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Rail franchise row moves to High Court

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Jorge Da Silva

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https://www.thetimes.co.uk/article/rail-franchise-row-moves-to-high-court-dbr6mvwpb

Four of Europe’s leading train companies will be in the High Court on Monday to accuse the government of acting unlawfully in the tender process to run HS2 and other rail franchises.

Sir Richard Branson’s Virgin Trains, Stagecoach, which used to be Britain’s biggest train operator, SNCF, the French state railway, and Arriva, the British division of Deutsche Bahn, claim that the Department for Transport acted unlawfully by disqualifying them from winning franchises in a row over pension liabilities.

The case is being seen as a watershed moment for the privatised rail industry. It opens up the possibility that the competition to run HS2 and the lucrative west coast main line may have to be re-opened or that the entire franchising of train operations to…
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Aictos

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I’m fed up of the trouble that the West Coast brings with lawsuits, First/Italian Railways won so get over it.

The line needs stability and the various legal challenges are not giving this.
 

LNW-GW Joint

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There's quite a lot at stake, but I shouldn't think First/Trenitalia's ICWC operation is at risk.
The case is more about getting a ruling on pension liabilities of franchise holders, and clarity for future bids.
It might mean damages and loss of face for DfT if they lose, but they do seem confident of their position.
In any case, we are expecting a major change in the franchising process after the Williams review, so it may not mean much in the long run.
The future of the HS2 side of the franchise will become clear (or not) soon.
 

Robertj21a

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I’m fed up of the trouble that the West Coast brings with lawsuits, First/Italian Railways won so get over it.

The line needs stability and the various legal challenges are not giving this.

It's nothing to do with 'get over it', it's to check on the legal situation.
 

Bletchleyite

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I hope Virgin/Stagecoach are ruled to be correct, as the residual final salary pensions really need to sit with a Governmental organisation and no new ones to be instituted as per every other industry. They are essentially a pyramid scheme.
 

Class 170101

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I think if Stagecoach et al win then Pensions will be poorer for all or nearly all - with only the top top individuals getting really good retirements and the rest having to work until they drop.
 

WatcherZero

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So you think pensions will be worse if they are public rather than private?

Its not the terms of the pensions that are at stake but whether the government can offload the liability for a multi decade funding shortfall in public pensions (that to a degree pre-dates privatisation) onto the temporary private custodians of the franchises.
The Tocs are already having to put in £100m a year extra into the rail pension fund to top up this historic liability.
 

Robertj21a

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I think if Stagecoach et al win then Pensions will be poorer for all or nearly all - with only the top top individuals getting really good retirements and the rest having to work until they drop.

How do you explain that ?
 

Failed Unit

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I am no fan of Stagecoach / Virgin either. But will watch this with interest. I know they can’t reverse the awards of either West Coast or EMR. But if they win and either franchise runs into trouble this will get very messy very quickly. Especially on EMR where abellio have already got 3 franchises in deep trouble.

Stagecoach / virgin could do very nicely out of the compensation. DfT will carry on no different and us taxpayers think when will someone hold dft to account.
 

Snow1964

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It’s not just the West Coast, part of the South West Trains franchise was said to have been lost due to non compliant bid.

I think of of the financial reporting organisations said that pension liabilities were part of it, and another was the inability to guarantee new stock would be on time, and another was infrastructure couldn’t handle the required capacity until upgraded (Can’t remember article exactly)

Of course we all now know that SWR is trying to renegotiate, which is rather difficult for DfT as it rejected opposition for not being able to deliver, what SWR now can’t manage either, having over-promised and subsequently discovering it can’t deliver
 

Class 170101

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So you think pensions will be worse if they are public rather than private?

Its not the terms of the pensions that are at stake but whether the government can offload the liability for a multi decade funding shortfall in public pensions (that to a degree pre-dates privatisation) onto the temporary private custodians of the franchises.
The Tocs are already having to put in £100m a year extra into the rail pension fund to top up this historic liability.

How do you explain that ?

Do you really think the Treasury will top up the pension pot if they lose? The Government will either just pass a law meaning the pension schemes can pay out less on the basis the pot isn't covering its liabilities or will just let the pensions go to the wall to force the issue for staff to accept lower pensions on the basis its that or nothing at all.
 

43096

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It’s not just the West Coast, part of the South West Trains franchise was said to have been lost due to non compliant bid.

I think of of the financial reporting organisations said that pension liabilities were part of it, and another was the inability to guarantee new stock would be on time, and another was infrastructure couldn’t handle the required capacity until upgraded (Can’t remember article exactly)

Of course we all now know that SWR is trying to renegotiate, which is rather difficult for DfT as it rejected opposition for not being able to deliver, what SWR now can’t manage either, having over-promised and subsequently discovering it can’t deliver
I would think Stagecoach are watching SWR very closely. Not only is there this issue, but a precedent was set with VTEC. If SWR are bailed out, then what is so different from VTEC?
 

43096

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That is my fear of the current situation. Bid what you like - win. Fail to deliver - Renegotiate.
That appears to be First's business model. I think it's a pretty dishonest way of doing business - promise loads then fail to deliver, blame someone (anyone, depending how desperate you are) else, then try to negotiate your way out of it.
 

scrapy

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I hope Virgin/Stagecoach are ruled to be correct, as the residual final salary pensions really need to sit with a Governmental organisation and no new ones to be instituted as per every other industry. They are essentially a pyramid scheme.
With the exception of ex-BR staff railway pensions effectively stopped being final salary pensions a few years ago.

The deficit in ex-BR pensions should be met by the government as John Major promised to do at privatisation, then any new franchisee would only be liable for keeping their part of the pot topped up.
 

Jorge Da Silva

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Four of Europe’s leading train companies will be in the High Court on Monday to accuse the government of acting unlawfully in the tender process to run HS2 and other rail franchises.

Sir Richard Branson’s Virgin Trains, Stagecoach, which used to be Britain’s biggest train operator, SNCF, the French state railway, and Arriva, the British division of Deutsche Bahn, claim that the Department for Transport acted unlawfully by disqualifying them from winning franchises in a row over pension liabilities.

The case is being seen as a watershed moment for the privatised rail industry. It opens up the possibility that the competition to run HS2 and the lucrative west coast main line may have to be re-opened or that the entire franchising of train operations to private companies could be unworkable because of the cost of the retirement schemes for railway workers.

The hearing comes amid mounting tension between the government and transport companies. Ministers have threatened to take action against or to nationalise Northern, Transpennine Express and South Western Railways because of poor performance.

The industry is also awaiting publication of the government-commissioned Williams rail review, which could propose taking the operation of the railways out of the hands of civil servants and putting it into an arms-length agency.

The court hearing due to begin on Monday will be seen as a test of the credibility of Peter Wilkinson, the senior civil servant in charge of rail franchising, whose tenure has been punctuated by rows with the train operating companies and unions.

At issue is the Railways Pension Scheme, the one part of the railways that was not broken up or reformed at the time of privatisation in the 1990s. It is a final-salary scheme in which retirement benefits are calculated on length of service and annual pay at the date of retirement. The scheme is £7.5 billion in deficit and underfunded liabilities are rising at £550 million a year.

The issue came to a head during the retendering of three franchises last year, with bidders disqualified from the Southeastern, East Midlands Trains and West Coast Partnership franchises.

The bidders demanded to know from the Department for Transport whether the pensions regulator was going to enforce a plugging of the deficit on employers and how much of the liability would fall on train operators.

Virgin and Stagecoach teamed up with SNCF to bid for the West Coast Partnership franchise, but when the consortium raised the pensions question it was disqualified.

A spokesman for Stagecoach said: “We believe in a rail system that is focused on delivering the best services for customers, is financially sustainable and has the confidence of the public. It is disappointing that we have had to resort to legal action. However, we believe there are important issues to be determined by the court and we have a strong case.”

Full article
 

thedbdiboy

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That is my fear of the current situation. Bid what you like - win. Fail to deliver - Renegotiate.
Have you been following the story? It wasn't 'bid what you like' that has landed DfT in court, it was the DfT attempting to push unquantifiable risks on to bidders and then disqualifying those that did not comply. Failure to deliver (as is happening with a number if franchises) results in a very expensive forfeit of the bond, and there is no renegotiation of existing contracts. The current system is dead. Don't expect future contracts (I refuse to call them franchises!) to be anything like the current ones, the mix of reward and risk has got hopelessly muddled.
 

Starmill

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Of course we all now know that SWR is trying to renegotiate, which is rather difficult for DfT as it rejected opposition for not being able to deliver, what SWR now can’t manage either, having over-promised and subsequently discovering it can’t delive
I’m fed up of the trouble that the West Coast brings with lawsuits, First/Italian Railways won so get over it.

The line needs stability and the various legal challenges are not giving this.
That is my fear of the current situation. Bid what you like - win. Fail to deliver - Renegotiate.
That appears to be First's business model. I think it's a pretty dishonest way of doing business - promise loads then fail to deliver, blame someone (anyone, depending how desperate you are) else, then try to negotiate your way out of it.

I know everyone likes having their 'hot take', but these ones all seem to based on the idea that a government contractor makes a profit out of winning the Department's tender, performing very poorly against the contract benchmark and then defaulting on the payments once the bond the winners were required to put up when they won is all spent.

That's simply not true.

As it stands, in a small way, Dutch and German taxpayers have been funding some British railway's operating losses. Profits on other lines, from other parts of the transport businesses they're invested in, and complex commercial structures can hide the true figures quite effectively, though. And that's before we come to owning groups making money by using rail franchises to award themselves business, although there's not a very great deal of scope for that.
 

Failed Unit

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Have you been following the story? It wasn't 'bid what you like' that has landed DfT in court, it was the DfT attempting to push unquantifiable risks on to bidders and then disqualifying those that did not comply. Failure to deliver (as is happening with a number if franchises) results in a very expensive forfeit of the bond, and there is no renegotiation of existing contracts. The current system is dead. Don't expect future contracts (I refuse to call them franchises!) to be anything like the current ones, the mix of reward and risk has got hopelessly muddled.
Indirectly it has. The EMR franchise had 1 bidder because the other 2 wouldn’t submit a “compliant” bid. We will see how it works out but the winner has bid what they like.
 

Aictos

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That well be regarding the pensions but I have to ask is the DfT fit for purpose? Especially if we are seeing legal case after legal case in some form or other...
 

Starmill

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Indirectly it has. The EMR franchise had 1 bidder because the other 2 wouldn’t submit a “compliant” bid. We will see how it works out but the winner has bid what they like.
This doesn't make any real sense at all.

If you thought you were the only bidder who had met all of the pass/fail criteria, you would submit a relatively expensive (i.e. less competitive) bid.
 

Failed Unit

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This doesn't make any real sense at all.

If you thought you were the only bidder who had met all of the pass/fail criteria, you would submit a relatively expensive bid.
Had they not submitted the bid before the other 2 were disqualified? But when you consider the parents group track record of franchises in trouble they would have probably won it anyway.
 

matt_world2004

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I know everyone likes having their 'hot take', but these ones all seem to based on the idea that a government contractor makes a profit out of winning the Department's tender, performing very poorly against the contract benchmark and then defaulting on the payments once the bond the winners were required to put up when they won is all spent.

That's simply not true.

As it stands, in a small way, Dutch and German taxpayers have been funding some British railway's operating losses. Profits on other lines, from other parts of the transport businesses they're invested in, and complex commercial structures can hide the true figures quite Welcome to Gboard clipboard, any text that you copy will be saved here. owning groups making money by using rail franchises to award themselves business, although there's not a very great deal of scope for that.
Abellio and Arriva bid with the expectation to make a profit.the fact that they got their sums wrong is not the government's or the dfts fault unless the DFT mislead them or broke their contract with them. In which case they should sue.
 

Starmill

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Abellio and Arriva bid with the expectation to make a profit.the fact that they got their sums wrong is not the government's or the dfts fault
There has been nobody trying to claim that it is. There have also been no reported cases of contractors refusing to pay. Why does eveyone seem to think there are!?
 

Nicholas Lewis

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These are the four organisations taking the Dept of Transport the Technology & Construction Court next week

Stagecoach East Midlands Trains Limited v Secretary of State for the Department of Transport

Arriva Rail East Midlands Limited v The Secretary of State for Transport

West Coast Trains Partnership Limited and others v Department for Transport

Stagecoach South Eastern Trains Limited and others v Secretary of State for the Department of Transport
 

fishtastic

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The thing that gets me about this is Virgin didn't want to be held liable for a pension pot shortfall in the next franchise, ok fair enough but since they had ran the franchise for the previous 20 years surely any shortfall was because they hadn't put in enough.
 

py_megapixel

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Is it actually true that Stagecoach "used to be Britain's biggest train operator?"
The only franchises they had were EMT, SWT and Virgin, and Virgin CrossCountry didn't overlap with VTEC as far as I can remember.
 
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