Public Accounts Committee Report on ICWC

[HH]

Found here.

Note PDF for downloading.

The most scathing inditement so far.

 

[HH]

Here's the Conclusions and recommendation:

1. This competition failed because the Department did not apply basic processes properly. This is not the first time we have come across this situation. Our predecessor Committee’s recommendations relating to The failure of Metronet are relevant to this competition, as they address the need to improve oversight and information to protect taxpayer’s interests. We are concerned that the Department seems to have ignored the lessons from past failings. The Department had documented processes, but staff failed to follow them during this competition. The Department needs to put adherence to basic principles and processes at the core of how it does its business. We expect to see this has been done when we look at HS2, Thameslink and the other rail franchises.

2. The Department’s senior managers failed to apply common sense and missed clear warning signs, including from the industry, that there were serious problems with the competition. We would have expected the Department to thoroughly investigate the significant differences in forecast passenger growth, premiums and the subordinated loan facilities of the two leading bids. Instead, the Department’s decision makers were too reliant on assurances from technical advisers and its evaluation processes. Senior management should use their common sense and challenge the answers that they get from staff and specialist advisers in order to discharge their ultimate responsibility to protect the taxpayer.

3. The Department’s protection against risky bids failed due to a number of errors. The Department began the franchise competition without knowing how it would calculate the level of risk capital (the subordinated loan facility) it would request from bidders to protect itself against risk in bids. It later provided misleading advice to bidders about this process and made errors in how the subordinated loan facility was determined. These errors resulted in the Department requesting a significantly lower subordinated loan facility than was required to counteract the recognised risk in First Group’s bid and a higher loan facility than was necessary from Virgin. The Department needs a greater understanding of its risk appetite and of risk transfer to the industry, including the likely cost of any risk capital, so that it can identify when it has made errors. It needs to have the tools in place to calculate the risk before
starting a competition and to be clear consistent and transparent with the advice given to bidders.

4. The Department’s misguided attempt to make cost savings by cutting corners on the competition resulted in significant additional costs to the taxpayer. The Department incurred £1.9 million in staff costs and external advisers on the competition compared to bidders who spent an average of £10 million on their bids. Despite the franchise having a value to the taxpayer of £5.5 billion the freeze on the use of consultants meant that it did not use external financial advisers on the competition. The amount the Department spent is paltry when compared to the £50 million it will now incur, at a minimum, as a result of cancelling the competition and the significant unquantified opportunity cost due to the delays in investment on the line. We are astonished that there was no senior civil servant in the team despite the critical importance of this multi-billion pound franchise. We are astonished that the Permanent Secretary did not have a detailed understanding and oversight of the competition. We support the Department’s commitment to train, nurture and reward staff with the specialist skills it needs. The Department should put in place the right internal resources and external support. Where it needs external support it should robustly argue its case for this with the Cabinet Office. The Department must ensure appropriate oversight of major projects by the Permanent Secretary and his
management team.

5. The Department’s blinkered and rushed approach meant the competition was not run properly. Key risks and issues were not escalated as a result, including the risk of legal challenge. External advisers who flagged these concerns did not have direct communications with the top of the Department. The unique way the Department applied anonymity in the competition meant that the Permanent Secretary did not know the details of the competition and did not sufficiently probe the information that they were given by the project team, and the new Accounting Officer did not challenge the approach when he arrived in April 2012. We expect the Accounting Officer to set the tone for the Department, establish a strong professional culture and set out clear expectations for the Department’s leadership team including high levels of accessibility and willingness to hear and act on warning signs.

6. It was a mistake not to have a single person responsible for the project from beginning to end. This meant that no single person had to live with the consequences of delivering their policy decisions. It is unacceptable that for three months no SRO (Senior Responsible Owner) was in place, due to the failure of the Department’s planned handover between SROs when moving from the policy to the delivery stage. We expect a single individual who will be held accountable to be responsible throughout a project, implementing his or her decisions. The Department should review all its SROs to make sure they have the right seniority, experience and expertise for every project for which they are responsible.

A clear criticism of the Accounting Officer here (whoever that is); and more importantly Ruttnam. Are these people up for disciplinary action?

 

[Widnes Planner]

My favourite part is good old rent-a-quote Bob Crow, fulminating about how incompetent the DfT are, then proposing renationalisation in the same breath. Loosely translated, "the DfT are so useless they can't manage to specify a service for the private sector to run, so lets give them the whole railway to run from top to bottom instead..."

Presumably he's calculating that his union will be able to run even bigger rings round the DfT than they have round the frachise operators.

 

[Mark_H]

A clear criticism of the Accounting Officer here (whoever that is); and more importantly Ruttnam. Are these people up for disciplinary action?

In Ruttnam's evidence he says that disciplinary proceedings are underway. I'm guessing he isn't including himself in those.

It seems like a classic "for want of a nail" scenario.

 

[SWTCommuter]

My favourite part is good old rent-a-quote Bob Crow, fulminating about how incompetent the DfT are, then proposing renationalisation in the same breath. Loosely translated, "the DfT are so useless they can't manage to specify a service for the private sector to run, so lets give them the whole railway to run from top to bottom instead..."

When the railway was nationalised it was run by the British Railways Board. Ironically, it's only since privatisation that it has been micro-managed by the DfT.

 

[Starmill]

Don't you just love Margaret Hodge?

 

[Oswyntail]

Don't you just love Margaret Hodge?

She has the intellectual consistency of an amoeba, and she is sometimes driven solely by the urge to showboat - but she and the PAC are currently the only effective opposition in Parliament at present (in that they actually analyse policy and implementation before criticising things)

 

[HH]

In Ruttnam's evidence he says that disciplinary proceedings are underway. I'm guessing he isn't including himself in those.

It reminds me the the Railway Eye quiz a few months back, questioning who was at fault for the fiasco; can't remember the exact details, but three of the answers would lead you to Ruttnam, the fourth to Maria, the Tea Lady. The voters were most perspicacious in apportioning blame; Maria won by a landslide.

 

[Gwenllian2001]

When the railway was nationalised it was run by the British Railways Board. Ironically, it's only since privatisation that it has been micro-managed by the DfT.

It wasn't, it was under the control of the British Transport commission. The same body also managed the Inland Waterways, Docks and Road Transport. In addition to the BTC, the railways were split into Regions, each with their own board of management. The BRB came much later as a result of re-organisation under MacMillan's Government.

 

[HSTEd]

My favourite part is good old rent-a-quote Bob Crow, fulminating about how incompetent the DfT are, then proposing renationalisation in the same breath. Loosely translated, "the DfT are so useless they can't manage to specify a service for the private sector to run, so lets give them the whole railway to run from top to bottom instead..."

Presumably he's calculating that his union will be able to run even bigger rings round the DfT than they have round the frachise operators.

They already "run the railway from top to bottom"......

And a single unified operator is likely to have the railway management have significantly more clout with the DfT than the current system does.
Simply because they can't use divide and conquer on an industry consisting of a single player.

 

[SWTCommuter]

It wasn't, it was under the control of the British Transport commission. The same body also managed the Inland Waterways, Docks and Road Transport. In addition to the BTC, the railways were split into Regions, each with their own board of management. The BRB came much later as a result of re-organisation under MacMillan's Government.

I wasn't referring to the early years of nationalisation in particular but if you want to be that pedantic, fine. The BRB was essentially the continuation of the Railway Executive of the BTC when the latter was abolished in 1963. The point I was making was that during nationalisation, the railway was run by a specialist organisation, not generalist civil servants at the DfT. Whether that was BRB or the Railway Executive doesn't matter.

 

[Widnes Planner]

Thanks for the history lesson guys - some of it was even new to me. Can you really see the DfT creating an independent equivalent of the BRB in a renationalised railway, and then not interfering and over-specifiying like they currently do in franchise world?

 

[Gwenllian2001]

I wasn't referring to the early years of nationalisation in particular but if you want to be that pedantic, fine. The BRB was essentially the continuation of the Railway Executive of the BTC when the latter was abolished in 1963. The point I was making was that during nationalisation, the railway was run by a specialist organisation, not generalist civil servants at the DfT. Whether that was BRB or the Railway Executive doesn't matter.

I wasn't being pedantic but merely clarifying things because your original posting did say 'when the railways were nationalised', which I took to mean from the beginning.

As you say, under state ownership the railways were, theoretically, run by railwaymen. Unfortunately, meddling by politicians and the constant changes at the Dept of Transport didn't help. Ideally, the state should own the railways; appoint a Board of Management and leave them to get on with the job. This should be an arm's length arrangement so that any government should trust the management for such things as ordering rolling stock; setting sensible service levels and fares.

 

[HSTEd]

Thanks for the history lesson guys - some of it was even new to me. Can you really see the DfT creating an independent equivalent of the BRB in a renationalised railway, and then not interfering and over-specifiying like they currently do in franchise world?

They wouldn't be able to strong arm people into going along with the meddling by refusing to give franchises to anyone who complained about it.

That is how they obtained the current iron grip they have.

 

[Zoe]

When the railway was nationalised it was run by the British Railways Board. Ironically, it's only since privatisation that it has been micro-managed by the DfT.

Not since the start of privatization though, the DfT took direct control in 2005. I believe here was more freedom back in the days of OPRAF.

 

[Wolfie]

Here's the Conclusions and recommendation:



A clear criticism of the Accounting Officer here (whoever that is); and more importantly Ruttnam. Are these people up for disciplinary action?

The principal accounting officer, responsible to Parliament for the proper utilisation of resources voted, is the Permanent Secretary (normally referred to as PUS) of the relevant Govt Dept.
--- old post above --- --- new post below ---
Here that is none other than Ruttnam himself!

 

[SWTCommuter]

I wasn't being pedantic but merely clarifying things because your original posting did say 'when the railways were nationalised', which I took to mean from the beginning.

Apologies, I took your post the wrong way.

Ideally, the state should own the railways; appoint a Board of Management and leave them to get on with the job. This should be an arm's length arrangement so that any government should trust the management for such things as ordering rolling stock; setting sensible service levels and fares.

Agreed

 

[HH]

Here that is none other than Ruttnam himself!

So it was down to Ruttnam & Ruttnam (which curiously sounds like a dodgy firm of lawyers)! And who's in change of the disciplinary proceedings?

You couldn't make it up.