NAO cuts through DfT obfuscation
Last months blog left me hoping that publication of the National Audit Office report on DfTs procurement of the Intercity Express Programme (IEP) and the Thameslink train fleet would frustrate the Departments blatant attempts to conceal the costs of its two Private Finance Initiatives. And the NAO didnt disappoint.
One of obfuscations in DfTs written answers to Lord Berkeley was to pretend that they couldnt give costs for IEP in 2013-14 prices. But the NAO has got the Present Values of annual charges for both IEP and Thameslink at 2014 prices. And the IEP figures are broken down for the three fleets Great Western, East Coast and the IC225 replacement deal.
So I was now able reverse engineer the PVs, plus DfTs quoted figures at Nominal prices based on service entry dates. And the correlation was well within experimental error as we used to say when determining the value of g in A-Level Physics.
On average, Super Express Train operators will be paying Agility Trains £64,000 per diagrammed vehicle per month. In 2012 a Class 390 Pendolino was costing Virgin £32,400/vehicle/month. Note that both IEP and the Class 390 fleet are total train service provision deals combining finance and maintenance.
East Coast is cheaper, thanks to economies of scale, plus less expensive financing, plus a 7.5% cost reduction by Agility on the IC225 replacement trains, plus a free upgrade to 140mile/h operation if and when the infrastructure is ready. Not for the first time in the NAO report I was reminded of double glazing sales tactics.
NAO critical of IEP monomania
Although I received an embargoed copy of the NAO report, plus a briefing at their offices in advance of publications, the column had to go to press next day. But when I had finished the cost analysis, plus a write-up for our news pages, there was still some time, and space, left. So I have highlighted two aspects of the procurement where the NAO was particularly critical of the IEP procurement teams TINA philosophy.
Most recently there was the decision to impose IEP as the IC225 replacement rather than following DfTs policy, first proclaimed in March 2012, is that it will leave future train procurement to industry
According to the NAO, DfT considered that the Eversholt proposal for a re-engineered IC225 with new locomotives would be the option most likely to be chosen by the franchise bidders. Unsurprisingly, DfTs analysis suggested that the Agility option would provide slightly better long term value for money than the Eversholt proposal. This was after the 7.5% cost reduction offered by Agility was taken into account plus the likely benefits that future ICEC operators would gain from a homogenous fleet.
NAO observes that this judgement was sensitive to changes in the Departments assumptions. Note that slightly better! The report adds that DfT took steps to explain to ROSCOs and train manufacturers its reasons for exercising the option. However, the Department has not convinced parts of industry, which has led to questions about DfTs commitment to its stated policy. You can say that again.
In fact the underlying policy has not changed. To paraphrase Douglas Jay in 1937: the gentleman in Whitehall really does know better what is good for the railways than the railways know themselves.
Agility saves IEP
NAO second criticism centres on early 2010 and Sir Andrew Fosters review of the IEP
Sir Andrew concluded that DfT had not adequately assessed all the credible alternatives to IEP, of which there were several. Such an assessment should be carried out before proceeding, he urged.
This put DfT in a quandary, because even its most skilled sophisters could not conceal the cost gap. But then Agility came to the rescue with a revised proposal; which reduced costs by a massive 38%. See what I mean about double glazing salesmen?
DfT told the NAO that had Agility not submitted the improved proposals it is likely that IEP procurement would have had to be cancelled. Over to the NAO for what happened next.
Upon receipt of Agility Trains revised proposal, the Department carried out extensive analysis of the revised proposition. This considered, among other things, a range of alternatives including those suggested by Sir Andrew Foster, the costs and delay to benefits from reopening the procurement, analysis of the likelihood and impact of a legal challenge, and the Departments view that another manufacturer would have been unlikely to produce a bid that could sufficiently close the gap with Agility Trains and offer better value for money.
And so, in March 2011 procurement resumed on the basis of the radically revised SET offer effectively a new train. NAO comments wearily that because the Department did not reopen the competition and allow the other bidder (or anyone else) to submit further bids, the Departments view remains untested. Which misses the point that testing was unnecessary because the civil servants always knew that their pet train was the only way forward. And now we will be lashing out over half a billion pounds a year for the next 27.5 years.
