Railnews 188a News p1 HEAD: Shock and anger as West Coast collapses PIC: 2012-10-04 (107).JPG CAP: Speculation is growing that Virgin could be set to stay on the West Coast Main Line for the time being THE COLLAPSE of the West Coast franchise award to FirstGroup has angered the Prime Minister, shocked the City and reinforced calls for railway renationalisation. Two official inquiries are to be held, and MPs are demanding explanations. The DfT has admitted that the debacle will cost taxpayers £40 million, but many commentators believe the final figure could be much higher. Work on other franchises has been suspended. The announcement came out of the blue just after midnight on 3 October, when transport secretary Patrick McLoughlin conceded that runner-up Virgin Trains had been justified when it criticised the Department's methods of calculating the risks involved in franchise bidders' business plans. Virgin, which said it had asked for details of the official calculations in vain, had taken the matter to court in what it described as a bid to gain some 'transparency' from the Government. Mr McLoughlin explained: "I have had to cancel the competition because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process. “A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held." Virgin had claimed that the £200 million financial buffer required from FirstGroup had not been calculated correctly, and that the degree of risk involved in First's £5.5 billion bid should have called for a deposit, known as a 'subordinated loan', of £600 million. This figure had been denied by FirstGroup and also the DfT, which had previously described its calculations as 'robust'. The transport secretary has maintained that ministers, including himself, who had defended the decision had done so on the advice of officials. It appears that the flaws were uncovered while evidence was being prepared for the High Court hearing which had been set down to start on 17 October, and that the transport secretary had only been given the facts on the afternoon of 2 October, after which he decided that the award must be cancelled. Apart from Virgin and FirstGroup, the Dutch operator Abellio and a partnership of SNCF and Keolis had also been shortlisted for the Intercity West Coast contract, which should have started at 02.00 on 9 December and run for a minimum of 13 years and four months. As the news spread on 3 October FirstGroup's shares began to sag, wiping 20 per cent off the company's value during the day. A spokesman said the company was 'very disappointed', although the development was welcomed by Virgin, which may now continue to operate West Coast under a management contract, at least in the shorter term. The Prime Minister said he was 'extremely angry and apologetic' about the crisis. David Cameron also vowed that those responsible for the miscalculations at the DfT would be 'held to account'. He conceded that 'technical errors' by the DfT's Rail Group had remained undetected, although he insisted No.10 had done all it could to double-check the process. Three civil servants were almost immediately suspended by the permanent secretary of the DfT, Philip Rutnam, but even this action soon led to fresh developments. Although the DfT refused to name those involved one of the three decided to go public, having taken legal advice. Kate Mingay, who was in charge of commercial and technical services, said: "While it has been widely reported that I have been suspended my role has been inaccurately portrayed, mainly due to statements and other comment made by the Department for Transport itself. I would like to make it clear that I did not have lead responsibility for this project. Neither I nor any member of my team had any responsibility for the economic modelling for this project or for any Department for Transport project. "Nor did I have any responsibility for the financial modelling in respect of this project." The DfT has declined to comment further. Among those reacting to the news of the collapse, Labour's Maria Eagle said: "The Government's belated admission that it ran a flawed tendering process will come as a surprise to no one. The transport secretary must now reveal the full details of what went wrong and come clean on the full cost to taxpayers of this shambles." RMT general secretary Bob Crow called for the West Coast route to be taken over by the Department for Transport for good. He said: "The whole sorry and expensive shambles of rail privatisation has been dragged into the spotlight and instead of re-running this expensive circus, the West Coast route should be renationalised on a permanent basis. Those ministers who have presided over this fiasco should also be called to account." The first of the two official inquiries will be an 'urgent independent examination' conducted by independent advisers and overseen by Centrica chief executive Sam Laidlaw and former PricewaterhouseCoopers strategy chairman Ed Smith, who are both DfT non-executive directors. Their initial report is expected by the end of the month. The second review will be undertaken by Eurostar chairman Richard Brown, and examine the wider rail franchising programme. The DfT said it will look in detail at whether changes are needed to the way risk is assessed and to the bidding and evaluation processes, 'and at how to get the other franchise competitions back on track as soon as possible'. This will report back by the end of December. There are further implications beyond West Coast, because the DfT's admission must now put the 2013 franchising programme in jeopardy. Four franchises were due to be renewed next year – Essex Thameside (currently c2c), Greater Western, Thameslink and East Coast, but the letting processes have been suspended. Extensive external scrutiny has also begun. The chair of the House of Commons Transport Committee, Louise Ellman, this morning published a letter she has sent to the transport secretary. He is due to appear before the Committee on 31 October, when he will be expected to give details of his Department's failure. Mrs Ellman is also demanding publication of the results of the official inquiries. END FWD POINTS: West Coast Q&A P3 The Longer View P4 © Railnews Ltd 2012