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Stagecoach legal action over franchise awards: Judgement now available

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Jorge Da Silva

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https://www.thisismoney.co.uk/money...-legal-action-Government-block-rail-bids.html

Stagecoach has launched a second legal action against the Government for banning it from rail franchise bids unless it agrees to shoulder potentially huge staff pension liabilities.

The firm and partners Virgin Trains and French rail business SNCF will take their dispute over the bidding process for the West Coast mainline franchise to the High Court.

Taking on responsibility for pensions would be financially unviable and shouldn't be a requirement for making bids to run rail lines, according to Stagecoach.

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Rail row: Taking on responsibility for pensions would be unviable, claims Stagecoach

It launched a similar legal claim earlier this month against a Department for Transport ban on it bidding for the East Midlands rail franchise.

The business is also banned from pitching for the South Eastern franchise. Stagecoach shares were up 0.4p at 27.9p in early trading.

Stagecoach chief executive Martin Griffiths said: 'We believe the rail system should be about appointing the best operator for customers, not about passing unquantifiable, unmanageable and inappropriate risk to train companies.”
'It is disappointing that we have had to resort to court action to find out the truth around the DfT's decision-making process in each of these competitions.

'However, we hope court scrutiny will shine a light on the franchising process and help restore both public and investor confidence in the country's rail system.'

The latest claim has been brought by West Coast Trains Partnership Limited, in which Stagecoach has a 50 per cent share, with SNCF holding 30 per cent and Virgin 20 per cent.

Guillaume Pepy, SNCF executive chairman, said he was 'disappointed' and added: 'We strongly believe rail franchises should be let on a sustainable basis to those operators who offer the best services, the best trains, and the best customer experience in a cost-efficient manner.'

Patrick McCall, senior partner at Virgin, said the DfT is 'focused on which bidder is reckless enough to take on various unquantifiable risks, such as pensions'.

He added: 'It is extremely frustrating that the reason our bid was disqualified has nothing to do with looking after passengers or running a good train service.'

Earlier this month, Stagecoach said the DfT was forcing bidders to take on pension liabilities that could be in excess of £1 billion. The firm said it refuses to accept the potential pension risks that the department requires operators to bear.

The DfT said: 'Stagecoach is an experienced bidder who knowingly submitted non-compliant bids on all competitions. In doing so, they disqualified themselves.

'We do not comment on legal proceedings. However, we have total confidence in our franchise competition process and will robustly defend decisions that were taken fairly following a thorough and impartial evaluation process.'

Any thoughts
 
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StaffsWCML

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Hopefully Grayling will also be on his way out soon.

I have never seen a bigger shambles than this government.

I very much expect he government to lose this court action. Does this mean a delay to the West Coast Franchise Award?

Firsts financial position seems questionable, the UK seems about to get into a political wrangle with China re Huawei (that could have serious implications on Chinese state run bids) doesn't look too cleaver as usual.
 

Carlisle

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I very much expect he government to lose this court action.
If hundreds of bids in dozens of industries have been correctly deemed non compliant and not resulted in a successful legal victory by the loosing bidder, then I wouldn’t be so sure .
 

Qwerty133

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People offering a contract to large businesses (many individual consumers are not educated and need protecting) should be able to impose whatever conditions on that contract that they wish. If a company wanting that contract don't like the terms they are welcome to try and negotiate out of them but if the DfT insist on a term being upheld they should be allowed to do so. I strongly hope that the DfT win this battle as any other outcome is the start of a slippery slope of train companies suing over any detail they do not like.
 

diffident

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I didn't think it would be long before Stagecoach challenged the decision of the DfT. It did strike me as odd when the announcement was made of the exclusion from the bidding process.

Something just doesn't add up.
 

StaffsWCML

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People offering a contract to large businesses (many individual consumers are not educated and need protecting) should be able to impose whatever conditions on that contract that they wish. If a company wanting that contract don't like the terms they are welcome to try and negotiate out of them but if the DfT insist on a term being upheld they should be allowed to do so. I strongly hope that the DfT win this battle as any other outcome is the start of a slippery slope of train companies suing over any detail they do not like.

Perhaps the government and DfT need to be less incompetent and learn a lesson.

If the conditions are stupid and have no benefit to anyone they should be challenges. Else we will end up with a useless bunch of risk taking junk running all the public services in the UK, which is errr pretty much what we are getting!

I hope they win! The incompetence needs to stop now. We need good profitable businesses running our services, not people like Carillion, Interserve etc. If you want decent companies to tender you need the terms to be sensible.
 

LNW-GW Joint

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7th June. Bye bye grayling, you won't be missed.

Grayling might be rotated to another job, but it's unlikely a keen Brexiteer like him will not be around in the next government.
In any case it's the DfT machine which delivered the Stagecoach decision, not a single minister.
Stagecoach probably hope to clarify what the limits on pension liability are, and maybe to delay the West Coast decision until some other event turns up to stop it.
The City boys are not expecting Stagecoach to win the court action, but Stagecoach can't just fold and exit UK rail without a challenge.

The biggest risk in the new government is to HS2, of which Grayling has been a big supporter.
 

ForTheLoveOf

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If there's one thing that favours the 'DOR' approach to operating trains, it's that all this ridiculous posturing, lawsuits, and complicated bidding nonsense doesn't happen. All these things divert time and money from much better things on the railway, like making proper passenger improvements.

It seems ludicrous to me, too, that companies can potentially earn compensation adding up to the amount of profit they would have made if they'd "rightfully" won the franchise - even though they might have been ruled out on other fair grounds, and they haven't done any work at all (nor incurred any risk, or had to invest capital) to "earn" the profit.
 

StaffsWCML

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Given the majority of U.K. passanger railway isn’t profitable , thats unlikely to be the number 1 priority.

It could be if it was run competently by competent operators.

The reason many lines are unprofitable is because they are badly run by TOCs and badly funded by the government. If a sensible approach is taken and good quality services are offered there is no reason why these franchise can grow.

To grow you have to make the train option seem more appealing that the alternatives, in many cases at present that just is not done.
 

StaffsWCML

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If there's one thing that favours the 'DOR' approach to operating trains, it's that all this ridiculous posturing, lawsuits, and complicated bidding nonsense doesn't happen. All these things divert time and money from much better things on the railway, like making proper passenger improvements.

It seems ludicrous to me, too, that companies can potentially earn compensation adding up to the amount of profit they would have made if they'd "rightfully" won the franchise - even though they might have been ruled out on other fair grounds, and they haven't done any work at all (nor incurred any risk, or had to invest capital) to "earn" the profit.

Perhaps if they were in anyway competent and the franchising system was fit for purpose they wouldn't have these problems.

I am not really sure that more government when the government are responsible for most of the inadequacies is really the solution.

If they are going to hand out deals to rubbish operators on the basis of whichever one is taking the most 'risk' it really isn't serving the passengers very well either.
 

GRALISTAIR

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I strongly hope that the DfT win this battle as any other outcome is the start of a slippery slope of train companies suing over any detail they do not like.

On balance this is my feeling/opinion too.

7th June. Bye bye grayling, you won't be missed.
Yes - I will personally drink half a pint of bourbon to celebrate.

Will anyone miss him? Could anyone do a worse job?
NO and NO

Perhaps the government and DfT need to be less incompetent and learn a lesson.
Definitely - as has been pointed out in Modern Railways and Rail fro quite some time now- the DfT and Grayling are really not fit for purpose.

The legal challenges are certainly interesting but I doubt we will see a rerun of the Virgin/West Coast screw up
 

43096

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People offering a contract to large businesses (many individual consumers are not educated and need protecting) should be able to impose whatever conditions on that contract that they wish. If a company wanting that contract don't like the terms they are welcome to try and negotiate out of them but if the DfT insist on a term being upheld they should be allowed to do so. I strongly hope that the DfT win this battle as any other outcome is the start of a slippery slope of train companies suing over any detail they do not like.
“Impose whatever conditions they wish”. Really? So the law of the land and contract law is irrelevant then?

Besides, if Stagecoach told DfT of its approach to the issue at the start of the bid - as they say they did - then DfT should have told them then rather than stringing them along spending bid costs. I rather get the impression that DfT have done this to keep Abellio honest. If that is the case it is at best dishonest and DfT should be taught an expensive lesson as a result.
 

StaffsWCML

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The legal challenges are certainly interesting but I doubt we will see a rerun of the Virgin/West Coast screw up

I think we may. There are many issues with the approach they have taken regarding pensions and non compliance. The possible pensions liability could actually be higher than the operating turnover of some of these TOCs. What happens if significant extra investment is required? Are First or MTR having to display they have the financial capacity to deal with any issues that arise surrounding this.

We are either in for a heap of pain when they have to increase personal contributions which would likely lead to strikes.

Or the TOCs are going to have to increase contributions and/or pay awards. Either way its not sustainable.

At the very least further franchise awards should be halted immediately.

I would much rather them delay handing the West Coast Mainline to anyone else until they are sure they can deliver a service a competently as it is currently delivered.
 

option

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Presumably the various franchises payments historically into the pensions fund were specified by DfT?
If they've met that obligation, then any shortfall from 1997 to now is the responsibility of DfT.
Any shortfall prior to 1997 is BR, which is again the DfT.

Going forwards, any increased pension contributions for future liabilities will be part of the franchise agreements, &/or pay agreements.

If the DfT win, & try & impose historical deficits on future operators, there will be no bids, because the numbers simply won't add up.
So a Tory gov could end up finishing off TOC franchising, with the franchises having to be directly operated by DfT!
 

al78

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It could be if it was run competently by competent operators.

The reason many lines are unprofitable is because they are badly run by TOCs and badly funded by the government. If a sensible approach is taken and good quality services are offered there is no reason why these franchise can grow.

To grow you have to make the train option seem more appealing that the alternatives, in many cases at present that just is not done.

I thought it was because many lines are branch lines serving many small/low population settlements in rural areas which are never going to generate high enough passenger numbers to make a profit, e.g. the line north of Inverness. In such places, the car will be most convenient for the majority because rail will have an infrequent service, and probably be full of stopping trains, thus slow. The profitable lines in the UK are going to be the inter-city routes which serve the big cities plus the surrounding commuter towns.
 

Altfish

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As someone who has been involved in numerous construction bids for various companies one rule we always followed was...If we are submitting a non-compliant bid (as an alternative) we always submitted a compliant bid too.

So in this case, what I don't understand is why Stagecoach/Virgin didn't put a price together to cover the pension requirements, then add (say) 20% and submit that bid along with the alternative bid that didn't include the pension uplift.

If they win the bid they get a good fee, if they don't win the bid at least they won't be banned from submitting future bids.
 

Bletchleyite

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It could be if it was run competently by competent operators.

There is no way Northern could ever be profitable unless you closed half of it and converted half of the rest to Metrolink with its higher fares, unstaffed stations and DOO. (Note: this post is not expressing support of such a proposal).
 

option

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As someone who has been involved in numerous construction bids for various companies one rule we always followed was...If we are submitting a non-compliant bid (as an alternative) we always submitted a compliant bid too.

So in this case, what I don't understand is why Stagecoach/Virgin didn't put a price together to cover the pension requirements, then add (say) 20% and submit that bid along with the alternative bid that didn't include the pension uplift.

If they win the bid they get a good fee, if they don't win the bid at least they won't be banned from submitting future bids.

Problem is that it seems no-one knows what that number...
was when the DfT asked for bids
is likely to be when the franchises start
& would it change during the franchise period
 

leightonbd

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Putting a price on a pension liability is very, very difficult. The size of the liability is defined by (among other things) interest rate changes, bond and equity price changes ... changing the investment mix to make it manageable is possible but still has exposure ... and selling the liability to someone else is monstrously expensive, for those reasons.

More importantly, it’s nothing to do with making the trains run on time. I’m not familiar with the bidding process, though I understand the concept of tender terms and compliant bids, but the DfT is not helping anyone if the idea is that you bid to run the railway and you also bid to manage (as opposed to contuining to pay a contribution into the pension fund) the pension deficit. Two completely different skills.
 

DynamicSpirit

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7th June. Bye bye grayling, you won't be missed.

Before people start wishing too much for Chris Grayling to go, it might be worth remembering that (a) Grayling has been steadfast in his support for HS2, while other Tories keep threatening to cancel it, and (b) His replacement is certainly going to be a Tory - which means there's a pretty good chance that his replacement will be a friend of roads, not of railways.

In a few months' time, certain people might be deeply regretting wishing for Grayling to get replaced.
 

sleepy_hollow

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More importantly, it’s nothing to do with making the trains run on time. I’m not familiar with the bidding process, though I understand the concept of tender terms and compliant bids, but the DfT is not helping anyone if the idea is that you bid to run the railway and you also bid to manage (as opposed to contuining to pay a contribution into the pension fund) the pension deficit. Two completely different skills.

Or expressing this another way, from the practical viewpoint, if you set out to run a competitive tender, and find that you have only one compliant bid, then either you are genuinely buying something that has only one supplier, or you need to consider whether your specification was correct.

The legal question of whether an irrelevant specification makes the tender process invalid under relevant public procurement law, is another matter, and could be very interesing.
 

Class 170101

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The fact there is a shortfall in pensions is a disgrace. Modern day Robin Hood-Gordon Brown responsible for that by raiding the pension funds

But remember didn't businesses' take pension contribution holidays - I'd be surprised if the employees did.
 
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