Stagecoach disqualified from three franchise competitions

[LOL The Irony]

Hopefully this pushes Grayling closer to if not out the door. There is no way you can reasonably justify private companies taking on such huge, uncosted obligations for just 7 years potentially.

This is probably why he did it. When SHTF, he'll be long gone.

 

[sprunt]

Now people are complaining that private companies are too cautious, unwilling to sign up to an open ended guarantee that could cost tens of millions of pounds more than expected over the cost of the franchise.

That's not what people are doing. They're complaining that Stagecoach/Virgin/SNCF knowingly submitted a non-compliant bid, then acted aggrieved when it was judged to be non-compliant.

 

[DarloRich]

So you just accept any commercial terms DfT throw at you? Contracts are a negotiation.

this is not yet a contract. This is the winning the right to enter into contract. There is a difference!

If a bidder makes you aware of an issue like this from the start then the organisation placing the contract really ought to tell them back at the start rather than letting them carry on. At best DfT have been amateur and unprofessional.

But they haven't. That is the point. The rules have been followed in a professional manner. As i said: Lets see if Stagecoach sue.

 

[DarloRich]

Serious question – would you bid for a franchise if you were potentially liable to pay tens of millions of pounds that relate to liabilities accrued over the decades before you took over? Do you expect professional businesses to take on contracts with such open ended liabilities? You might put together a competitive bid based on ticket revenue and operating costs and then find your finances torpedoed by something from the past and expected to write a blank cheque?

I fail to see how any sensible company would want to comply with the terms of this franchise. Stagecoach certainly doesn't want an open cheque hanging around their neck. It still seems strange that they bid at all - and a shame that some others did bid. It should have been ignored until more certainty was included in it

i accept this point - one of the bidders may well be shown to have made a large mistake - but we must assume that the risks are know to the bidders and that those who were compliant took a different approach to that risk.

 

[StaffsWCML]

i accept this point - one of the bidders may well be shown to have made a large mistake - but we must assume that the risks are know to the bidders and that those who were compliant took a different approach to that risk.

But no-one can know the risks in this respect, this is the problem. Its licking a finger and sticking it in the air to guess which way the wind is blowing. Anyone who has been able to submit a 'compliant' bid, in my view is acting in an entirely irresponsible manner. One which put the pensions of thousands of rail workers at risk, one that is not in anyway shape or form long term commercially viable. This has far reaching impacts, pensions could be lost, jobs could be lost, customers will receive a poorer service as a result.

All because an incompetent government minister refuses to accept the franchising model is not fit for purpose.

At the very least they should be waiting for the outcome of the Williams report before issuing more franchises, it is absolutely mindless to press ahead as if everything is fine when it clearly is not whilst removing some of the best performing train operators from our network and replacing them with underperforming foreign state owned dross who quite frankly couldn't care less about our rail network.

 

[DarloRich]

But no-one can know the risks in this respect, this is the problem. Its licking a finger and sticking it in the air to guess which way the wind is blowing. Anyone who has been able to submit a 'compliant' bid, in my view is acting in an entirely irresponsible manner. One which put the pensions of thousands of rail workers at risk, one that is not in anyway shape or form long term commercially viable. This has far reaching impacts, pensions could be lost, jobs could be lost, customers will receive a poorer service as a result.

Agreed that the risk is not quantified, however that is not a situation unique to this competition - That said the compliant bidders must have decided that they were prepared to accept the risk.

On what do you base your view that "Anyone who has been able to submit a 'compliant' bid, in my view is acting in an entirely irresponsible manner." I am not sure we have sufficient evidence to support such a statement. That may be a suspicion but we cant substantiate that at this stage.

All because an incompetent government minister refuses to accept the franchising model is not fit for purpose.

At the very least they should be waiting for the outcome of the Williams report before issuing more franchises, it is absolutely mindless to press ahead as if everything is fine when it clearly is not whilst removing some of the best performing train operators from our network and replacing them with underperforming foreign state owned dross who quite frankly couldn't care less about our rail network.

can we try and keep away from the Corbyn inspired tinfoilery? it undermines the sensible points you make above.

 

[edwin_m]

It may be that the compliant bidder(s) got a quote to insure the risk in some way and just added the premium onto the bid price. When a risk is outside your control you either have to do something like that or just accept the downside, which is a bad thing to do if the downside is big enough to sink your company. Either way it's almost certainly cost the government more to offload this via a franchise than to keep it themselves.

 

[StaffsWCML]

Agreed that the risk is not quantified, however that is not a situation unique to this competition - That said the compliant bidders must have decided that they were prepared to accept the risk.

On what do you base your view that "Anyone who has been able to submit a 'compliant' bid, in my view is acting in an entirely irresponsible manner." I am not sure we have sufficient evidence to support such a statement. That may be a suspicion but we cant substantiate that at this stage.



can we try and keep away from the Corbyn inspired tinfoilery? it undermines the sensible points you make above.

How can they make a 'compliant' bid when they have no idea what figures they are effectively underwriting, to me that is irresponsible behaviour. Its like giving a scam artist a blank signed chequebook, no one of sound mind would ever do it.

Believe me I am not a supporter of Corbyn in anyway, some of his thoughts regarding the railway do make sense. I am happy for companies to run sustainable good services, the evidence is that is not happening, this is unlikely to make it happen. The current franchise system does not support long term planning an growth for our railways.

It may be that the compliant bidder(s) got a quote to insure the risk in some way and just added the premium onto the bid price. When a risk is outside your control you either have to do something like that or just accept the downside, which is a bad thing to do if the downside is big enough to sink your company. Either way it's almost certainly cost the government more to offload this via a franchise than to keep it themselves.

I can't how anyone would even begin to underwrite that when it has no defined value, we can not predict what will happen in 7 years or more with pay/inflation etc, etc. No-one has any clue what this figure could be.

 

[ForTheLoveOf]

I can't how anyone would even begin to underwrite that when it has no defined value, we can not predict what will happen in 7 years or more with pay/inflation etc, etc. No-one has any clue what this figure could be.

Plenty of insurance policies offer unlimited cover, i.e. the kind of 'blank cheque' you are alluding to. It's simply that the premium will reflect the level of risk of a payout, and the expected amount of a payout. The only kind of truly uninsurable risk is that which is considered too likely to occur for it to be insured!

It may be that Abellio made a bid which resulted in much lower premium payments to the DfT (due to the high cost of an 'insurance' premium, whether literally paid to an insurer or kept as a contingency), but that the DfT was willing to accept a lower premium payment in return for no longer having to bear the risk of the pensions.

Ultimately though - a company such as Abellio isn't going to sink. Its liability is ultimately limited, as the VTEC debacle showed. So it is a blank cheque... only to an extent. If the company well and truly becomes insolvent, then, as the saying goes, "you can't get blood from a stone".

 

[NoMorePacers]

This is probably why he did it. When SHTF, he'll be long gone.

The sooner the better.

 

[EE Andy b1]

When SHTF, he'll be long gone.

With this guy, S has been HTF for a long while now but he still survives, never coming up smelling of roses but digging more holes.
When she goes, he'll be gone.

 

[pt_mad]

That's a bit condescending (a bit like, 'Leavers not knowing what they voted for').

VT has a high level of satisfaction from people who actually have experience of using their trains. And it's not simply down to Pendolinos and the timetable changes, VT delivered a different culture and it's that, that differentiates them, in my opinion, from other TOCs I use. I always take the opportunity to chat with the crew, they are mostly more engaged and enjoy what they do. While a couple of contributors here seem to have an irrational dislike of VT, I have a choice of which TOC I use to travel to London, VT is always my first choice. I'm sorry to see them leave the field.

Maybe some of it is down to the people that VTWC choose to work for them when they recruit? Surely just keeping that the same principals Virgin apply, whatever those are, will mean the same sort of teams working for them as they have now? If that is what the future TOC envisages.
Although it's probably worth mentioning that to some extent staff morale can rely a great deal on how good or approachable their local managers or line managers are, how valued or needed staff feel, and how well looked after they are.

Saying that, I've known many a non railway related company with a high flying premium type trendy and approachable brand where many managers who weren't customer facing, were not people people at all. Some would not speak to or smile at their customers as they didn't see customer engagement or being friendly or smiling as part their own job. Rather they acted as strategic firm leaders regardless of them expecting all shop front staff to be approachable and happy looking.

Again I'm talking about a non railway industry there but a customer facing one all the same.

 

[route:oxford]

Saying that, I've known many a non railway related company with a high flying premium type trendy and approachable brand where many managers who weren't customer facing, were not people people at all. Some would not speak to or smile at their customers as they didn't see customer engagement or being friendly or smiling as part their own job. Rather they acted as strategic firm leaders regardless of them expecting all shop front staff to be approachable and happy looking.

Think of a company, as being a bit like an Ikea Malm chest of drawers.

On the outside, there's a micro thin layer of oak wood, it makes the chest look desirable. People know it's all false, but really have no desire to see the ugly underside of structural multi-density fibreboard.

 

[js1000]

Clearly you don't understand tendering. If you submit a non compliant bid you will, in all likelihood, find your bid rejected. It isnt about being petty. It is about fairness and rules.

BTW - nice to see you think railway workers being paid their pensions is something petty.

Indeed. A non-compliant bid is a non-compliant bid. Seems Stagecoach have just ignored the thorny issue of pensions in the hope DfT will just gloss over it.

 

[Meerkat]

Maybe Stagecoach put in a non compliant bid assuming/hoping that the others would do likewise?
They couldn’t actually ask the others without breaking competition law so could only hope.

 

[Taunton]

this is not yet a contract. This is the winning the right to enter into contract. There is a difference!

Doesn't work like that. There is a Tender Bond for many millions which all bidders have to lodge, that can be collected if the selected bidder then backs out.

https://www.investopedia.com/terms/b/bid-bond.asp

 

[6Gman]

The business pages of The Times opine that this is political retribution rather than contractual disagreement.

 

[Taunton]

The business pages of The Times opine that this is political retribution rather than contractual disagreement.

The Telegraph meantime illustrates the article with a 4-VEP in Network South East colours!

https://www.telegraph.co.uk/business/2019/04/10/grayling-must-get-ragtag-rail-gang-order/

 

[ChiefPlanner]

The Telegraph meantime illustrates the article with a 4-VEP in Network South East colours!

https://www.telegraph.co.uk/business/2019/04/10/grayling-must-get-ragtag-rail-gang-order/

Trivial I know - but that "stock" picture has so wrongly been used in the past. Poor editing to show such an anachronistic picture. (Reading line , by the way , if anyone is worrying)

 

[Goldfish62]

Maybe Stagecoach put in a non compliant bid assuming/hoping that the others would do likewise?
They couldn’t actually ask the others without breaking competition law so could only hope.

A non compliant bid will always get rejected unless it is an alternative bid accompanying a compliant bid. You have to be able to evaluate bids which are on the same basis, ie compliant. Basic procurement regulations. My question is why did the DfT let it go so far without raising it?

 

[EE Andy b1]

My question is why did the DfT let it go so far without raising it?

Maybe, just maybe (the conspiracy theorist in me) the DfT just wants rid of Virgin and has done so via the Stagecoach non-compliant bid!!

 

[DarloRich]

Doesn't work like that. There is a Tender Bond for many millions which all bidders have to lodge, that can be collected if the selected bidder then backs out.

I have never had any involvement with tender with a "bid bond" built in. They may be required for franchise bidding but I haven't come across one

PSI agree my example was a poor one but was trying to explain the position in simple laymans terms.

 

[Bletchleyite]

Maybe, just maybe (the conspiracy theorist in me) the DfT just wants rid of Virgin and has done so via the Stagecoach non-compliant bid!!

I doubt it.

And once again - the new VT would not be the same as the old VT, it would be little more than a branding licence. Virgin Rail Group was always going to come to an end this year. New VTWC would basically be Stagecoach West Coast Trains with some more red paint, a few baguettes and a bottle of reasonably priced red wine from a quick Calais booze run.

 

[JamesT]

As has been said earlier, because any surplus has been seen as an excuse to stop employer contributions, ratcheting down the fund value regardless of the need to allow for a spell of poor investment returns.
In fact over the last 4 or 5 years I think the investments have been appreciating well ahead of inflation (like by a factor of 2 or 3) as the awards above probably confirm.
It has also been pointed out upthread that contributions are low in a historical context, and are nowadays too low to deliver what people will want in the longer term. It's all part of the "give it to me NOW" culture that people have been led to imagine is their right. Hence the change to defined contribution schemes where the city still gets its pound of flesh playing the markets with pension fund assets, but the hapless punters will just have to put up with what is left over at the end of it, even if it is less per week than they put in!

It's not just an excuse. The pensions regulator demands that trustees do not allow their funds to go too far into surplus.
The university sector pension fund USS is also having issues with being in deficit and how to deal with it. They previously reduced contributions in the late 90s as it was fully funded, but since the crash a deficit has opened up. There's currently an argument over how big the deficit is, how much should contributions increase to cover this, and whether the trustees' approach to de-risking is correct or merely exacerbating the problem. And that's with a sector where most employers are pretty secure and the pension is structured so liabilities will be covered by the remaining employers if an institution were to fail.

 

[jon0844]

The Telegraph meantime illustrates the article with a 4-VEP in Network South East colours!

https://www.telegraph.co.uk/business/2019/04/10/grayling-must-get-ragtag-rail-gang-order/

That's what WCML users will get when Virgin goes, obviously. Duh!!

 

[whhistle]

First are already haemorrhaging money...

Just look at SWR, we have gone from a generally profitable franchise that pays a premium to one that seems to be haemorrhaging money.

Don't think I've read that word more times last year than in this thread.
Dunno what the sudden obsession is with using it, when it's doesn't mean it's intended use?

procurement rules. And procurement. A joke.

Yet companies still seem to want to enter selected franchises.
They understand "the game" and it ain't gonna change any time soon.

Can't help but think we really can't afford to lose a quality operator like Stagecoach - far more professional and generally competent than many.

People say this, but fail to see what it's like on the inside.
It's not as quality as you may think.
From what I heard, very old fashioned, very proceedural and extremely wasteful.
When someone pointed out a couple of examples to me, I was surprised how many there were that I started recognising.

 

[Mingulay]

I’m not sure what Stagecoach tax arrangements are. But it should be a prerequisite that any company which is based overseas or ultimately based overseas or has principle share holders overseas and do not pay UK tax. Then they are no longer eligible to run a Uk rail franchise or indeed any service which is in the gift of the government. Same should apply in any industry or service . So as far as Virgin is concerned they should be ruled out on that basis . We need a laser like focus and national priority to recover more tax from those clearly ducking tax. It only damages public services and spending. As for stagecoach. Like any other big business. Big business can become bad business . It uses its scale to exert more for less from it’s suppliers . Efficient can also mean predatory in its approach to business . It’s good to see a Scottish company being successful in the world stage. I think and hope they pay all proper tax on profits but I’m uncomfortable that the risk reward balance in franchise is tilted towards the TOC

 

[whhistle]

Maybe some of it is down to the people that VTWC choose to work for them when they recruit?

This is it.
Virgin only recruit people whom follow the same values as the company.
But then if I was a driver earning 12 hours pay for a 2 hour job, I'd be happy too! (Not that this happens all the time, but I've seen it before.)

 

[Journeyman]

Maybe Stagecoach put in a non compliant bid assuming/hoping that the others would do likewise?
They couldn’t actually ask the others without breaking competition law so could only hope.

I've known this happen in a (non-rail) bid I was quite close to at work a few years ago. The company was expected to take on a huge pension liability, and put in a non-compliant bid as they were not willing to take the risk. They got quite a long way down the process, but ultimately lost - they weren't bothered, because they knew what risk they were willing to take on, and if that wasn't acceptable, then so be it.

 

[Bletchleyite]

I've known this happen in a (non-rail) bid I was quite close to at work a few years ago. The company was expected to take on a huge pension liability, and put in a non-compliant bid as they were not willing to take the risk. They got quite a long way down the process, but ultimately lost - they weren't bothered, because they knew what risk they were willing to take on, and if that wasn't acceptable, then so be it.

On this basis I think Stagecoach did the right thing, and like with ScotRail Abellio are going to end up needing a subsidy from the Dutch taxpayer.

I wonder did DaFT do this deliberately? A masterstroke if so. Why be responsible for pensions yourself if another European Government will willingly do it?