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Arriva was Disqualified from East Midlands Franchise confirms DfT

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Brissle Girl

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Isn't in possible that Abellio have gone to an insurer to underwrite the pension risk, and added the (large!) insurance premium into the franchise cost profile? That way they are compliant and covered against the loss, but the public sector probably hasn't got as good a deal as if it had chosen to keep the risk itself.

If this has happened then it's possible DfT could have obtained a similar quote and worked out what the other bidders' figures would have been if they had also accepted and insured the risk. If Abellio were still best on these adjusted measures then they could legitimately say, as they have, that the Abellio bid was best regardless of the compliance issue.
As someone involved in the market of insuring pension risk and putting in place the legal framework under which they operate, I’d suggest this particular risk is uninsurable for several reasons. Even simpler risks can take many months if not years to put in place which Abellio won’t have had the time to do, nor the scheme data to enable it to be done.
 
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mirodo

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Not too sure why people think this.

The competition seemed fair.
Two out of three submissed bids that were not in line with the rules of the competition.
There is still a winner.

Would that be the same with a car race?
If all but one of the cars were found out (during the race) to have a problem, does that mean the one who was fine shouldn't win?

Or a cycling race.
If all but one fall off because their bikes wern't set up correctly, should the race be cancelled?

Or perhaps an ebay bid?
If my PC went wrong, should I ask the auctioneer to start it again?

Precisely.

The (non-rail) company I work for was one of three competitors for a government contract, with two awards to be made. One of the other bidders knowingly submitted a bid which was not compliant with the contract specification, so was automatically disqualified. We and one other were awarded the contract as a result. There was a bit of a fuss, but if you try to play the game, don't be surprised if it comes back to bite you on the bottom.
 

43096

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There is a question to be asked as to why Stagecoach were singled out by DfT at the time, when they knew full well that Arriva were also non-compliant.

It rather reinforces the view that DfT was being vindictive. Still holding a grudge over the West Coast fiasco, perhaps?
 

Roast Veg

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There is a question to be asked as to why Stagecoach were singled out by DfT at the time, when they knew full well that Arriva were also non-compliant.

It rather reinforces the view that DfT was being vindictive. Still holding a grudge over the West Coast fiasco, perhaps?
More likely I think that on determining that they had indeed submitted a non compliant bid for the East Midlands, that they suddenly had a quick check to see if Stagecoach were pulling a fast one on them on their other bids too...
 

Bantamzen

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That's not a serious option. The government is the 'operator of last resort' and has acted as such several time.

You only have to look how governments have turned a blind eye to falling bus services around the country, particularly those being lost due to falling council subsidies to conclude that in the face of a franchise system collapse, many routes would be put to the the sword.
 

mrmatt

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There is a question to be asked as to why Stagecoach were singled out by DfT at the time, when they knew full well that Arriva were also non-compliant.

It rather reinforces the view that DfT was being vindictive. Still holding a grudge over the West Coast fiasco, perhaps?

It was Stagecoach that mentioned in their press release that they had been disqualified - I believe the DfT just announced Abellio as the winner?
 

duffield

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You only have to look how governments have turned a blind eye to falling bus services around the country, particularly those being lost due to falling council subsidies to conclude that in the face of a franchise system collapse, many routes would be put to the the sword.

Railways have a fairly onerous closure procedure unlike bus services. A goverment would have to sign up to Beeching Mark 2 and state that they were doing so and it was their policy. There would be national campaigns set up, it would be a hugely unpopular move and even a ruling party with a majority would find it hard to get past its own MPs. With bus services the goverment can to some extent say 'Nothing to do with us squire' and point at the local authorities who are the ones who provide subsidies etc. Wholesale closures would need a *very* 'brave' government indeed!

The evidence to some extent is in your post - in the last 10 years (say), how many bus services have disappeared, and how many railway lines - particularly ones which could be termed 'basket cases' have closed?

However, I would qualify this by saying that with the current political instability etc. almost anything could happen in the next few years.
 
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infobleep

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As someone who knows quite a lot about defined benefit pensions and risk transfer mechanisms, Abellio appears to have signed a very large blank cheque. Worse still, the Pensions Regulator is making it clear that if the govt is successful in offloading the future risk of historic pension liabilities (as they are obviously trying to do) then they will consider the deficit in that light. ie, with a less secure sponsoring employer(s), the deficit will grow and there will be a requirement to bring it up to an acceptable funding position quicker. =£££££. This could well dwarf any expected profit they expect to make.

So quite why Abellio has agreed to these terms is beyond me. Clearly nobody has signed up to them for South Eastern. So of the recent franchise competitions, XC was aborted as only Arriva was interested, and that was on the previous pension terms. South Western only had one compliant bid, which is now trying to renegotiate the terms as the reasons for Stagecoach making a non-compliant bid have turned out to be correct, East Midlands had one compliant bid (which was said to be the best of the three, yeah right!), South Eastern has none, and West Coast is down to two, and we don't even know whether they are compliant either. And the government says that that franchising is not in a mess.

If any challenge is unsuccessful then you can bet that Stagecoach and Arriva will be watching like a hawk to see whether there is any future renegotiation on the pension terms. I call that the TV-AM scenario, whereby they lost the breakfast franchise to a stupidly aggressive bid from GMTV, only for the latter to go back to the government a year or so into the franchise pleading (successfully) for the terms to be relaxed. TV-AM didn't exist by then, so couldn't challenge that was unfair, but Stagecoach will if it happens here.
I am surprised Stagecoach haven't challenged things already. How many years do that get in order to challenge a previous railway franchise process?
 

Brissle Girl

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There's no precedent, but clearly it would be the nuclear option, so probably would only be considered by a company which saw little chance of future participation in franchise bids. South Western is an interesting one, as Stagecoach was ruled out because it saw the problems with the power supply so put in a bid that reflected that. If the govt renegotiated with First now to reflect precisely that point then I think Stagecoach would have a very good case. Though only the lawyers would win of course.
 

philthetube

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It is entirely possible for all the bids not to be compliant. If we take the government minister at his word then one of the bidders was compliant and thus won.

Had there been another compliant bidder, it's possible they might have bid something better but all that matters is that one was compliant. Thus in future if we can expect bids of one they just need to be compliant and nothing more. What the government suggests will happen with nothing else on top.
Compliant at any price?
 

Qwerty133

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There is a question to be asked as to why Stagecoach were singled out by DfT at the time, when they knew full well that Arriva were also non-compliant.

It rather reinforces the view that DfT was being vindictive. Still holding a grudge over the West Coast fiasco, perhaps?
As far as I can tell Stagecoach and Arriva were informed at the same point in time but only Stagecoach chose to go public at that point as Arriva felt their commercial interests were better protected by not doing so.
 

43096

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As far as I can tell Stagecoach and Arriva were informed at the same point in time but only Stagecoach chose to go public at that point as Arriva felt their commercial interests were better protected by not doing so.
Ah, right. Presumably as a quoted company Stagecoach had to go public whereas Arriva’s owner is the German state (for now at least).
 

Brissle Girl

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Is there any thought to putting in a P&R station at J19 Portbury? Could get the passenger levels up to a level justifying line improvements, or is there just no practicable way of doing it?

Ah, right. Presumably as a quoted company Stagecoach had to go public whereas Arriva’s owner is the German state (for now at least).
Correct. Stagecoach could potentially have been in a lot of trouble had they not disclosed a material fact to the market as soon as it became aware of it. There may have been a permissible delay until the announcement of the franchise winner, but it had no alternative at that point. Arriva has no such obligations, neither does DB as a state owned business.
 

infobleep

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Compliant at any price?
I don't know. Depends on the procurement rules.if you can say everyone is too expensive I assume you can choose not to award it.

However if the price is right then it could just mean what's required.
 
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Isn't in possible that Abellio have gone to an insurer to underwrite the pension risk, and added the (large!) insurance premium into the franchise cost profile? That way they are compliant and covered against the loss, but the public sector probably hasn't got as good a deal as if it had chosen to keep the risk itself.

If this has happened then it's possible DfT could have obtained a similar quote and worked out what the other bidders' figures would have been if they had also accepted and insured the risk. If Abellio were still best on these adjusted measures then they could legitimately say, as they have, that the Abellio bid was best regardless of the compliance issue.

Unlikely. No insurer would agree to sign that blank cheque. They'd effectively be saying that they'd be willing to accept the liability for providing index-linked final salary benefits to existing pensioners, current active members and deferred scheme members. Even the best actuaries can't predict all the variables involved in funding that kind of liability.
 

Tetchytyke

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You only have to look how governments have turned a blind eye to falling bus services around the country, particularly those being lost due to falling council subsidies to conclude that in the face of a franchise system collapse, many routes would be put to the the sword.

National government can blame local government for that, though. Also bus services are much less visible than rail services; frequency cuts on rail will get noticed in a way they don't on buses.

That said, franchising is only one way of getting private sector involvement. I can see a move towards a concession model, such as on Overground or Merseyrail. Indeed that's already essentially happened with the direct awards.
 

Helvellyn

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There's no precedent, but clearly it would be the nuclear option, so probably would only be considered by a company which saw little chance of future participation in franchise bids. South Western is an interesting one, as Stagecoach was ruled out because it saw the problems with the power supply so put in a bid that reflected that. If the govt renegotiated with First now to reflect precisely that point then I think Stagecoach would have a very good case. Though only the lawyers would win of course
And they learnt from VTEC about bidding a timetable that Network Rail couldn't support, which was a contributory factor in the gap between profits (I.e. not high enough) and premium payments. So if First/MTR are let off some key obligations there could be grounds for a challenge.
 
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