Great Western Bidders Start Legal Action

[YorkshireBear]

As i imagine most of us expected here is the confirmation.

Four train companies have started legal proceedings against the government after it cancelled the bidding process for a rail franchise and then refused to pay compensation.

Ministers ditched bids to run the Great Western rail franchise in January, saying they wanted a rethink.

FirstGroup, Stagecoach, Arriva and National Express have gone to court in an effort to get their money back.

If they are successful, it could cost the government £40m.

When the government called off the Great Western bidding process it said it wanted to re-evaluate it following the high profile collapse of the West Coast mainline deal a few months before.

The Great Western franchise operates between south Wales and London.

Options open
I have learned that there will now be a "stay" in the legal proceedings until the end of March, giving both sides the chance to thrash out a compromise. So there is a way to go yet before this gets legally nasty.

But these companies are very angry that they will not be compensated for what they see as the government's mistakes.

Ministers are compensating bidders who lost out on that defunct West Coast deal, and that, say the rail firms, is inconsistent and unfair.

Each firm will have spent about £10m on the bidding process for the Great Western franchise, hiring large teams of experts and lawyers to put together their submissions.

Nigel Harris, the editor of Rail Magazine, says: "A refusal to refund may conform to the letter of the contract rules but utterly fails the 'right thing' test.

"It makes no sense to penalise innocent bidders - especially when you want and need them to re-bid."

I am told it does not mean the rail companies will definitely sue the Department for Transport, but it is certainly piling on some legal pressure, and giving them the option of going to court if both sides cannot agree a deal.

However, lawyer Patrick Twist at Pinsent Masons does not think it will get that far.

"By lodging papers with the High Court the bidders are keeping open their ability to pursue the Department for Transport for the costs they wasted on bidding for the cancelled Greater Western franchise procurement," he said.

"The department will strongly resist any claim and the same bidders will have the opportunity to rebid when the franchise is reprocured. So it would be surprising if this really does lead to litigation."

Further claims?
At the moment, the government does not look ready to budge.

In January, Transport Secretary Patrick McLoughlin said: "In keeping with the relevant invitations to tender, which made clear that bidders are responsible for their own costs, the secretary of state does not believe it would be appropriate to reimburse bidders."

In fact, if you wade through the Invitation to Tender (not an easy read, I grant you), this is what it actually says: "Each bidder shall be responsible for all costs, expenses and liabilities incurred by it in connection with the Great Western franchise letting process, whether or not its bid and/or associated negotiations are ultimately successful or the process is subsequently varied in any way or terminated."

It is impossible to say where all of this is heading. But if ministers do end up compensating these firms, even if it is just for a fraction of their costs, they can expect a lot of flak for the fact that yet more taxpayers' money has gone on compensation, rather than improving the trains or cutting fares.

Remember, the government has already spent £50m (and counting) cleaning up the West Coast mess.

There is also the possibility that it will open the door to claims from those companies affected by long delays to two other big franchises, Essex Thameside and Thameslink, Southern and Great Northern. Both have been postponed for a couple of years in the wake of the West Coast problems.

http://www.bbc.co.uk/news/business-21704682

 

[The Ham]

The thing is some of the costs that the bidders have spent will still be able to be reused once the franchise is put up for tender again as although passenger numbers are likely to have gone up a bit, most of the rest of it will be the same.

Same trains on the same tracks serving the same stations.

 

[Hellfire]

The Government has made it clear that, one of the conditions of bidding for the franchise was that TOCs would be responsible for their own costs whether they won, lost or if "the process is subsequently varied in any way or terminated"

Looks like they are just covering themselves rather than have any high hopes of winning a legal action. That would be construed as throwing good money after bad.

 

[tbtc]

The thing is some of the costs that the bidders have spent will still be able to be reused once the franchise is put up for tender again as although passenger numbers are likely to have gone up a bit, most of the rest of it will be the same.

Same trains on the same tracks serving the same stations.

Am glad you pointed this out - I hope that the private firms don't screw the entire "£40m" out of the Government - that's money that could buy us a few new trains etc

 

[WatcherZero]

It will probably go to arbitration and an out of court settlement for compensation. Neither side would want the court case to commence.

 

[bnm]

FirstGroup in particular will need to tread carefully. They are currently negotiating the terms of a management contract to continue running the Greater Western for two years from October 2013 when the current, already extended, franchise ends.

I saw FGW MD Mark Hopwood address the TravelWatch SouthWest meeting on 2nd March 2013. He wasn't particularly forthcoming about how the talks were going with the DfT regarding the management contract, but that is understandable I suppose. Commercial confidentiality and all that.

What I do hope is that whoever is running the Greater Western franchise (really only going to be FirstGroup or DOR) for two years from October 2013 takes that time to try out some or all of the priced options that were included in the Invitation to Tender for the now cancelled franchise. It will be an ideal opportunity to see if those options are viable propositions for the next full franchise.

 

[monty9120]

10 million pound just to put a bid in. how much money do these companies actually have

 

[Simon11]

10 million pound just to put a bid in. how much money do these companies actually have

Well, I believe the actual additional cost of bidding would be below the 10m mark. Groups like arriva and first can make use of skilled workers at their current tocs, however they would still see this as a cost for bidding.

 

[telstarbox]

Are the staff who put bids together generally in-house managers pulled off their current work, or are bid teams recruited separately for each bid?

 

[Bald Rick]

Are the staff who put bids together generally in-house managers pulled off their current work, or are bid teams recruited separately for each bid?

A bit of both.

 

[TDK]

Am glad you pointed this out - I hope that the private firms don't screw the entire "£40m" out of the Government - that's money that could buy us a few new trains etc

If it has cost £40m then the government should pay it back, if the government had not messed up th WCML bidding in the first place there would be no problem, the total cost of the whole fiasco could reach £100m. wrong and yes it could buy trains but wht should the TOCS foot the bill

 

[bnm]

but why should the TOCS foot the bill

Because they signed up to the process and one of the things they signed up to in the bid specification was:

Each bidder shall be responsible for all costs, expenses and liabilities incurred by it in connection with the Great Western franchise letting process, whether or not its bid and/or associated negotiations are ultimately successful or the process is subsequently varied in any way or terminated.

The bidders aren't being shafted by the DfT here, at least not in an illegal manner. Morally, there may be a case to answer, but the High Court doesn't resolve moral issues.

Going to court over this could be far more expensive all round. All the legal costs could make that £40 million seem like chicken feed. And, whilst unlikely that it reaches judgement and the DfT loses, if it does, this could see further legal machinations and cost to the taxpayer. Essex Thameside and Thameslink Southern Great Northern bidders could launch legal challenges as well, to recover their costs incurred following the delay to those franchise awards.

A negotiated settlement is the way to go.

 

[WatcherZero]

Are the staff who put bids together generally in-house managers pulled off their current work, or are bid teams recruited separately for each bid?

The main expense is usually hiring 'Franchising experts', consultants who just go from franchise bid team to franchise bid team on huge temporary contracts. Experience of previous bids is highly valued by the companies and their treated like proffessional footballers.

 

[ChiefPlanner]

Am glad you pointed this out - I hope that the private firms don't screw the entire "£40m" out of the Government - that's money that could buy us a few new trains etc

Around 30 carriages worth (give or take a few)
--- old post above --- --- new post below ---

The main expense is usually hiring 'Franchising experts', consultants who just go from franchise bid team to franchise bid team on huge temporary contracts. Experience of previous bids is highly valued by the companies and their treated like proffessional footballers.

As Baldrick said - quite a lot of work is done by the in - house team (often working stupid hours as they still have the day job to do) - much of the number crunching and analysis is done by "externals" (who also do stupid hours) - not , by any means in the footballer or City banker payscale league.

NR likewise have to check on any timetable and performance issues - none of which to my knowledge is done per premium rates ....

 

[WatcherZero]

Quite a few with 6 figure salaries, theres even a certain franchise 'wizard' who has a 7 figure salary but I cant name them.

 

[swj99]

I'm not sure why 4 train companies are attempting to claim compensation. Even if it turned out some compensation was due, it wouldn't necessarily be to all 4 companies.
Am I right in saying there would have only been 1 winning bidder anyway ? And if so, 3 companies who had also incurred expenses in the course of putting their bids together would have effectively wasted the money. So what would be the point of the legal action be ? Surely it wouldn't be to ask a court to determine who would have won if the government hadn't cancelled the bidding process, because we all know that already.

 

[bnm]

Surely it wouldn't be to ask a court to determine who would have won if the government hadn't cancelled the bidding process, because we all know that already.

Pray tell who that winner was going to be. What would be the point of the process if we all knew who was going to win? I've no idea who was going to win. Am I alone?

I did bet on one of the bidders (got odds of 7-1) but that doesn't mean I knew they were going to win. If everybody knew who was going to win William Hill wouldn't have offered me odds. My stake has been refunded, but I'll probably bet on the same company if they bid again.

 

[sidmouth]

I'm not sure why 4 train companies are attempting to claim compensation. Even if it turned out some compensation was due, it wouldn't necessarily be to all 4 companies.

If you bet on a horse and it lost, or you bought a lottery ticket and your numbers didn't come up then you wouldn't feel aggrieved. You knew the odds and you lost - such is life. However, how would you feel if the horse race or the lottery draw was cancelled and you weren't refunded your bet or lottery money? You would want your stake back, well I would! Why should the TOCs be any different?

Re a court case: it might not matter what weasel words DfT put into their bid documents if a court thought they were unreasonable. Also, normally the bid money (£10m per TOC per bid) is always eventually paid back by the taxpayer at the end of the day as any TOC would normally recover their costs within an inflated bid price. Ie if they thought they had a 3 to 1 odds of winning then they must allow £30m within each of their bids to recover their costs (there is no such thing as a free lunch). However, this doesn't work if the bid process itself is cancelled, and hence why it might appear reasonable for the TOCs to recover their costs through the courts.

 

[thelongestroad]

Pray tell who that winner was going to be. What would be the point of the process if we all knew who was going to win? I've no idea who was going to win. Am I alone?

I did bet on one of the bidders (got odds of 7-1) but that doesn't mean I knew they were going to win. If everybody knew who was going to win William Hill wouldn't have offered me odds. My stake has been refunded, but I'll probably bet on the same company if they bid again.

I'm curious to know who you bet on. Will you spill? Or PM me if you'd prefer!

 

[HowardGWR]

I'm not sure why 4 train companies are attempting to claim compensation. Even if it turned out some compensation was due, it wouldn't necessarily be to all 4 companies.
Am I right in saying there would have only been 1 winning bidder anyway ? And if so, 3 companies who had also incurred expenses in the course of putting their bids together would have effectively wasted the money. So what would be the point of the legal action be ? Surely it wouldn't be to ask a court to determine who would have won if the government hadn't cancelled the bidding process, because we all know that already.

I believe their case will rest on the fact that the clause setting out that they were responsible for their own costs will not preclude them saying that the Government had effectively set aside that clause by cancelling the competition, and as no one knows who would have lost, then they are all equally entitled to compensation. In other words the terms of the bidding contract did not allow the Government to cancel it without redress. The question for the Court, I assume, will be whether what I describe as a 'bidding contract' was a legal contract. Additionally, the fact that the Government already paid out both Virgin and First for precisely the same reason will not be unimportant either, in terms of precedent, even though in that case, a winner had been announced.

 

[route:oxford]

If you bet on a horse and it lost, or you bought a lottery ticket and your numbers didn't come up then you wouldn't feel aggrieved. You knew the odds and you lost - such is life. However, how would you feel if the horse race or the lottery draw was cancelled and you weren't refunded your bet or lottery money? You would want your stake back, well I would! Why should the TOCs be any different?

You would expect your stake back, but you wouldn't expect to get the cost of your drive to the bookies or parking charges back.

 

[gimmea50anyday]

Consequential loss could be argued...

 

[kieron]

I don't think it would be a good thing if, before the government asked for bids to do something, it first had to give a binding commitment that it would allow an outside organisation do that specific thing.

If there is no such commitment, then the bidders have simply been unlucky in this particular contest.

I don't remember if FWC had a stronger claim, or just a higher profile.

 

[martybabes]

Bids are usually submitted entirely at the bidders' own risk, and they do so knowing full well that the costs of putting the bid together are covered by the profits they expect to make in winning the contract. The losers have to recoup their expenses in other ways, and not by suing the client especially if the pre-contract Ts and Cs say that the process may be terminated at any time. The bidders enter into these tender terms with their eyes fully open.

In the normal course of events, and for any non-lawyers who may be reading this, the essential components necessary for there to be a formal contract will be in place when the client accepts the bid of the contractor submitting the winning tender. Up until that point, there is no legally enforceable relationship between any of the parties, and this is especially so when the tender documents EXPRESSLY SAY SO!!!

 

[Wolfie]

It will probably go to arbitration and an out of court settlement for compensation. Neither side would want the court case to commence.

I suspect you are not too far wrong about an out of court settlement, if one can be agreed. The Telegraph suggests that too.

http://www.telegraph.co.uk/finance/...ail-bidders-sue-government-for-bid-costs.html