Franchise fiasco demands procurement reform

MPs on yet another select committee, the House of Commons Transport Select Committee, have slammed public sector procurement practices and skills, this time after an investigation into the failed Intercity East Coast rail franchise (see News).

The Department for Transport (DfT) has to shoulder the blame for the collapse of the contract earlier this year after not managing the bid process effectively, say MPs. The franchise was taken away from the failed Stagecoach-Virgin joint venture – Virgin Trains East Coast (VTEC) – and placed in public sector control in June, which was the third time this franchise has failed since 2006.

Committee Chair Lillian Greenwood said: ‘The Secretary of State pointed the finger at Stagecoach and Virgin for getting their bids wrong, but the department is not blameless.’ The franchise holders were also slammed for a bid that the MPs said was naive, built on over optimistic estimates of traffic growth that would have been ‘unprecedented’ had they been achieved. Their assessment of the financial risks associated with their bid was inadequate and there was little resilience built into the bid.
The committee said the structure of the bid process encouraged overbidding and the DfT had failed to conduct appropriate due diligence that would have spotted the weaknesses of the bid. Damningly, Ms Greenwood also said: ‘Even now, there is no concrete plan, nor timescales, for the interim operator of this franchise.

‘From our inquiry, we cannot be sure, and cannot reassure passengers or public, that the arrangements for the East Coast Partnership will more successfully overcome the systemic difficulties presented by the current set-up.’

So the problems are recognised as being systemic by the transport committee; in other words incompetence in public sector procurement is institutionalised at the DfT. Unfortunately, it is not the only department that such accusations could be made against.

An air of unreality seems to hang around DfT responses to the committee’s report, as it did to their expectations of the franchise. The department insisted that it carried out a ‘rigorous assessment’ when the franchise was let in 2015, to ensure that the bid was realistic and in the best interests of taxpayers and passengers.

The department blames Stagecoach-Virgin for over optimistic assumptions. The department however was not obliged to accept those assumptions which should surely have been exposed by the rigorous assessment it claims to have carried out. ‘The department is continuously improving its risk assessment process to reduce the likelihood of overbidding,’ DfT says. Cue sounds of stable doors closing behind bolting horses.

The public sector’s reputation for managing large procurements has been in tatters for years and despite measures such as sending senior procurement managers on training courses nothing much seems to change from failed procurement to failed procurement.

At least the public purse has been spared the cost of a bailout. For the future we are promised a more appropriate approach to risk sharing and a more accountable and robust system – all of which begs the question of why this was not in place when the bids were originally assessed. A review of the rail franchising system looks to be on the cards, but the real need for reform remains public sector procurement generally.

Nick Barrett
Editor