The independent inquiry into the cancelled West Coast Main Line franchise competition has concluded that the project failed because of an accumulation of significant errors related to inadequate planning and preparation, complex organisational structure, and a weak governance framework.
Transport Secretary Patrick McLoughlin asked Sam Laidlaw, the chief executive of Centrica and a non-executive DfT board member, to conduct an urgent investigation following the discovery of unacceptable flaws in the procurement process that led to the competition being cancelled on October 3.
His final report, published today (6 December 2012) by the Department for Transport, finds that:
- the DfT used flawed and inconsistent methodology when guiding bidders on the amount of risk capital (known as the Subordinated Loan Facility) they would need to offer to guarantee their franchise against default (Inquiry report paragraph 4.31, p22)
- the Subordinated Loan Facility figures resulting from the flawed methodology were then varied in a way that contravened franchise competition rules (3.4, p11)
- ministers made the original August 14 provisional contract award without being told about the critical flaws (2.12, p8) and having been given “inaccurate reports” (3.8, p12)
But the Laidlaw Inquiry also concluded that:
- the report’s recommendations to strengthen accountability and governance structures “if acted upon quickly and effectively, will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement” (paragraph 8.6, p79)
- while there were inconsistencies in the way First Group and Virgin Trains Ltd were treated during the franchise process, the report finds that there is no evidence of a culture of bias against Virgin at the DfT (paragraph 2.6, p7)
- there is nothing in the report to suggest that the flaws discovered in this franchise competition exist in any other DfT procurements (paragraph 8.3, p79)
The DfT is today publishing its formal response to the report which commits the department to implementing swiftly a series of actions that will enable it to resume the franchising programme, with the confidence of the rail industry, as soon as possible.
- ensuring future franchise competitions are delivered at a good pace based on sound planning, a clear timeline, rigorous management, and the right quality assurance
- creating a simpler and clearer structure and governance process for rail franchise competitions, including the appointment of a single director general with responsibility for all rail policy and franchising
- ensuring we have the right mix of professional skills, in-house, and where necessary from professional external advisers
Sam Laidlaw said:
Building upon and confirming the conclusions from my initial findings, the final report provides an in-depth analysis of the events that led to the flaws whereby the InterCity West Coast competition was cancelled. Alongside this I have also made a series of recommendations for the future.
I have explained in detail the technical nature of certain errors, specifically around modelling flaws and the Subordinated Loan Facility sizing process. In addition, the report outlines an accumulation of contributory causes including a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight.
While it is clear that a number of serious and regrettable errors have occurred, I believe that if acted upon quickly and effectively, my recommendations will help to restore confidence in the DfT’s ability to conduct effective rail franchising and procurement.
Patrick McLoughlin said:
The final report from the Laidlaw inquiry makes extremely uncomfortable reading for the department. It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right.
We will not allow these mistakes to be made again and the department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance.
Sam Laidlaw has delivered an uncompromising report that offers us a way to face up to a number of shortcomings and I would like to thank him and his team for producing these findings with such diligence and speed.
DfT Permanent Secretary Philip Rutnam said:
There is no question that this has been a serious blow for the department and I am determined that we learn everything we can from this episode.
We will implement all of Mr Laidlaw’s recommendations, and go further, to ensure we have the right set of skills, support and training to ensure failures like this do not happen again.
Notes to editors
The Laidlaw inquiry final report to the Transport Secretary
The department’s response to the Laidlaw inquiry’s final report, setting out the actions being taken immediately to resolve the report recommendations
The Transport Secretary’s oral statement to the House of Commons
The Laidlaw inquiry’s final report is only part of the work the department is doing to review its rail franchising policy. It will also take into account the forthcoming NAO report into the lessons from the cancellation of the InterCity West Coast franchise and the conclusions of Richard Brown’s review of the future of the rail franchising programme, due to be submitted to the Secretary of State by the end of December
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