Stagecoach 'shocked' at disqualification from three rail franchise bids
Stagecoach Group said on Wednesday that it has been informed by the Department for Transport (DfT) that it has been disqualified from the current three UK rail franchise competitions.
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The FTSE 250 passenger transport operator was shortlisted in three franchise competitions - the East Midlands, where it was bidding independently; South Eastern, where it was bidding with support from its intended partner Alstom; and the West Coast Partnership, where it was part of a joint bid with Virgin Group and French state railway SNCF.
It said a senior DfT official had “verbally informed” the company that it had been excluded from all three competitions for submitting non-compliant bids - particular,y in respect of pensions risk.
Bidders for the new franchises were asked to bear full long-term funding risk on relevant sections of the Railways Pension Scheme.
Stagecoach said it came at a time when the Pensions Regulator was seeking additional funding due to “serious doubts” over the government's ongoing support for the industry-wide scheme.
“We are extremely concerned at both the DfT's decision and its timing,” said Stagecoach chief executive officer Martin Griffiths.
“The department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.
“We have drawn on more than two decades of rail experience and worked in partnership with local stakeholders to develop high quality proposals to improve each of these rail networks.”
Griffiths said the firm’s bids were “consistent” with industry guidance issued by the Rail Delivery Group and shared with the DfT.
Without ongoing government support for the long-term funding of railway pensions, the Pensions Regulator had indicated that an additional £5bn to £6bn would be needed to plug the gap in train operator pensions.
“In contrast, the rail industry proposed solution would have delivered an additional £500m to £600m into the scheme,” Martin Griffiths explained.
“This would have provided better stability and security for members and much better value for taxpayers.
“We are shocked that the government has rejected this for a higher risk approach, he said, adding that Stagecoach would “urge that a full independent value for money review is undertaken into this issue without delay”.
Stagecoach said that it, along with “many other” train operators, believed “strongly” that the private sector should not be expected to accept material risks it could not control and manage.
“In fact, this was a key finding of the Brown review into rail franchising more than six years ago,” Griffiths pointed out.
“We are therefore extremely surprised that the government still expects private operators to take risks they are not best placed to manage, despite the recent difficulties experienced by a number of operators of outsourced public sector contracts.”
Forcing rail companies to take on such risks could lead to the failure of more rail franchises, Martin Griffiths postured, saying that could not be in the best long-term interests of either customers, employees, taxpayers or investors.
“This is more evidence that the current franchising model is not fit for purpose, a view which has already been expressed by Keith Williams, who is leading the independent review of the rail system.
“It also further damages the already fragile investor confidence in the UK rail market and it undermines the involvement of two of the last British transport groups who are part of running Britain's railway.”
Martin Griffiths said that for over 20 years, Stagecoach had delivered “industry-leading” performance, record passenger growth, “excellent” industrial relations, and “the highest levels” of customer satisfaction in the sector.
“We will continue to focus on delivering high quality services for our customers at our existing rail businesses.”