First will not take over West Coast from December

[tbtc]

The interesting thing is its now emerging there were two flaws found in the process, the current one that Virgin complained about in an independent report submitted 5 days before the award and a seperate unknown 'minor flaw not expected to affect the result' that the Dft found a week before the award and Greening commissioned PWC to investigate. This PWC investigation while working on another task then uncovered the flaw of interest not being included in the computerised risk model.

Other than "First should have had to pay a bigger bond to cover the larger risk of their bid", how much was fundamentally wrong?

Everyone is criticising the process (fair enough), but I've not seen any evidence of why Virgin had a better bid.

 

[LNW-GW Joint]

Germany doesn't have a franchising system like our franchising system.

No, but they do own Arriva and 3 UK franchises - not that you'd know from the trains.
No sign of any German management or input, for instance (unlike Dutch managers at Abellio franchises Merseyrail and GA - not sure about Northern).
And DB does bid for contracts with the German regions (and sometimes loses).

 

[WatcherZero]

No, but they do own Arriva and 3 UK franchises - not that you'd know from the trains.
No sign of any German management or input, for instance (unlike Dutch managers at Abellio franchises Merseyrail and GA - not sure about Northern).
And DB does bid for contracts with the German regions (and sometimes loses).

Im sure I remember in the FT at the time it said the purchase of Arriva was so DB could get their hands on its continental operations to get a foothold and compete with SNCF, they wernt really interested in the UK operations and presumably thats why theyve paid them little attention since the takeover as well.

 

[HH]

Also we know it didnt affect the other two bids because the flawed computerised risk model was only used on the Virgin and First Group bid, a different evaluation was done as a first stage which eliminated the other two.

Simply not true. All bidders were contacted and told an amount that they needed to add as a subordinated loan, even if that amount was zero. Also, under the DfT's guidelines, ALL OTHER BIDDERS were eliminated at the first hurdle, leaving only First. Virgin were simply kept in play in case First dropped out at any point. This is standard DfT procedure.

It seems now the reason First's figures agreed with the Governments figures is because they used the original ITT documentation to recreate the model and so theirs didnt include inflation either, Virgin meanwhile in backwards engineering the dft model did include inflation in theirs. So looks like First arent at fault afterall, they just were stupid enough not to notice inflation wasnt accounted for when backwards engineering the model in the same way the Dft didnt notice.

Also completely false. The ITT did not include a model, or details of how such a model could be made. I have no idea where you got this from.

I hope that you're not going to start posting these totally erroneous claims again.

 

[LNW-GW Joint]

The Guardian is reporting that Kate Mingay, the corporate finance director at the DfT and former Goldman Sachs executive director, is the most senior person to be suspended.

Did you notice at the end of the Guardian article that VT might run WC under contract to DOR as a way round the immediate dilemma?
Not sure if this will suit Branson and Souter, but it's a neat way round the problem.
The boss of DOR, by the way, used to run Connex...

 

[HH]

The boss of DOR, by the way, used to run Connex...

That's somewhat misleading.

http://www.directlyoperatedrailways.co.uk/html/management-team.php

 

[Zoe]

The other factor that could be brought into play would be letting the market have more control of ticket prices on lower used services to get more people using trains

We already have that with advance fares. The TOCs have control of the price and number available on each train.

 

[LNW-GW Joint]

That's somewhat misleading.
http://www.directlyoperatedrailways.co.uk/html/management-team.php

I see he was the one who turned South Eastern round in public ownership.
Happy to correct.

 

[F Great Eastern]

Also completely false. The ITT did not include a model, or details of how such a model could be made. I have no idea where you got this from.

I hope that you're not going to start posting these totally erroneous claims again.

It's getting very tedious constantly reading the misleading stuff and I'm sick of reading it.

Members of this forum need to be very careful about posting such things as they may get a day out in court sooner or later

 

[WatcherZero]

Simply not true. All bidders were contacted and told an amount that they needed to add as a subordinated loan, even if that amount was zero. Also, under the DfT's guidelines, ALL OTHER BIDDERS were eliminated at the first hurdle, leaving only First. Virgin were simply kept in play in case First dropped out at any point. This is standard DfT procedure.


Also completely false. The ITT did not include a model, or details of how such a model could be made. I have no idea where you got this from.

I hope that you're not going to start posting these totally erroneous claims again.

The public ITT is not the whole thing as it contains sensitive financial information, growth forecasts, running costs, staffing costs, commercial deals, etc.... Only the Bidders invited to tender have the whole thing. All they publish publically is the evaluation matrix.

 

[Lampshade]

David Dimbleby referring to 'First Capital Direct'

 

[jon0844]

Oh no, it's not on Question Time is it?

That's going to be painful to watch given how most people don't have a clue about how the railway system operates. At least it will allow everyone to demand renationalisation and put all the blame on the Tories.

There, I don't have to watch it now!

 

[Masboroughlad]

Oh no, it's not on Question Time is it?

That's going to be painful to watch given how most people don't have a clue about how the railway system operates. At least it will allow everyone to demand renationalisation and put all the blame on the Tories.

There, I don't have to watch it now!

Janet Street Porter on QT has spoken most sense about the railways!

 

[HH]

The public ITT is not the whole thing as it contains sensitive financial information, growth forecasts, running costs, staffing costs, commercial deals, etc.... Only the Bidders invited to tender have the whole thing. All they publish publically is the evaluation matrix.

You do not know what you're talking about. The public ITT is the ITT. What bidders get additionally, with all the figures in (but it does not contain forecasts) is called the LFR.

The DfT supplied bidders with only the vaguest outline of their solvency test. There is absolutely no way that anyone could have duplicated their model from what was handed out. If First had received enough information to recreate the DfT model, alone of all the bidders, then there would be criminal proceedings, not just suspensions.

You really should not pretend to knowledge that you don't have.

 

[Realfish]

The interesting thing is its now emerging there were two flaws found in the process, the current one that Virgin complained about in an independent report submitted 5 days before the award (seen by channel 4), dismissed by the Dft but then found by the PWC audit, and a seperate unknown 'minor flaw not expected to affect the result' that the Dft found a week before the award and Greening commissioned PWC to investigate (reported by Conservative Home). This PWC investigation while working on another task then uncovered the flaw of interest not being included in the computerised risk model (Guardian/BBC). Its also funny to watch how the different news outlets attack the story from different angles and find different insider sources and different aspects of the story in their investigations.

Also we know it didnt affect the other two bids because the flawed computerised risk model was only used on the Virgin and First Group bid, a different evaluation was done as a first stage which eliminated the other two. It seems now the reason First's figures agreed with the Governments figures is because they used the original ITT documentation to recreate the model and so theirs didnt include inflation either, Virgin meanwhile in backwards engineering the dft model did include inflation in theirs. So looks like First arent at fault afterall, they just were stupid enough not to notice inflation wasnt accounted for when backwards engineering the model in the same way the Dft didnt notice.

But I thought that they did include an assumption for inflation and GDP (ones of their choosing that led to an inflated bid?) This is what O'Toole said (somewhat flippantly, I think) at the TSC:

Tim O’Toole: The commitment we have made in our bid is, first, to create a more sensible fare structure. The first step out of the blocks is that we are going to reduce the Standard Anytime fares by 15% within the first two years.

Q500 Chair: You say you would, but is that going to be a contractual commitment within the franchise?

Tim O’Toole: Absolutely. We say within the first two years but it will happen in about 13 months. We will do it coincident with the regulated fare changes. The assumptions on fare increases over time in the bid simply assume a certain level of RPI and the like. If that isn’t there, it is all right with us because our premium is lower. That is just the mathematics of putting together the bid.

Regarding the backward engineeering, O'Toole said this;

Q510 Kwasi Kwarteng: A lot of the debate has surrounded this £200 million figure as an insurance cushion. The suggestion has been made that this £200 million is too small given the risks involved in your bid. What would you say to that? We heard earlier that a figure of £600 million might be more appropriate.

Tim O’Toole: We think we understand how Virgin tried to back-engineer and get to the £600 million. We understand the formula. We believe they have used the wrong inputs because, when we do it, we get to the same number that the Department got to. I think the problem is simply that they don’t understand our model because they haven’t seen it.


On the question of who takes over on the 9th December, obviously no news yet, and whilst Virgin consequently seemed to be quite measured in their response yesterday, I wonder if they have gone back on the attack, with the release of their 'sorry you've been unsuccessful' letter from the DfT, an assertion from 'VT insiders' that there was an ABV hard core in the Dept, and C4 getting hold of their report challenging the rationale for the selection of First, the decision having been leaked.

Mind you C4 were guilty of grandstanding telling viewers that the ITT flow diagramme they showed 'had come into their possession'. It is of course on-line for anyone to see.

 

[jon0844]

Janet Street Porter on QT has spoken most sense about the railways!

I saw her at a panel with TfL once where she was giving ideas on how to make home working work. She spoke a lot of sense then too.

 

[HH]

But I thought that they did include an assumption for inflation and GDP (ones of their choosing that led to an inflated bid?) This is what O'Toole said (somewhat flippantly, I think) at the TSC:

Tim O’Toole: The commitment we have made in our bid is, first, to create a more sensible fare structure. The first step out of the blocks is that we are going to reduce the Standard Anytime fares by 15% within the first two years.

Q500 Chair: You say you would, but is that going to be a contractual commitment within the franchise?

Tim O’Toole: Absolutely. We say within the first two years but it will happen in about 13 months. We will do it coincident with the regulated fare changes. The assumptions on fare increases over time in the bid simply assume a certain level of RPI and the like. If that isn’t there, it is all right with us because our premium is lower. That is just the mathematics of putting together the bid.

I'm sure that I covered this in the last thread, but I'll do it again. Fares increase by RPI (+1% or so, but this isn't relevant here) each year. So do the Franchise Premiums (and NR charges, and probably pay). All that OT is saying here is that if RPI is lower, so his income is lower, then he has a natural hedge in that his costs are also lower. This is substantially true, although there would be some diminution in profit (some costs are fixed or on fixed increases, and there is a gap between revenue & costs).

Regarding the backward engineeering, O'Toole said this;

Q510 Kwasi Kwarteng: A lot of the debate has surrounded this £200 million figure as an insurance cushion. The suggestion has been made that this £200 million is too small given the risks involved in your bid. What would you say to that? We heard earlier that a figure of £600 million might be more appropriate.

Tim O’Toole: We think we understand how Virgin tried to back-engineer and get to the £600 million. We understand the formula. We believe they have used the wrong inputs because, when we do it, we get to the same number that the Department got to. I think the problem is simply that they don’t understand our model because they haven’t seen it.

I can't pretend to know why OT said that; I suspect that it was simply bravura, just like Branson's claims were. Neither side can know how the other arrived at such figures, and nor can they know how DfT arrived at theirs. Well unless someone at DfT did something that they shouldn't, but I think that highly unlikely.

This is a very complex area, and I doubt whether either of them understand how risk calculations work.

 

[eastdyke]

....
I can't pretend to know why OT said that; I suspect that it was simply bravura, just like Branson's claims were. Neither side can know how the other arrived at such figures, and nor can they know how DfT arrived at theirs. Well unless someone at DfT did something that they shouldn't, but I think that highly unlikely.

This is a very complex area, and I doubt whether either of them understand how risk calculations work.

Wow!

There will be peeps on here that do/did work for the DfT, there will be peeps on here that do/did work for TOC's - and in both cases at various levels of franchise knowledge/involvement.

There will be other peeps who have had involvement in complex contractual dealings with Governments.

We are where we are (sadly) but quite frankly even you HH should not be thinking that anything is now 'highly unlikely' (unless of course that you KNOW).

 

[YorkshireRider]

Other than "First should have had to pay a bigger bond to cover the larger risk of their bid", how much was fundamentally wrong?

Maybe nothing, but if the dft had gone back to them and said, yeah the bids fine but we'll need a £600m guarantee loan, you think they would have signed on the bottom line? No me niether.
--- old post above --- --- new post below ---

This is a very complex area, and I doubt whether either of them understand how risk calculations work.

If this the case, how did they manage to negogiate down their levels of guarantee with the dft, surely they must have had some understanding of it as both were succsessful. (At least First were by about £15m, i think i read on here that Virgin were too but could be wrong about that).

 

[HH]

Wow!

There will be peeps on here that do/did work for the DfT, there will be peeps on here that do/did work for TOC's - and in both cases at various levels of franchise knowledge/involvement.

There will be other peeps who have had involvement in complex contractual dealings with Governments.

We are where we are (sadly) but quite frankly even you HH should not be thinking that anything is now 'highly unlikely' (unless of course that you KNOW).

I was talking about O'Toole and Branson. There may be people at First & VRG that have some understanding of Risk Models. But what was said by the esteemed leaders doesn't show any such understanding.

Let me elucidate a bit. In order to calculate the risk someone would have to estimate both the probability and the size of a number of risks, on things such as GDP, RPI, Fuel Prices PLUS the risks inherent in some of their plans. The chances of two sets of people arriving at almost exactly the same level of risk (considering that we are talking about ~£30bn cumulative turnover) are vanishingly small.

--- old post above --- --- new post below ---

If this the case, how did they manage to negogiate down their levels of guarantee with the dft, surely they must have had some understanding of it as both were succsessful. (At least First were by about £15m, i think i read on here that Virgin were too but could be wrong about that).

As I already noted, Virgin had theirs reduced from £71m to £40m just by asking DfT how they reached the figure (this is stated by Virgin in their claim). This is the only bit of information I would trust.

I have one final point to make on this subject. Both OT & SB were happy with their levels of subordinated loans. However we now know that the DfT numbers were flawed. Are we saying that First and VRG had exactly the same flaws in their independently created models? It's clearly nonsense; the only conclusion is that they were both happy with their numbers knowing that they were too low.

 

[Metroland]

Apologies if this has been posted somewhere else, according to the Daily Mail there was bias against Virgin at the DfT.

Derogatory emails about Sir Richard Branson’s Virgin Trains were allegedly sent between civil servants under investigation over the shambles of the West Coast mainline franchise.

The messages were between a dozen staff at the Department for Transport, which has been accused of allowing the development of a culture characterised as ‘ABB – Anyone But Branson’.

The emails were allegedly sent between those responsible for overseeing the franchise bidding and other decision-makers connected with the route.

The Government awarded the new £7billion franchise to FirstGroup, but cancelled it before the planned handover in December after Sir Richard’s Virgin group, which offered £700million less, made a successful legal challenge on the grounds that the Government ‘got its sums wrong’.

Last night an insider revealed: ‘There is electronic e-mail traffic between the officials. In some of them Virgin is referred to in derogatory terms. Some people sent these messages, others received them.’

Virgin executives have long been concerned about the perception of an ‘anti-Virgin’ bias and culture within the department characterised as ‘Anyone But Branson’.

http://www.dailymail.co.uk/news/art...r=/home/search.html?s=&authornamef=Ray+Massey

 

[LNW-GW Joint]

I love this extract from a Telegraph interview with Branson: http://www.telegraph.co.uk/finance/...haos-as-government-scraps-franchise-deal.html

As Branson put it: "As a dyslexic businessman I do everything on the back of an envelope. But I couldn't make FirstGroup's bid work on my envelope. The numbers just didn't add up

Neatly summarises a 93-page ITT and 1500-page bid costing £14m.

 

[kylemore]

I saw her at a panel with TfL once where she was giving ideas on how to make home working work. She spoke a lot of sense then too.

Poor woman never recovered from the "Not The Nine O'Clock News" impression, what's she up to these days?

 

[bladesman123]

Stuff the lot of them, bring back BR

 

[jon0844]

Poor woman never recovered from the "Not The Nine O'Clock News" impression, what's she up to these days?

When I saw her, she was working mostly from home (hence her promoting it as a way to reduce the demand on public transport). Seems like she's still doing lots of things.

She was very sensible in not pretending everyone could work from home, that it has social issues (like the lack of social interaction with other people) and had many good suggestions, like encouraging local places for home workers to work from (basically like many people in cities work from a Starbucks) and ways employers can keep in touch.

She also discussed the issue of employers not trusting staff, which was and is a major issue.

Then when TfL began to talk, it was clear that they don't want people working from home. It's not about reducing congestion, but working to get more and more people to travel. Hence they weren't responsive to ideas about flexible working hours or flexible season tickets that might allow people to 'afford' to work from home once or a twice a week.

As it stands, anyone with an annual season ticket might as well travel to work if they've paid for it anyway.

 

[Xenophon PCDGS]

Stuff the lot of them, bring back BR

If by this, you are referring to Boudicca Rex in your quote, she certainly sorted out the London based problems in her days....

 

[Oswyntail]

If by this, you are referring to Boudicca Rex in your quote, ....

Paul, Paul:roll:

 

[Xenophon PCDGS]

Paul, Paul:roll:

There are times when a thread needs some light-hearted relief from the bitterness and acrimony that began to surface, prior to the forum clean-up earlier today on this thread....and this is surely one of these.

 

[tbtc]

Other than "First should have had to pay a bigger bond to cover the larger risk of their bid", how much was fundamentally wrong?

Everyone is criticising the process (fair enough), but I've not seen any evidence of why Virgin had a better bid.

Maybe nothing, but if the dft had gone back to them and said, yeah the bids fine but we'll need a £600m guarantee loan, you think they would have signed on the bottom line? No me niether

True - I just can't see any evidence of why Virgin had a better bid than First, regardless of the "flawed" process - everyone now thinks that it was flawed (and First shouldn't have been awarded it under those rules) but nobody can tell me why Virgin should have won.

 

[krus_aragon]

If by this, you are referring to Boudicca Rex in your quote, she certainly sorted out the London based problems in her days....

My Latin's not what it ought to be, but do you mean Boudicca Regina?