticisms of the process. At that late stage it was recognised that the process was flawed and had to be brought to a halt with very considerable costs.
So far, the department has owned up to the fact that the mistake may cost £40 million. However, everyone connected with the industry knows that that is only the start of the costs. The Secretary of State may stick to his figure but we know that this is just the cost of compensating the four bidders for the west coast main line franchise. It does not include the cost of rerunning the competition twice, preparing Directly Operated Railways to step in, or compensating bidders for the other stalled franchises because many months of delay are now built into the whole process.
It is clear that the department has been advised in this process by external companies which, of course, have provided their services at a cost. What steps is the Minister taking to review whether the department received value for money for well over £1 million spent on a flawed process, the results of which had to be jettisoned?
As regards the legal advice which the department has received, what is the department’s liability if any of the participants in these cancelled or stalled franchises seek costs from the Government as a result of the delay? What advice did the Minister receive on EU competition law, procurement law and the impact on the fairness of future competitions before deciding to extend Virgin’s contract? The noble Earl has emphasised what an excellent decision it was to extend Virgin’s contract. However, there were very few alternatives. Virgin is going to run the railway for the next 14 months although it was told that it was not as good at running it as the preferred bidder, according to the evidence which was provided and on which Ministers took a decision.
This Statement is a cover not for open government at all: it is a cover for a shambles.
Earl Attlee
—although it was, not surprisingly, a little bit aggressive. However, I would have done much the same if our positions had been reversed. I agree that it is not enjoyable to have to report such serious problems to the House. However, when answering questions on this issue I have aligned myself closely with my department and I have expressed confidence in all the officials who have briefed me. I still have confidence in all the department’s officials who brief me.
The noble Lord asked about the issue of pressing on with the franchising process when there was a possibility of something being wrong. We know that serious errors were made, and this interim report spells these out. The reasons why this happened and why the department pressed on regardless will be addressed in the full reports. However, in August, officials had assured the then Ministers that the department’s process had been robust.
The noble Lord, Lord Davies, also asked me about the roles of Ministers. Before 12 September, my right honourable friend was advised by officials that potential concerns about two aspects of the franchise process had been discovered, but at that stage it was not clear that these would have made any difference to the outcome of the competition. He was advised that the right course was to continue to prepare the defence to the legal challenge. He asked that further investigations be conducted. In the later stages, from 24 September, this work was assisted by PricewaterhouseCoopers. On Tuesday 2 October, he was advised that the flaws were so significant that the competition would have to be cancelled, and he announced this on that very night.
The noble Lord also talked about delay to the whole franchising process. We will have to wait until we receive the Brown report to see what it means for franchising as a whole—and of course we will get that at the end of the year. He asked about liability as regards the various bidders in the franchising process. He would not expect me to comment on any claims for compensation.
The noble Lord’s initial point was that Brown and Laidlaw are compromised by being non-executive members of the departmental board. Sam Laidlaw has outstanding credentials to lead this review. He is a very senior business leader with a deep understanding of how big organisations work. He is the lead non-executive director across government on procurement and is familiar with the issues surrounding public procurement. As lead non-executive board member for the DfT, he has a thorough knowledge of how the department works, while remaining independent of it. The Department for Transport board was not responsible for approving the award of the intercity west coast franchise competition, and the department’s governance procedures for major contract awards did not require the board to be consulted. I refer noble Lords to paragraph 2.2 of the interim report, which adds a little more.
Lord Bradshaw
My Lords, I am not going to join the chorus of criticism. That is water under the bridge, the situation is going to cost a lot of money, and it may take a long time to resolve.
I have some experience of models, how complex they are, and how very few people actually understand what is inside them. You virtually have to have a degree in econometrics to understand them, and to some extent it is in the interests of the consultants that it should be so, because it keeps them in work. The whole issue of subordinated loans, which is connected with long franchises, means that you are asking the banks to put up a lot of money into the very distant future. We know that the banks are risk-averse and a new method must be found of covering this liability, or else it will bring all long franchises down.
I would like an assurance from the Minister that all the stalled franchises will continue good housekeeping, small investment schemes, support for community rail trusts, and all those things in the time before a new franchise procedure is launched. I warn him that it is going to take a long time, possibly two or three years, to get a viable scheme going.
Is it not better, rather than having very long franchises, to build into the franchise process a reward for delivery of excellent service, whereby each year you get something off the next bid? If you have five good years and then rebid, you may get a 5% advantage over any other bidders. That would underwrite continuity, which is appreciated by the staff and the customers.
I have one final question: will the noble Earl give attention to the large-scale orders that are imminent from rolling-stock companies? I am talking about big money. These will not go ahead unless the department gives some reassurance to the rolling-stock companies that the franchises they let are going to use the rolling stock. That is extremely important, particularly for lots of jobs in Derby and Preston.
Earl Attlee
My noble friend Lord Bradshaw made some important points but, of course, for answers to many of them we will have to wait to see what the Brown report says. However, I agree that we need to be careful to keep what is good about the current franchising system. At this stage, in advance of the report, I would not want to comment on how long it will take to get the franchising system running again. Rolling stock is of course a separate issue from the franchising problems, but he makes an important point and I will draw it to the attention of my right honourable friend the Minister of State.
Lord Martin of Springburn
My Lords, I have stated to the noble Earl previously that every week when I come down here I travel on the Virgin Pendolino and travel home the same way. I hope that the officials in his department will take into consideration that the dedicated staff who work for the company feel insecure about what is happening. They had some relief when they were told that they had extra time—14 months—but that is not all that long when you are dependent on a livelihood. To illustrate to the noble Earl how dedicated these men and women are, perhaps he remembers the flooding in Cumbria that caused subsidence. At very short notice, these good people were able to get every passenger off at Preston and bus them beyond Carlisle to make sure that they continued their journey north. That is the kind of dedicated people the staff are. We often talk in this House about people raising families and working, particularly women. Many of those who work for Virgin are young women raising families. They arrange childcare so that they can get up early in the morning to carry out their work and ensure that their families are looked after. I ask that all concerned bear in mind that there is a dedicated workforce who are entitled to consideration.
Earl Attlee
The noble Lord makes an important point about the human element of this problem. I take this opportunity to make it quite clear that the front-line staff will not be adversely affected. It will be the same staff running the trains and the same rolling stock. In the short term, passengers will not notice any difference. As I said in the Statement, we may even be able to enhance the service. However, it is important to remember that there is a human element to this problem.
Lord Snape
My Lords, will the Minister accept some sympathy from me for having to deliver that preprepared Statement? It referred to the Government having been “frank and open” about this shambles, as my noble friend on the Front Bench rightly called it. Does the Minister accept that the Government have behaved in no such way and that, up to hours before the revelations emerged as a result of the proposals for judicial review, the previous Secretary of State and her successor were assuring us all that the contract was robust and that no problems were foreseen?
I wish to press the noble Earl on the question of cost, to which my noble friend on the Front Bench referred. None of us for a moment believes that the costs will be confined to the £40 million of the existing franchise. Has the department, for example, received any communication from FirstGroup, which was previously awarded this franchise and whose share price has declined by 20% since the emergence of the fact that the system was flawed? How much does the Minister estimate this whole thing is going to cost the British taxpayer? I repeat the noble Lord’s plea that in future the front-line staff who have to operate the west coast main line be kept fully informed about what is happening.
Earl Attlee
My Lords, as for the noble Lord’s last point, the staff on the west coast main line are of course the responsibility of Virgin. I assure the House that I have repeated many political Statements, and I have done so this time again without the opportunity of editing it because I am just repeating a Statement made by my right honourable friend in another place. As to the noble Lord’s substantive point about when my right honourable friend knew that there was a problem, as soon as he was told that the problem could have affected the outcome he cancelled the award of the contract immediately.
Lord Trefgarne
My Lords, I endorse what the Minister has just said. I have no detailed knowledge of these matters, and of course I share the dismay about the very serious difficulties that have emerged. However, I ask the noble Lord, Lord Davies, for example, speaking from the opposition Front Bench as he has just done, to take a little care. What would the reaction of the then Government have been if all this had happened, say, three years ago, when they were still in office? I dare say we would have had a whole lot of dissembling, lack of transparency and flannel and not the forthright and straightforward replies which Ministers have given on this occasion and for which I believe they are to be commended. Of course it is a deeply unfortunate situation but I think that Ministers have acted as best as they can and that they are to be commended for their transparency and forthrightness on this occasion.
Earl Attlee
My Lords, I suspect that the noble Lord, Lord Davies of Oldham, is thinking: there but for the grace of God go I. In defence of the noble Lord, he had to come to this House and explain the problems at HMRC, which, frankly, I think he did.
Lord Low of Dalston
My Lords, like the noble Lord, Lord Bradshaw, who spoke earlier, I do not wish to join in any hue and cry, but does the noble Earl not agree that what has happened calls into question the wisdom of the Government’s approach to downsizing the Civil Service as a response to the economic problems that the country faces? Does he not agree that this situation might suggest that they have been going too far and too fast in this? Is it not the case that what has happened here strikes a body blow at the credibility of government processes? When next we get a statement from any department that says that it has employed the most robust processes it is possible to conceive of, who is going to believe that?
Earl Attlee
My Lords, as Sam Laidlaw has stated, these are initial views about potential contributory factors that he will continue to investigate in advance of his final report. Laidlaw has chosen not to criticise any particular individual or groups of people. Tackling the deficit and getting the public finances in order require the Government to tighten their belt like any other organisation. In doing its bit, my department made careful and well considered reductions in its headcount that were designed to save the public money while continuing to deliver on all its priorities, including rail franchises.
Lord Clark of Windermere
My Lords, I raise my point this evening in the spirit of making sure that we learn the lessons of this very serious exercise. Today, the Minister has very clearly laid out the position. He described the situation from the report as very serious. He talked about things such as technical flaws in the bids and the lack of transparency. However, these revelations contrast markedly with what we were told merely a few months ago. My question to the Minister is simply this: why were Ministers not alert to these very serious flaws in the bid, and can Sam Laidlaw, in his investigation, look at this specific aspect and report on the person who chairs the board at the Department for Transport?
Earl Attlee
My Lords, the noble Lord talked about lessons learnt. As I said, the next stage of the Laidlaw report will look at why the errors occurred and at the lessons to be learnt. The interim report is not very long and should be available in the Library. I urge noble Lords to read all of it. I read it just this afternoon, so it is not a long report. The noble Lord asked me a point-blank question. Perhaps the answer is that officials did not realise that the flaw existed or how serious it was.
Lord Stoddart of Swindon
My Lords, I have no inhibitions at all about making strong criticism of what happened over this franchise. I think it has been a complete and utter disgrace and a fiasco. Indeed, when we consider the humiliating spectacle of the Government having to go cap in hand to the very franchisee who was rejected to ask it to continue running the railway, it is clear that we have got into a very serious situation indeed. Quite frankly, I believe that this Statement smacks of complacency about the whole matter. Let us just have a look at what the interim inquiry says about it. Sam Laidlaw refers to a lack of transparency in the bidding process and the fact that published guidance was not complied with when bids were being processed. Why not? Finally, he talks of inconsistencies in the treatment of bidders, and that is the most serious of all because it smacks of corruption somewhere in the department. I am sorry to have to say it but it has to be said in the light of that particular sentence. I ask the noble Earl whether the department is now shown to be not fit for purpose. Is there going to be a root-and-branch reorganisation of the department to see that this sort of thing never happens again in relation to railways or, indeed, any other franchises in which the department might be involved?
Earl Attlee
My Lords, the noble Lord, Lord Stoddart of Swindon, talked about strong criticism and of course it is justified. Ministers are not denying that the problem is serious. The Virgin bid was not rejected; it fell victim to a better bid from FirstGroup. The noble Lord talked about inconsistency in the treatment of bids. There is no evidence of bad faith on the part of officials. As we understand it, it was purely an error. Finally, he talked about reorganisation of the department. We will have to wait to see what Sam Laidlaw says about the reasons and the lessons learnt. I will not promise that we will reorganise the department but I assure the House that we will make sure that this problem does not arise again.
Lord Stoddart of Swindon
The noble Earl said that there was nothing wrong with the process, but it was shown that everything was wrong with the process. In fact, Virgin went to the High Court because it believed that the process was wrong. Quite frankly, I believe that the noble Earl, whom I respect and like very much, is being rather complacent.
Earl Attlee
My Lords, I am certainly not being complacent; I am talking about a very serious problem.