Transport Secretary Justine Greening “acted unlawfully”, “irrationally” and in contravention of EU law when she awarded the £13.3bn West Coast rail contract to FirstGroup, Virgin Rail has claimed.
Virgin Rail’s legal challenge over the franchise bid focuses on three main alleged failings by Ms Greening, who it claims “breached her obligations of equal treatment, transparency and her duties to act consistently and rationally”.
Virgin Rail, which is 51pc owned by Sir Richard Branson and 49pc by Stagecoach, launched its judicial review on Tuesday, delaying the planned signing of the West Coast contract.
Its claim alleges Ms Greening departed from “the criteria set out in the invitation to tender” document and that she should have demanded more than three times the £190m “shareholder loan” FirstGroup is providing against the risk it fails to honour the contract.
The losing bidder, which has run the London-Scotland service for 15 years, also claims Ms Greening broke EU law in her refusal to explain her decision.
The claim, brought by Virgin Rail’s lawyer Herbert Smith, contends that, contrary to the tender document, Ms Greening failed to use a promised “risk adjusted view of the premium offered by the bidder”.
“On the basis of information presently available, there is no evidence that the Secretary of State undertook the relevant analysis,” the claim states.
FirstGroup offered an extra £2.3bn cash over the life of the contract, including a 20-month extension until the end of 2028, based on forecast annual revenue growth of 10.4pc versus Virgin Rail’s 8.5pc. However, most of FirstGroup’s payments are loaded to the contract’s end, increasing the risk over whether they will ever be made – and meaning Virgin Rail’s bid is largely better for the taxpayer until 2022.
Virgin Rail claims Ms Greening ignored the “considerations that she has confirmed were relevant to the decision, and has, in any event, acted unreasonably and/or committed a manifest error in her treatment of the FirstGroup bid”.
Virgin Rail also claims that if Ms Greening had assessed FirstGroup’s shareholder loan using the “same methodology” she applied to Virgin Rail’s, “she could not but have concluded that FirstGroup was required to provide a shareholder loan facility of at least £600m”.
It argues that Ms Greening unfairly “assessed FirstGroup’s bid by reference to a much less exacting standard of risk-mitigation... and has done so without any explanation or justification”.
Virgin Rail also points out that since Ms Greening announced her decision on Aug 15, she has “repeatedly” refused to answer its questions on why it lost a bid that cost the company £14m. Quoting EU case law, the claim points out that a contracting authority is required to provide “an adequate statement of reasons to unsuccessful tenderers”.
A Department for Transport spokesman said: “We will fight these claims robustly and show clearly that these allegations by Virgin and their business partners Stagecoach are ill-founded and misconceived. We expect to sign the contract soon.
FirstGroup reiterated that it had “every confidence in the DfT’s process which is rigorous, detailed and fair”.
