Train troubles

The West Coast Main Line debacle continues a trend for challenges to procurement processes, says Martin Vincent

Today’s DfT statement cancelling the tender for the operation of the West Coast Main Line highlights issues encountered when a complicated regulatory regime has to be applied to an even more complicated procurement conundrum.

While procurement lawyers will pore over the detail in time to come, the somewhat scant facts revealed to date hint at a process mired in practical and legal issues.

The letting of a rail franchise falls outside the majority of the regulated procurement regimes as it would qualify as a concession contract. These are services or works contracts in which the consideration consists of or includes the right to exploit the works or services to be provided. In this case the operation of the franchise gives rise to a direct revenue stream from paying passengers without significant fees from the DfT to the operator.

The regulated regime is derived from EU principles dating back over 50 years. These seek to break down barriers to trade across the borders of EU member states and where there is such a cross border interest then certain behaviours are mandated by the Treaty on the Functioning of the European Union (TFEU).  They include the most commonly litigated implied duties of equality of treatment and transparency.

We see Virgin unable to raise TFEU issues due to geography and so their ability to challenge the process is immediately restricted.

Although perhaps outside the ‘mainstream’ procurement legal regime, such activities are not immune to challenge, as the DfT found out with Virgin seeking judicial review, leading to the abandonment of the current process. While the grounds of the judicial review have not been disclosed, the fact that the Government would in due course be forced to justify its decision-making process in minute detail kick-started an internal investigation that appears to have discovered significant technical flaws in the way the franchise process was conducted.

The statement released by the DfT today contains clues as to the nature of the challenge, stating that flaws in the assessment “stem from the way the level of risk in the bids was evaluated. Mistakes were made in the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result.”

The implication is that the assessment methodology was fundamentally flawed in the first place, and this is backed up by the DfT’s intention to ask Eurostar chairman Richard Brown to investigate “whether changes are needed to the way risk is assessed and to the bidding and evaluation processes”.

The statement that “the department cannot be confident that these flaws would not have changed the outcome of the competition or that any of the four bidders would not have chosen to submit different offers” hints at another legal issue; that of breach of the principle of transparency in the assessment regime. It implies further that not only was there a legal transgression, but that transgression could have altered the outcome of the process. This is a crucial step, as claimants must establish a causative effect in order to have significant impact on a procurement process.

We have seen a year-on-year doubling of challenges to procurement processes generally. Around 80 per cent of those challenges are based on an unsuccessful bidder alleging that their bid would have been different if they had known of the full facts and/or assessment regime. Most, like the West Coast Main Line franchise, do not progress to final hearings as the contracting authorities are mindful of cost, risk and delay. Rerunning a process, albeit costly and time consuming, is an easier choice to make if, as in this case, the claimant is not pursuing a damages claim but is merely seeking a rerun of the process.

The true cost, however, can ultimately be one of credibility.

Martin Vincent is a partner and procurement specialist at Weightmans