First win Intercity West Coast franchise

[HH]

Ok but surely the legal documents are those filed by virgin so of course they are going to claim a JR is needed.

Here's what the ITT said, "The Department will assess the risk to delivery of overall business performance and the Department's objectives for the InterCity West Coast franchise... Evidence of the deliverability of projected revenues and costs will be used to inform the Department's risk adjusted view of the premium offered by the Bidder and which it will use in the assessment of the financial risk of the bid."
(VT's underlining as part of its claim)

Based on what we know I cannot see that DfT followed this process.

 

[LNW-GW Joint]

I don't know if this has been posted elsewhere, but the DfT has now allocated the new ministerial responsibilities. http://www.dft.gov.uk/ministers
Patrick McLoughlin gets strategy including high speed rail policy
Simon Burns gets rail strategy (including fares policy) and HS2
Norman Baker gets the practical end of rail (eg commercial and performance), light rail, regional and major projects (eg Northern Hub, I think)
Stephen Hammond gets roads, freight, London and Crossrail

By the sound of it Simon Burns owns the rail franchising process, while Norman Baker will carry it out.

 

[HH]

The most likely outcome in my mind, should that happen, will be a new ITT under new rules that comply with whatever the judge finds is wrong with the current process. During that time, DOR will take over on a not-for-profit basis, accompanied by more tub-thumping from an aggrieved Virgin boss.

I would think that the most likely outcome is that the judge orders a re-evaluation of the financial aspects of the bid. However the devil would be in the detail.

However you measure risk there is a large degree of subjectivity. The judge could accept VT's view of it, or it could agree with DfT; it could agree with neither. Precisely how you view a number of key risks you would come up with significantly different values of the riskiness of First's bid - or VT's.

In the early year's VT's bid is the riskier of the two; I would point out in particular the growth in Premium from 14/15 to 16/17. This is huge in percentage terms - bigger relatively than First's increases at the end of the franchise (because on a much lower revenue base). An independent reviewer might decide that both First's and VT's bids were far riskier than the DfT thought.

 

[Zoe]

The most likely outcome in my mind, should that happen, will be a new ITT under new rules that comply with whatever the judge finds is wrong with the current process. During that time, DOR will take over on a not-for-profit basis, accompanied by more tub-thumping from an aggrieved Virgin boss.

Can they just issue a new ITT to First and Virgin though? I expect SNCF/Keolis and Abellio would have something to say about that. Also if they have to ask for expressions of interest before issueing the new ITT then I expect the likes of DB would want to join in. It does not seem clear exactly which stage the process would have to go back to if the it does get declared null and void. Regardless of the ruling though, there is the possibilty it could end up going to the Court of Appeal and the Supreme Court before the franchise can be signed or any retender process started.

 

[tbtc]

My reading of the franchise process was that it wasn't about which bid was more/less risky, all that matters is that your bid passes the risk threshold.

The least risky thing would be to do nothing (no new trains, no new services, stagnation) - clearly that's not what anyone wants though!

 

[DarloRich]

Can they just issue a new ITT to First and Virgin though? I expect SNCF/Keolis and Abellio would have something to say about that. Also if they have to ask for expressions of interest before issueing the new ITT then I expect the likes of DB would want to join in. It does not seem clear exactly which stage the process would have to go back to if the it does get declared null and void. Regardless of the ruling though, there is the possibilty it could end up going to the Court of Appeal and the Supreme Court before the franchise can be signed or any retender process started.

I think they have to do the whole franchising/tendering operation again

 

[Eagle]

I think they have to do the whole franchising/tendering operation again

Indeed, because otherwise it would be tantamount to saying "the whole decision has been nullified (except for the bits where we discounted Keolis and Abellio and Arriva)".

 

[Zoe]

Indeed, because otherwise it would be tantamount to saying "the whole decision has been nullified (except for the bits where we discounted Keolis and Abellio and Arriva)".

Would this make the shortlist (announced back in March 2011) null and void though or would that count as a separate process. If a new ITT was issued to the companies shortlisted then DB/Arriva would be excluded.

 

[Oswyntail]

Here's what the ITT said, "The Department will assess the risk to delivery of overall business performance and the Department's objectives for the InterCity West Coast franchise... Evidence of the deliverability of projected revenues and costs will be used to inform the Department's risk adjusted view of the premium offered by the Bidder and which it will use in the assessment of the financial risk of the bid."
(VT's underlining as part of its claim)

Based on what we know I cannot see that DfT followed this process.

Nowhere in that section does it say that DfT has to go with the bid that carries least risk. The simple question, even in the light of that paragraph, is "Do the benefits outweigh the risks?". Anyone who has ever assessed an ITT knows that that is the process, unless it is specifically stated that Factor A carries more weight than Factor B. If that section is what Virgin are basing their appeal on, it suggests they simply didn't get the balance right.

 

[HH]

Nowhere in that section does it say that DfT has to go with the bid that carries least risk. The simple question, even in the light of that paragraph, is "Do the benefits outweigh the risks?". Anyone who has ever assessed an ITT knows that that is the process, unless it is specifically stated that Factor A carries more weight than Factor B. If that section is what Virgin are basing their appeal on, it suggests they simply didn't get the balance right.

You're saying what the DfT does. VT's claim is based on what DfT should do, based on what the ITT says. This is that DfT will "risk adjust" the premium and that this would be used in the "assessment of the financial risk of the bid".

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

I think they have to do the whole franchising/tendering operation again

Not at all. It very much depends on what the Judge says. I honestly doubt whether he/she would order that the whole process to be repeated unless the decision was that the whole process, as opposed to merely the assessment of risk, say, was flawed.

 

[DarloRich]

Would this make the shortlist (announced back in March 2011) null and void though or would that count as a separate process. If a new ITT was issued to the companies shortlisted then DB/Arriva would be excluded.

I don’t see how it could stand as a separate process. I think if the tender exercise is declared void the whole thing must surely be re rerun from the beginning.

I suppose the judge could say that the tender up to the selection of the final two bidders was ok meaning that the DFT would only have to look at the selection criteria between Virgin & First change the criteria and select a new winner. However I think the judge would have little choice but to declare the whole thing void and start again if he finds anything wrong with the process. If that does happen we have an interesting question as to the future of rail franchising!
--- old post above --- --- new post below ---
in thinking about it a bit more HH has beaten me to the punch!

 

[Pugwash]

I don't know if this has been posted elsewhere, but the DfT has now allocated the new ministerial responsibilities. http://www.dft.gov.uk/ministers
Patrick McLoughlin gets strategy including high speed rail policy
Simon Burns gets rail strategy (including fares policy) and HS2
Norman Baker gets the practical end of rail (eg commercial and performance), light rail, regional and major projects (eg Northern Hub, I think)
Stephen Hammond gets roads, freight, London and Crossrail

By the sound of it Simon Burns owns the rail franchising process, while Norman Baker will carry it out.

Simon Burns is completely useless, I expect a cock up.

 

[Zoe]

I suppose the judge could say that the tender up to the selection of the final two bidders was ok meaning that the DFT would only have to look at the selection criteria between Virgin & First change the criteria and select a new winner. However I think the judge would have little choice but to declare the whole thing void and start again if he finds anything wrong with the process. If that does happen we have an interesting question as to the future of rail franchising!

The shortlist I was referring to was announced in March 2011 and included Abellio, First, SNCF/Keolis and Virgin. The ITT hadn't been issued at that time, the DfT just invited expressions of interest. If they can't just invite First and Virgin to bid then it's possible they could issue a new ITT to all four bidders without having ask for expressions of interest again.
--- old post above --- --- new post below ---

Not at all. It very much depends on what the Judge says. I honestly doubt whether he/she would order that the whole process to be repeated unless the decision was that the whole process, as opposed to merely the assessment of risk, say, was flawed.

So is there any chance the judgement could result in First's bid getting disqualified and the franchise automatically going to Virgin as the highest qualified bidder?

 

[Eagle]

So is there any chance the judgement could result in First's bid getting disqualified and the franchise automatically going to Virgin as the highest qualified bidder?

Unlikely. The judge is meant to be reviewing the process, not the bids themselves.

 

[eastdyke]

Unlikely. The judge is meant to be reviewing the process, not the bids themselves.

Indeed.

It is now so long since this all kicked off that it might be opportune to remind ourselves of the JR process, including the various possible outcomes and appeals that could be made along the way.

Public Law Project Information:

http://www.publiclawproject.org.uk/downloads/WhatIsJR.pdf

DOR could be in for quite a stretch.

 

[Zoe]

Unlikely. The judge is meant to be reviewing the process, not the bids themselves.

Yes but if the judgement finds the process flawed, couldn't that result in the possibility of the DfT having to review First's bid and disqualifying it as not deliverable?

 

[Eagle]

Yes but if the judgement finds the process flawed, couldn't that result in the possibility of the DfT having to review First's bid and disqualifying it as not deliverable?

Yes, but that would be the DfT eliminating First (as part of a new process), and not the judge's decision.

 

[Zoe]

Yes, but that would be the DfT eliminating First (as part of a new process), and not the judge's decision.

I was not saying the judge would decide, sorry if my wording implied that. I was just asking if as a result of the decision, the franchise could just be automatically awarded to Virgin (by the DfT) should they end up disqualifying First's bid without any retender? If so then it would save time. Worst possible case seems to be this going all the way to the Supreme Court and then the DfT running a full retender starting from the expressions of interest stage.

 

[Oswyntail]

You're saying what the DfT does. VT's claim is based on what DfT should do, based on what the ITT says. This is that DfT will "risk adjust" the premium and that this would be used in the "assessment of the financial risk of the bid"....

But, from what I could see, there is nothing that says DfT must accept the least risk. There could be factors that outweigh risk.

Evidence of the deliverability of projected revenues and costs will be used to inform the Department's risk adjusted view of the premium offered by the Bidder and which it will use in the assessment of the financial risk of the bid.

Does the evidence "inform" the assessment? Yes. Is that evidence used in the assessment of financial risk? Yes. But only if the financial risk is the sole criterion for or against acceptance does that section become critical.

 

[dosxuk]

I was just asking if as a result of the decision, the franchise could just be automatically awarded to Virgin (by the DfT) should they end up disqualifying First's bid without any retender? If so then it would save time.

If this happened, it would trigger an immediate (and probably successful) legal challenge by First, done on the basis that their bid was based on the criteria that the DfT initially used, and discussions that they had with the DfT at that time.

If the criteria for deciding the winner of a contest are altered after the submissions to that contest, the only fair way of deciding a winner is to scrap the submissions and start again.

 

[jon0844]

Surely the tax payer (i.e. the DfT) would also be forced to refund everyone who bid? Some spent millions organising their bid and effectively had no chance of winning because there was no actual winner.

I do expect that if anything was found to be wrong, the whole thing will be voided and start over with the new criteria. Which Virgin might very well lose. Virgin expects to just win by default (not going to happen, even if Joe Public will back Virgin and expect that if no new company wins, Virgin just carries on) or somehow win next time because they kicked up the fuss and so should be chosen over any other bid no matter what; on the basis that every other bid carries risk but they are, somehow, 100% safe.

Again, Joe Public trusts Virgin and will back them over any degree of common sense or playing by the rules. In fact, they'd sooner not have a bidding process at all and just say Virgin runs things well, so why fix what isn't broken?

 

[HH]

But, from what I could see, there is nothing that says DfT must accept the least risk.

That's not the point. They didn't risk adjust the premiums. If their process says that they should, and they didn't, then they didn't follow their process. Which is one of VT's claims.

This is probably because they replaced the risk adjustment with the solvency test. It seems however that they forgot to remove the relevant clause from the ITT. 'Forgot' isn't an excuse in Law. DfT have therefore got their work cut out to defend this point.

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

Surely the tax payer (i.e. the DfT) would also be forced to refund everyone who bid? Some spent millions organising their bid and effectively had no chance of winning because there was no actual winner.

I agree, which is partly why I don't think a rebid will happen unless there is no other choice. Whether there is or not will depend on what grounds the Judge decides for VT. He might throw out most of the claim except one part; indeed this is the most likely outcome.

A re-marking, a different level of parent guarantee, even a new winner based on a risk adjusted premium, do not require a re-bid.

 

[Zoe]

So it is indeed a possibility that as a result of the judgement, the DfT could simply look at the bids again and by using the correct procedure award the franchise to Virgin.

 

[tbtc]

So it is indeed a possibility that as a result of the judgement, the DfT could simply look at the bids again and by using the correct procedure award the franchise to Virgin.

Or, since First appear to have had the better bid (albeit riskier), just award it to First but with a larger "bond" to cover the appropriate level of risk?

 

[HH]

So it is indeed a possibility that as a result of the judgement, the DfT could simply look at the bids again and by using the correct procedure award the franchise to Virgin.

As I read it, if it 'risk adjusts' the Premiums enough then VT could win it; or SNCF, or even Abellio. If we look at DfT's value of Risk (and allegedly First's, although IMO the chances that they came up with the same number as DfT are somewhere between slim and none) and VT's we can see that you can easily arrive at significantly different numbers - this is because the result will depend on the key assumptions in the input. This is where the weakness of this claim lies - as long as the DfT's view is reasonable then the Judge cannot rule for VT. However, if they didn't use an expert, and VT can show that several come up with much larger numbers for risk, then things would be different.

Or this could result in the parent company guarantee being increased to a level which First cannot or are not willing to provide; but then that might happen to VT too. That they would like to present First's bid as the only one that is risky, is not borne out by the facts. While First's bid is risky in the long run, VT's is risky early on - the massive increase in Premium between 14/15 and 16/17 could see them handing back the keys earlier.

Deliverability is not an issue, since that refers to the "quality" scoring of the plans, which VT has not challenged. The only way that this would come into play was if First's bid was reduced sufficiently in relation to VT that the quality hurdles came into play, and not the first one, or probably the second either (10% and 5% difference respectively). Just to put this into context, if the result was that First's number was risk adjusted by £600m (which is what VT suggested was correct) and VT's by £40m (oddly enough VT seem happy with this DfT number), this would still leave VT's far enough behind First's that the Deliverability scores didn't come into play.

 

[spyontheinside]

The preliminary hearing happened yesterday (28th SEP). No real news, oddly, the DFT submitted their side of the case on the deadline and no earlier, they have'nt at this stage counted VT's claim(s) in their defensive case. The next hearing will take place on Monday Oct 15th. The DFT are fast tracking this review, so the next hearing will be both the judge hearing the information from all 3 parties involved AND reviewing the case (if there is one).

Strange as they are doing this all on the same day.

Anyway, thought i'd keep this thread updated with whats happening..

Obviously I could'nt possibly say, but if I was a betting man, I would not be betting that VT retains this franchise.

 

[3141]

Thanks for that information. So a little earlier we were hearing that the legal documents and the reaction to them in the "corridors of power" were suggesting there is a case to answer, and by inference that it might go against the DfT, and now we have another apparently well-informed view that the outcome is unlikely to result in Virgin retaining the franchise.

It emphasises how speculative most of the discussion is. What DfT might have to do, in the event of the JR finding against them, depends very much on exactly what the judge concludes. It could lead to some very interesting situations, or it could be an anti-climax.

It is possible for the judge to (1) conclude that there is a case to answer, and then (2) consider the case immediately, though I think it's for him to decide the procedure and not because the DfT is "fast-tracking" it. In order to do the first of those he will have had to read through all the relevant papers (a massive task!) and grasp the arguments (even more massive), so it makes sense to proceed with the case itself while everything is at the front of everyone's mind and all the relevant people are there.

Reading the judge's conclusions and why he reached them is going to be fascinating.

Meanwhile I'm sure the DfT is studying this thread carefully and making sure its lawyers are following up all the suggestions.

 

[Sheepshead]

The preliminary hearing happened yesterday (28th SEP). No real news, oddly, the DFT submitted their side of the case on the deadline and no earlier, they have'nt at this stage counted VT's claim(s) in their defensive case. The next hearing will take place on Monday Oct 15th. The DFT are fast tracking this review, so the next hearing will be both the judge hearing the information from all 3 parties involved AND reviewing the case (if there is one).

Strange as they are doing this all on the same day.

Anyway, thought i'd keep this thread updated with whats happening..

Obviously I could'nt possibly say, but if I was a betting man, I would not be betting that VT retains this franchise.

Having read most of these posts, it is clear that none of us really know how it will turn out, including myself. we will all find out in the fullness of time.

 

[jon0844]

Can Virgin make repeated appeals to delay things further? Or start another petition to rile the general public and make things even more difficult..?

Perhaps Virgin will want to get people out on the streets to protest, or chain themselves to the trains...

 

[Zoe]

Can Virgin make repeated appeals to delay things further? Or start another petition to rile the general public and make things even more difficult..?

There's the Court of Appeal and then the Supreme Court. Back in 1991/1992 TSW went to court over the ITC decision to award the ITV franchise to Westcountry. This ended up going to the Court of Appeal and then the House of Lords. The Surpeme Court has now taken over the judicial role of the House of Lords. At least no-one likely to go to the European Court of Human Rights over Virgin not running the trains.