Stagecoach disqualified from three franchise competitions

[matacaster]

Unimpressed by EMT. Poorly maintained interiors, weekend first class abysmal, poorly stocked buffet. Shoddy! Much better when NAT express? Used to run franchise.

 

[sleepy_hollow]

For rail franchises it can easily be guessed by how much interaction is going on with DfT given the level of questions...

For stockmarket reason DfT are usually very keen for it all to be annouced officially pre 0730 one morning but they also don't wan the losing bidders announcing early as that gives them less power to negotiate with the bidder in 1st place

The customer I have most experience of did not negotiate, at least not according to the rules. It expected compliance with its requirements, and usually with a budget and awarded against marking. Second and third world countries procuring what you might call commodity style products seem to go for public opening of sealed bids, with public award to the lowest compliant bidder.

In principle it is a somewhat strange way to go about buying something - refusing to talk to the suppliers whilst they are preparing their response. The pickles DfT seem to get into make it difficult for the layman to work out what version of the rules they are using.

 

[cactustwirly]

I think you're spot on there. I suspect what they've done is decide what level of risk they were willing to take, and if it wasn't good enough for the DfT, they'd walk away.

I get the impression that the Stagecoach bus/coach business is in good shape, so it's probably enough to keep things ticking over nicely for now.

The bus business isn't in that good of a shape, its an industry in decline, and some operations are hemorrhaging money!

 

[Bletchleyite]

The fundamental problem here is final salary pensions. They mean the franchise (with a tiny margin compared with bus operations) has to take the massive risk of having to basically insure the scheme against things totally out of their control such as movement of the stock market and similar investments.

Really, the railway needs to close all the final salary schemes to new applicants as every other area of business has done. Then the existing pensions (which staff would keep if they ever had one, assuming they wish to, so no need for the Unions to get hot and bothered about it[1]) need vesting in a Government owned scheme completely separate from the franchisees to ensure they are safe.

[1] They may still do, but should not be pandered to if they do.

 

[cactustwirly]

Take it this will also mean the end for Megabusplus and its integrated Coach/Train service from Yorkshire to St Pancras via East Midlands Parkway if Stagecoach decide not to challenge the decision?

They've lost the EMT franchise anyway, so it's gone even of Stagecoach challenge the decision

 

[Bletchleyite]

The bus business isn't in that good of a shape, its an industry in decline, and some operations are hemorrhaging money!

They still run at much higher (typically over 10%) profit margins than rail (about 3% if I recall correctly).

 

[LOL The Irony]

Who knows, maybe after having thrown their hat into these bids, Stagecoach have deliberately thrown their bid? Stranger things have/are happening!

If that's the case, could Virgin sue for their stake in VRG back?

 

[Geezertronic]

Mainly as virgin own a lot of the big stations on the WCM

They manage stations not own them. The big stations (like London Euston, Birmingham New Street, Manchester Piccadilly etc...) are managed by Network Rail

 

[whhistle]

If that's the case, could Virgin sue for their stake in VRG back?

Would they go after the Government or Stagecoach, who as someone else said "led the bid"?

 

[LOL The Irony]

Would they go after the Government or Stagecoach, who as someone else said "led the bid"?

Well Her Majesty's Government doesn't own 49% in Virgin Rail Group but that still doesn't rule out a lawsuit against them.

 

[DarloRich]

Iam not saying pensions is a petty issue, the government is being petty for using such a big issue that they caused as a result of the broken franchise system to shame and blame stagecoach. This is basically another punishment for stagecoach. Yes they should have been more careful with their bids but at the same time:

1) the government had had months to make stagecoach aware of the issue so they can fix the bid

2) this issue should have been flagged when all the bids were rejected for the SE franchise and had to be resubmitted

Yes stagecoach made mistakes but so have the government and bigger franchise owners like arriva and govia.
Abellio ain’t gonna be a decent replacement for stagecoach on EM considering their performance on GA and WMR

It is clear you don't get this or actually understand what has happened or why. Tendering is a competition. Competitions have rules. Stagecoach broke the rules by not answering the question correctly.

Say you entered a competition with the question what is the capital city of Denmark and you answered banana would you expect the competition organizers to ring you up and say you had got it wrong so you could have another go? What do you think would happen if DfT rang Stagecoach to discuss the bid, point out the faults and ask them to alter it? That's right, all the other bidders who did meet the rules would poop a brick and sue.

it isnt about shame or blame. It is about fair and transparent tendering rules. The other TOC's you mention haven't broken any tendering rules. That is the problem here.

This is absolutely heartbreaking. I feel very disappointed that the unfair play of Stagecoach has led to the demise of Virgin Trains, it’s just so unfair and upsetting to my mind.

really? heartbraking? really?

It's interesting that the Stagecoach is saying: https://www.bbc.co.uk/news/business-47877858

The bold (mine) suggests that they would have expected DfT to come back to them and negotiate on this issue. Along with the concurrent announcement of the East Midlands winner, the implication is that DfT may have decided the bid was unacceptable a long time ago but not announced until now so as to keep the other bidders honest. I would say they are at least laying the ground for a legal challenge, although if this is genuinely the first they have heard of it then it will take them some time to decide whether to go ahead and for the lawyers to draw it up.

but surely that is absolutely correct to maintain a fair competition.

 

[LNW-GW Joint]

They've lost the EMT franchise anyway, so it's gone even of Stagecoach challenge the decision

Not completely true.
There is a standstill period for legal objections (as Virgin did in 2012).
What Souter and Branson say in the next few days is crucial.

 

[cactustwirly]

I just hope stagecoach can iron out the issues with the bid and re submit in time for SE and West Coast. They should just let EM go at this point

They've been disqualified, the time is gone, and Stagecoach have lost out already!

 

[cactustwirly]

Iam not saying pensions is a petty issue, the government is being petty for using such a big issue that they caused as a result of the broken franchise system to shame and blame stagecoach. This is basically another punishment for stagecoach. Yes they should have been more careful with their bids but at the same time:

1) the government had had months to make stagecoach aware of the issue so they can fix the bid

2) this issue should have been flagged when all the bids were rejected for the SE franchise and had to be resubmitted

Yes stagecoach made mistakes but so have the government and bigger franchise owners like arriva and govia.
Abellio ain’t gonna be a decent replacement for stagecoach on EM considering their performance on GA and WMR

Stagecoach broke the rules, and got disqualified! That's how the bidding process works, it's not the DfTs fault!

Anyway I'm glad Abellio have won the EM franchise, it needed a new fresh operator

 

[AndrewE]

They appear to have been disqualified on the basis of pension risk and are held to have submitted a non compliant bid

Not surprised, its the governments fault that pensions for rail workers is a serious issue across the rail network

It's not actually

How to railway pensions work ? Assuming a long time rail employee retires now - who pays the pension ? Behind the scenes is it a proportional contribution from each of the funds set up by the franchisee's they used to work plus the State if they started as a youngster working for BR. Or does the current franchisee pick up the whole liability if there's a pension shortfall (most final salary schemes are in deficit currently) - in which case there would have been a pension asset transfer / financial settlement from the previous TOC's pension fund . Both systems sound highly bureaucratic and likely to be burdened with excessive admin costs. Another hidden issue with the franchise model ?

The pension funds are separate from franchises, paid into by employees and employers and with very large reserves.

At a very lay level, how would the government offload pension liabilities to the franchisee? I can't see how they could do anything that lasts longer than the franchise period, as the keys will be handed back to the government (or passed on to the next franchisee) at that point.

The root of the problem is that even big supposedly blue-chip companies have been going bust, having deliberately not handed over the taxes and pension contributions they should have paid.
The independent Railway Pension Fund recognises the higher risk to the overall fund and to the specific company section from possible fly-by-night TOCs and has decided to charge those employers (not all by any means) higher employer contributions. It sounds as though these clowns decided they were too important to pay up. There was something about it on R4 early in the morning in the last week (which I think said the Pensions Regulator had driven the change,) but I can't find it reported online anywhere.

 

[DarloRich]

It's not actually

just reporting what i heard on the radio first thing this morning. They used the phrases "disqualified" & "pension risk". If, as you say, they refused to pay all of their required contribution that is still a pension risk!

 

[ForTheLoveOf]

The root of the problem is that even big supposedly blue-chip companies have been going bust, having deliberately not handed over the taxes and pension contributions they should have paid.
The independent Railway Pension Fund recognises the higher risk to the overall fund and to the specific company section from possible fly-by-night TOCs and has decided to charge those employers (not all by any means) higher employer contributions. It sounds as though these clowns decided they were too important to pay up. There was something about it on R4 early in the morning in the last week, but I can't find it reported online anywhere.

Of course, this is a problem that wouldn't exist (at least not in the same way) if they were all Defined Contribution pensions rather than Defined Benefit ones. To think that there are still major private-sector employers (in the rail industry) that offer Defined Benefit pensions to new starters boggles the mind a little, but then so do quite a lot of practices in the rail industry!

 

[AndrewE]

Of course, this is a problem that wouldn't exist (at least not in the same way) if they were all Defined Contribution pensions rather than Defined Benefit ones. To think that there are still major private-sector employers (in the rail industry) that offer Defined Benefit pensions to new starters boggles the mind a little, but then so do quite a lot of practices in the rail industry!

The only problems with defined benefit funds are that employers (and maybe staff: my contributions were 15% in the '70s) have to pay a bit more in and that they can't unload all the risk onto the staff.

 

[61653 HTAFC]

The big surprise here is a Tory government apparently backing the rail pension scheme...

 

[47550]

That's going to make quite a hole in the PLCs results. Last year UK Rail (inc the share of Virgin profits) made £51m out of the £180m operating profits the whole group made (before exceptional items).

 

[ForTheLoveOf]

The only problems with defined benefit funds are that employers (and maybe staff: my contributions were 15% in the '70s) have to pay a bit more in and that they can't unload all the risk onto the staff.

I'd prefer to bear the risk, and control the risk, of a pension myself, rather than leaving it at the mercy of a potentially here-today, gone-tomorrow employer! However what you say is correct - fundamentally, labour costs are a substantial part of the running costs of the railway, and pensions are no doubt a not inconsiderable part of that. Any increase to labour costs is going to be strongly resisted.

 

[Agent_Squash]

I somehow suspect that Stagecoach is prepared to play dirty with the DfT over what's happened here. Couple that with Virgin now being bungled in over West Coast, and you've got a PR machine against the DfT - there was incredibly strong brand loyalty on the West Coast in 2012, and I suspect not much has been lost over the years.

If the DfT are keen to force the entire pensions obligation onto franchises, then that's most likely the end of most proper private sector bidders in the UK, instead leading to the hated 'foreign countries taking over our railways'. You'll probably find someone's already trying to find a way to paint the Abellio win as a favour to the Netherlands about Brexit...

 

[zoneking]

The fundamental problem here is final salary pensions.

I agree. Final salary/defined benefit pensions are almost extinct on the private sector. However, the railway has very powerful unions, so the current pensions and future liabilities must be funded and guaranteed.

 

[spangles]

Lets be honest here...Virgin have run the franchise since Privatisation on the WCML. Therefore I would argue its Virgin who are being unreasonable in not accepting the pension costs for people who have been employed by Virgin for over 20 years!!!

 

[AndrewE]

I'd prefer to bear the risk, and control the risk, of a pension myself, rather than leaving it at the mercy of a potentially here-today, gone-tomorrow employer! However what you say is correct - fundamentally, labour costs are a substantial part of the running costs of the railway, and pensions are no doubt a not inconsiderable part of that. Any increase to labour costs is going to be strongly resisted.

The folly of youth! Try reading my post again. I'll quote it with some bold and rephrasing to help you.

The independent Railway Pension Fund recognises the higher risk to the overall fund and to the specific company section from possible fly-by-night TOCs and has decided to charge those employers (not all by any means) higher employer contributions. It sounds as though these clowns decided they were too important to pay up. There was something about it on R4 early in the morning in the last week (which I think said the Pensions Regulator had driven the change,) but I can't find it reported online anywhere.

The pension fund is nothing at all to do with the franchise operators, and at privatisation the government gave an absolute guarantee it that wouldn't be allowed to fail. Therefore if the regulator says that some franchise holders might be a bit iffy and should pay more in then the government aren't going to oppose it and run the risk of having to bail the fund out because Branson or whoever has squirrelled the cash away somewhere else.
This extra employers contribution is simply down to an assessment of the reliability or trustworthiness of the employers.

 

[Bletchleyite]

The big surprise here is a Tory government apparently backing the rail pension scheme...

Because they are scared of the unions, who will kick up a fuss. (The issue is very similar to guards' jobs in some ways - Unions are not just fighting for the T&C of present staff, but also for no change in future).

 

[Bletchleyite]

Lets be honest here...Virgin have run the franchise since Privatisation on the WCML. Therefore I would argue its Virgin who are being unreasonable in not accepting the pension costs for people who have been employed by Virgin for over 20 years!!!

The "new" Virgin Trains is not the "old" Virgin Trains. The new one is a Stagecoach operation with a brand licence and a small stake to go with that. The old one is Virgin controlled with Stagecoach in a minority (OK, 49%) position.

VTWC will end very shortly, regardless of whether its replacement was also to be called Virgin Trains or not.

 

[ForTheLoveOf]

The folly of youth! Try reading my post again. I'll quote it with some bold and rephrasing to help you.

The pension fund is nothing at all to do with the franchise operators, and at privatisation the government gave an absolute guarantee it that wouldn't be allowed to fail. Therefore if the regulator says that some franchise holders might be a bit iffy and should pay more in then the government aren't going to oppose it and run the risk of having to bail the fund out because Branson or whoever has squirrelled the cash away somewhere else.
This extra employers contribution is simply down to an assessment of the reliability or trustworthiness of the employers.

This still fundamentally comes down to the risk of a Defined Benefit pension lying with the employer. With a Defined Contribution pension there wouldn't be this whole argy-bargy about the trustworthiness of the company - once the money is in there, it's not going anywhere, and it's down to the person whose pension it is to ensure that there's enough in there.

Let's put it this way - if I were considering a role where a Defined Benefit pension was what was on offer, I would be quite wary of taking up that kind of pension.

 

[nuts & bolts]

What themed departure announcements at Euston? It's ATOS Annie.

During the holidays 'Keswick Calling' etc and other special events (Railway Children) there are cheesy announcements per specific Service destination. The announcement is usually a well known voiceover person and the recording is uploaded to Atos. It's annoying and for overseas visitors who expect Atos Annie probably misunderstand what it's all about.

 

[Elecman]

The folly of youth! Try reading my post again. I'll quote it with some bold and rephrasing to help you.

The pension fund is nothing at all to do with the franchise operators, and at privatisation the government gave an absolute guarantee it that wouldn't be allowed to fail. Therefore if the regulator says that some franchise holders might be a bit iffy and should pay more in then the government aren't going to oppose it and run the risk of having to bail the fund out because Branson or whoever has squirrelled the cash away somewhere else.
This extra employers contribution is simply down to an assessment of the reliability or trustworthiness of the employers.

Except the government didn't give that cast iron guarantee as any former member of the Jarvis & Fastline Section will tell you. They wriggled out by claiming the relevant legislation never considered what would happen if a section employer went bust!! I know as I lost a considerable amount of money from my 34 year pension.