Public Accounts C'ee criticises DfT over train procurement

[snowball]

Public Accounts Committee press release with links to report

Guardian news report

Two fleets of trains ordered for £10.5bn by inexperienced officials at the Department for Transport have put taxpayers’ money at risk, sown confusion in the rail industry and could mean higher fares, a report from MPs claims.

The public accounts committee said the DfT’s uncertain procurement process, which ended with contracts awarded two and a half years late, could have seen the government “badly ripped off”.

The department paid a Hitachi-led consortium £7.7bn to provide and maintain Intercity Express trains, which will into service on the East Coast and Great Western lines from 2016. Siemens won a £2.8bn contract to provide trains for the enhanced Thameslink network, which goes into operation from 2017.

Margaret Hodge, who chairs the committee, said the department’s decision to buy the trains itself had left the taxpayer bearing all the risk.

“The department has no previous experience of running a procurement of this kind, let alone two with a combined value of £10.5bn,” she said.

“Yet it has chosen to break with its previous approach of leaving it to rolling stock companies and train operators to buy trains, transferring risk away from the rail industry back to government. If passenger forecasts are wrong and fewer new trains are needed, taxpayers will have to pick up the bill.

“The only way the department can limit this risk is by requiring train operating companies to use these new trains to run their services regardless of whether they best fit the services they would like to offer.

“We are concerned that the department did not appear to have looked at whether there were better ways of achieving its objectives.”

The report finds the Intercity Express programme was poorly managed and could have cost billions more without a review in 2010, after Hitachi had already secured the work. The manufacturer submitted a bid 38% cheaper than its original offer.

Hodge said: “Had it not been for the review the taxpayer could have been badly ripped off. The department had begun the procurement without a clear idea of how many trains would be needed, which routes they would run on and what form of power would be required.”

 

[Tetchytyke]

I think that pretty much sums up just how much of a Horlicks DafT made of the Insanely Expensive Project.

 

[thealexweb]

If the Daft is paying this money, who owns the trains once constructed. Is Hitachi acting as a leasing company or are they stated owned?

 

[NSEFAN]

Agility Trains would surely own the rolling stock? Weren't they created by the DfT specifically for the procurement of IEP?

 

[LNW-GW Joint]

It's a PFI contract. Agility (Hitachi and its banks) own the trains.
They will sell "diagrams" to the TOCs (GW and EC), at a price agreed by the DfT for a period of 27.5 years.
The diagram cost includes service depots and maintenance by Hitachi.

 

[ComUtoR]

It's a PFI contract. Agility (Hitachi and its banks) own the trains.
They will sell "diagrams" to the TOCs (GW and EC), at a price agreed by the DfT for a period of 27.5 years.
The diagram cost includes service depots and maintenance by Hitachi.

I've never understood PFI's can you please break it down in simple terms for us less than clear about how it works.


DfT pay Agility 10bn (what did they buy ?)
Agility charge the TOC (who gets that money)

Will the DfT get the money back ?

 

[LNW-GW Joint]

I've never understood PFI's can you please break it down in simple terms for us less than clear about how it works.
DfT pay Agility 10bn (what did they buy ?)
Agility charge the TOC (who gets that money)
Will the DfT get the money back ?

Well, this PFI contract is not that different to how Pendolinos are contracted by Virgin from Alstom/Angel (which had a 15 year contract initially).
You simply pay as you go, but the cost is more than just the lease cost of the trains as it includes depots and maintenance, and funding costs.

DfT has not actually paid Hitachi/Agility anything to build the trains.
But they have signed up the TOCs to a long-term contract (27.5 years) which commits them to pay an agreed per-diagram figure for each train in their fleet.
VTEC and FGW will pay that price throughout the contract life.
The risk for DfT is that the TOCs will not fill the trains, which will mean lower franchise premiums paid to DfT (as costs are fixed at a high level).
DfT has paid for the introduction cost of the trains (route clearance by Network Rail, procurement costs like consultancy etc).

 

[billio]

Well, this PFI contract is not that different to how Pendolinos are contracted by Virgin from Alstom/Angel (which had a 15 year contract initially).
You simply pay as you go, but the cost is more than just the lease cost of the trains as it includes depots and maintenance, and funding costs.

DfT has not actually paid Hitachi/Agility anything to build the trains.
... .

According to the extract from the Public Accounts Committee at the start of this thread, the PAC states DfT has paid Hitachi £7.7bn. What is this for exactly ?.

 

[ComUtoR]

Still a little confused.

I get the whole pay as you go scheme and see how that benefits both the TOC and Aglility. I just don't see where the 10bn factors into it. Its is a lot of money for nothing tangible and zero return.

Who would have paid for the route clearance etc ? If the goverment (DfT) is paying the goverment (NR) then isn't it just a reshuffle of money ?

 

[NSEFAN]

Ultimately the British public would need to pay for new trains, either through higher fares -> TOC -> ROSCO, or through taxation -> DfT -> ROSCO. I suppose the difference is that if the new trains are poorly specified, it is the DfT's fault in this case and not the TOC's fault "as per usual"?

 

[Tetchytyke]

According to the extract from the Public Accounts Committee at the start of this thread, the PAC states DfT has paid Hitachi £7.7bn. What is this for exactly ?.

It's all circular money.

DafT haven't paid anything to Agility Trains up front. They have contracted with Agility Trains to underwrite the cost of the trains, maintenance and depots, and have agreed how much the TOCs who use the trains will pay for each completed diagram.

They have forced the trains on to the winners of the East Coast and Great Western franchises, who will pay the agreed money to Agility Trains.

The cost of the contract will be £7.7bn (at today's prices), spread out over the length of the contract.

Or, in layman's terms: you know the "buy now pay weekly " deals that BrightHouse offer on plasma TVs? That.

 

[LNW-GW Joint]

According to the extract from the Public Accounts Committee at the start of this thread, the PAC states DfT has paid Hitachi £7.7bn. What is this for exactly ?.

I don't think this is true.
They have undertaken that the TOCs will pay this sum over the contract term (a guarantee if you like).

Still a little confused.
I get the whole pay as you go scheme and see how that benefits both the TOC and Aglility. I just don't see where the 10bn factors into it. Its is a lot of money for nothing tangible and zero return.
Who would have paid for the route clearance etc ? If the goverment (DfT) is paying the goverment (NR) then isn't it just a reshuffle of money ?

NR does the route clearance.
The cost of this is in the 5-year CP4/5 plans which is how the government funds NR.
The cost of negotiating the contract (legal, technical, commercial) is down to the DfT directly - it would be a big figure.

This is the text from the PAC report (my emboldening):

The Department awarded two large contracts to private sector consortia to supply,
finance and maintain new trains for Intercity Express and Thameslink with a
combined cost of around £10.5 billion, which will be paid by train operators.

 

[ComUtoR]

Soooooooo...

The DfT hasn't paid anything. They have promised, on behalf of the TOC's that Agility gets a (guaranteed) 10bn IF Agility delivers on its promises to maintain the trains etc.

Agility is happy because they have a revenue stream and can factor it in to their coffers.

TOC's paying to fix their own trains has always creeped me out. Is it safe to assume this is much more of a rental cost from the TOC's perspective and their responsibility is just to deliver the service and everything to do with the train (upgrades, inspections, maintenance, servicing etc.) is done by Agility or will it still require the TOC to have a maintenance depot and service and fix the units ?

Cheers for your answers.

 

[LNW-GW Joint]

Soooooooo...
The DfT hasn't paid anything. They have promised, on behalf of the TOC's that Agility gets a (guaranteed) 10bn IF Agility delivers on its promises to maintain the trains etc.
Agility is happy because they have a revenue stream and can factor it in to their coffers.
TOC's paying to fix their own trains has always creeped me out. Is it safe to assume this is much more of a rental cost from the TOC's perspective and their responsibility is just to deliver the service and everything to do with the train (upgrades, inspections, maintenance, servicing etc.) is done by Agility or will it still require the TOC to have a maintenance depot and service and fix the units ?

Yes, that's it. The point about the "diagrams" is that Hitachi guarantees the availability of the train (ie they take the risk of breakdowns/faults, and wheel out a spare).
The TOCs won't need depots for anything.
What happens if they want to upgrade the interiors I don't know!

The £10.5bn covers both fleets (IEP 800s and Thameslink 700s).

 

[Tetchytyke]

will it still require the TOC to have a maintenance depot and service and fix the units ?

Agility Trains will carry out the maintenance.

What happens to existing maintenance staff at places like Bounds Green, I don't know.

 

[BananaRepublic]

Agility give the cost of IEP fleet of SET's as £5.6 billion.

The contract details includes overhauls and refurbishment throughout the 27.5 year term.



--- old post above --- --- new post below ---

Agility Trains will carry out the maintenance.

Agility provide the trains, but it's Hitachi (as part of Agility) who provide the maintenance.

 

[higthomas]

If inflation were to skyrocket, which I can't see happening any time soon, but 27.5 years is a long time, would they end up getting some very cheap train diagrams towards the back end of the deal?

Forgive me for any lack of understanding.

 

[ComUtoR]

What happens to existing maintenance staff at places like Bounds Green, I don't know.

I spoke with a Fitter at Thameslink a few months back and he was not confident about keeping his job but said there was opportunities to move. Removing staff costs are never pleasant but reduction of costs should bring ticket prices down....(I know)

I have also spoken in the past with a Senior Manager at SE, The Delay attribution was huge for Fleet but minimal for Operations. I can see a cost benefit to the TOC if they have a single price and Fleet delay minutes getting passed to Agility.

I'm not seeing any negatives and no doubt I'm missing something. PFI's are alleged to have ruined the NHS So maybe that why its such a big headline.

 

[MCR247]

If inflation were to skyrocket, which I can't see happening any time soon, but 27.5 years is a long time, would they end up getting some very cheap train diagrams towards the back end of the deal?

Forgive me for any lack of understanding.

I doubt it. I imagine that it is stated in the contract that thepayments will be adjusted for inflation. It wouldn't be very smart if it (or something else ensuring the above scenario doesn't occur) wasn't

 

[Tetchytyke]

PFI is the governmental equivalent of sticking it all on the credit card and hoping for the best. Get a good fixed interest rate and you'll be OK, but if you don't you'll end up paying through the nose. That's what's happened in the NHS and also with the collapse of Metronet on the Underground.

For technology like trains I can see the appeal of this sort of contract, providing the price is right. I'm sceptical whether it is good value- the fact Hitachi's "best offer" was reduced by £3bn is very fishy. I would doubt that it is cheaper than buying the trains outright and maintaining them in-house, but "buy now pay later" is very tempting for politicians.

 

[WatcherZero]

Thing is the thing PAC was most worried about in this report was the risk that the Government had over ordered from Siemens and Hitachi and would be locked into the order numbers. Do any of us seriously believe that over ordering is a serious risk or that another use could not be found if they had ordered too many for these lines, considering the present situation where the amount of off lease trains could be counted on your fingers.

 

[67018]

Thing is the thing PAC was most worried about in this report was the risk that the Government had over ordered from Siemens and Hitachi and would be locked into the order numbers. Do any of us seriously believe that over ordering is a serious risk or that another use could not be found if they had ordered too many for these lines, considering the present situation where the amount of off lease trains could be counted on your fingers.

Is this the first thread in living memory that raises concerns complaints about *too much* stock?!

It is, I suppose, a real risk if passenger growth slows down or even goes into reverse - but if that happens there are going to be a whole lot of other projects that end up as white elephants. And it's not a scenario that anyone seems to think is very likely.

 

[Geezertronic]

I am sure there will be plenty of other locations across the UK network where this stock could run so it's not as if they would sit mothballed in a siding somewhere if the numbers were not as expected (XC for example)

 

[LNW-GW Joint]

I am sure there will be plenty of other locations across the UK network where this stock could run so it's not as if they would sit mothballed in a siding somewhere if the numbers were not as expected (XC for example)

Yes but the trouble is you need to fill IEPs at fares sufficient to pay the high fleet costs.
Traditionally, XC wouldn't be able to afford it (which is the main reason they remain with short trains).
Although in the latest subsidy figures they are almost at break even, which is a lot better than it used to be.

 

[Flamingo]

PFI alsow allows the private company to refinance, saving a shedload but sticking the taxpayer with the original cost.

And by the way, ANY variation on the original contract costs a small fortune to implement. JTwentyseven years is a long time to keep a contract without requiring some variation, especially on a new product.