Watchdog fears train contracts failed to give best value

Margaret Hodge MP, chair of the Commons public accounts committee.

Margaret Hodge MP, chair of the Commons public accounts committee.

First published in Business News

THE handling of a train contract, which is supporting hundreds of North-East jobs, potentially missed out on cheaper alternatives, according to a spending watchdog.

The National Audit Office said the Department for Transport had reduced the long-term costs of the rail system when inviting bids to build the Intercity Express Programme (IEP) as well as for Thameslink trains, although it said a verdict on value for money could only come after the trains enter service.

The government said that it "ultimately delivered the best deal" for taxpayers.

But the NAO said that the department's decision to run the tender process, in a switch from its stated policy of leaving train procurements to the industry, had "created confusion in parts of the industry about the department's role". It was concerned that it had made assumptions about financing and the market that were untested.

In the case of the IEP trains, the contract was eventually awarded to the preferred bidder, the Agility Trains consortium made up of John Laing and Hitachi, although Agility submitted a revised bid. Hitachi will build the trains at its new factory near Newton Aycliffe in County Durham where it will employ 730 workers.

The DfT proceeded without rerunning the competition in the belief that no other manufacturer could offer better value for money, but this remained untested, the NAO said.

The NAO criticised the department's handling of relationships with bidders during the procurements, saying that it had increased the risk of legal challenge. Both contracts were eventually awarded more than two and half years late, partly due to the challenge of securing finance.

House of Commons Public Accounts Committee chairman Margaret Hodge said: "The (two) programmes required £6.5bn in initial funding which led the Department to adopt a PFI (public finance initiative) model as it could not find funding within its existing budgets.

"I am pleased to learn that whilst completing these deals during difficult financial times, the department has retained the ability to re-finance at a later date to secure better value for money for the taxpayer."

She went on: "I am worried however that the department accepted a revised bid from its preferred bidder, Agility Trains on Intercity Express, without first checking whether other providers could deliver a better deal.

"I would have expected a more considered judgment from the department given the scale of the project and the amount of money involved."

Mick Whelan, general secretary of train drivers' union Aslef, said: "The Government is giving rail franchises to their mates. They are giving an opportunity for firms to make private profits at public expense.

"Now it's happening with two large procurements of rolling stock, for Thameslink and Intercity Express.

"There's a dangerous lack of rigour, and a dangerous lack of transparency, in all this. We fear the public purse will, once again, be ripped off by a Government that regards public services as an opportunity for their mates to turn a handsome profit."

Keith Jordan, the managing director of Hitachi Rail Europe, welcomed the NAO review, and said: “We remain committed to delivering the many benefits to passengers offered by the new Class 800 series trains. Work on all aspects of the project is progressing well, with the first pre-series trains currently being manufactured, the North Pole and Stoke Gifford Train Maintenance Centres progressing well, and the new Hitachi Rail Vehicle Manufacturing Facility in Newton Aycliffe in an advanced construction phase.

“The team at Hitachi Rail Europe is continuously growing and large-scale recruitment for the train factory will begin in 2015.”

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