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Discussion in 'UK Railway Discussion' started by Jorge Da Silva, 17 Apr 2019.
DfT confirmed Arriva was disqualified from East Midlands Franchise.
Could be the start of something interesting.
Well, if they had only one bidder this does show things are rather broken.
Seems a bit crazy to go forward if there's only one bidder. Surely, it should have been reissued.
Having had to axe the XC competition due to lack of interest along with the near collapse of the SE competition as well as the ongoing minor rumblings after VTEC collapsed I imagine the DfT were desperate to avoid having to axe another competition come hell or high water.
It was announced in Parliament at the same time as part of the answer to the urgent question raised last week as I recall and it was for the same reason as Stagecoach. Pensions.
I'll repeat what I heard the Rail Minister (Andrew Jones) say to the Commons last week, now quoted in Hansard (column 466, answering Anna Soubry):
So unless the minister was "misleading the house", Abellio would have won regardless of compliance issues and disqualifications.
I saw a throwaway line to the Arriva being disqualified too the day Stagecoach story broke in one article but it was never repeated so I assumed it was a misprint...
So Stagecoach and Arriva sound like they had the same solution to the pensions issue but DfT didn't like it because it altered the commercial terms of the franchise. My hunch is they proposed using franchise premium payments to fund any potential shortfalls but DfT didn't like that because potentially less money for them - but they seemingly expect private companies to underwrite unknown liabilities.
Now if I were a First Group or Go-Ahead shareholder I would ask how they have protected themselves against these apparent pension liabilities that Stagecoach and Arriva wouldn't take on as DfT proposed.
...but I saw an RMT press release that said that the privatised railways were a guaranteed way of making mega-profits?
Interesting to compare the approach of Stagecoach and Arriva though - the former are quite up-front about their relationships with the Government, quite bullish, unapologetic. The latter are sneaking information out quietly - maybe, without "traditional" shareholders they don't have to, but you don't get the impression that Arriva are fighting as hard.
(maybe the Abellio bid was the best one regardless, but it makes the relatively underwhelming set of improvements promised in their bid feel even more flat if they were the only one still standing by the end of the process - much as I'd like to get excited about improvements on Doncaster - Lincoln, it's pretty thin gruel as far as winning franchise bids go)
The only bid is the strongest bid, naturally.
The tide's turning, and not a day too soon. No wonder rats like Branson are bailing off the ship.
The second we stop privatising profit and nationalising loss the corporate parasites are nowhere to be seen. Just fancy that.
With the pension issue, are the franchisee being asked to cover cost changes to pension benefits accrued during their franchise in the future, or to cover pension liabilities relating to issues with investments and actuarial changes relating to pension benefits accrued by the respective area under BR or previous franchises?
The franchise setup doesn't work terribly well with a DB pension scheme which does rather rely on the employer being around in the future to put in more money if required. A DC scheme, with equivalent employee/employer contributions (so ~30% of salary in total) might actually be a better solution if the railway is going to be run on ~10 year franchises.
Lets face it, the only two bits of British Rail that are nationalised, the infrastructure and the pensions fund have been run into the ground with terrible fiscal management and poor performance, its hardly a good advert for more state control.
All of it, most of the shortfall arises out of BR era final salary pensions, at the present the Tocs are being asked for and voluntarily providing top ups to the pension fund for liabilities that come due during their control (i.e. providing additional funds to assist in the purchase of annuities when current staff members retire). The Government which is the guarantor of the pension fund is presently the final guarantor of the fund and ultimately liable for all deficits (i.e. BR era employees who are not current Toc employees now retiring and becoming eligible for pensions, if the fund itself collapsed or there was a serious shortfall). The government is asking them to take over from it lifetime responsibility, i.e. if someone retires 10 years after their franchise ends and there is a shortfall the former Toc would have to provide some of the top up.
Stagecoach and Arriva were right then !
This however leaves a small problem, if private companies start bailing from a privatised industry, who will run them in future when you have a government wholly committed to the private model? Don't get me wrong, I'd love to see a renationlised railway network but it isn't going to happen for a long time, if ever. So if the government won't run it, and the corporates won't run it, what's going to happen? If this continues get ready to say bye bye to a lot of the network in the coming decades.
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?
Perhaps the East Midlands section is in the red, while the others are in the black, so it would be easier to see what's what.
Abellio was the only compliant bid. They win no matter how good the terms were of their bid.
If the others weren’t compliant I’m not sure what they expected in honesty!
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.
I would probably agree if it appeared that there had been an opportunity for Stagecoach and Arriva to resubmit compliant tenders. From what I've read so far it appears that little/no communication was forthcoming. I appreciate that we don't know what was said between the parties but it seems very odd for them to continue to plough large amounts of money into preparing their bid if they didn't think it was going to be considered.
I'm not certain if your allowed to talk to bidders in this way, during tending processes. I'm sure it goes on in this world but I don't know if it is legal when it does in the UK.
There's usually been contact between the parties, if only to clarify points of detail, before the tenders are finally considered.
Usually any questions or clarifications from bidders, and the response from the tenderer have to be shared with all bidders to ensure it's fair.
The client will make it clear on how questions should be raised - sometimes via an email address, or via the messaging system on the procurement portal that's being used. It's a big no-no to try and go around this process and use personal contacts to get extra information - that risks disqualification, and being banned from future bids for a time.
The question is whether Arriva and/or Stagecoach knowingly submitted non-compliant bids (because compliance was imposed too much commercial risk) with the expectation that everybody else also would. Alternatively, perhaps they felt their non-compliant bid led to a better outcome for the client. However, if Arriva/Stagecoach believed their bids were compliant, but DfT deemed that they were not, then everybody is going to get lawyered up.
When I ran a public procurement (tens of millions of pounds, nothing to do with rail) we still conducted a "sanity check" at the end of the exercise to validate that our selected winning bid really met the requirements placed on us at the start of the process when we constructed the tender. Was it still "value for money" as well as being "best value for money"? This was a relatively informal process.
Had there been only one compliant bid, I would have expected a more formal analysis of the bid, with the option of rejecting the bid and re-running the procurement process always on the table. Appropriate management structures are necessary to prevent the bid team coming under excessive pressure to accept the only compliant bid at all costs.
I would expect and hope that something similar would have been conducted in this case. It requires the bid team to be appropriately motivated and not subject to undue pressure, which is a management issue, which was definitely correctly handled when I ran a procurement.
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.
Very true. I can't help thinking that, in the long run, Stagecoach will be a lot happier than Abellio. I just wonder if Abellio truly understand their commitment.
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.
I wouldn't trust anything about pension shortfalls after the tricks they tried to play on members of the USS universities scheme. Much of these "shortfalls" are political tricks to make members pay more for less benefit. The accountancy is...interesting.
As for infrastructure, it was privatised. And that privatisation killed people. NR's cost controls aren't brilliant but they're reliant on contractors; they're hard to control when the botched privatisation stripped out all the internal asset management and engineering skills.
The way of fixing something is to acknowledge it is broken.