Stagecoach and Virgin are to hand back the East Coast Mainline contract in a matter of months ©PA Images
Stagecoach and Virgin are to hand back the East Coast Mainline contract in a matter of months ©PA Images

Inquiry launched into East Coast rail franchise collapse

12 February 2018

MPs have launched an investigation into why the East Coast Mainline rail franchise is coming to an end early.

The House of Commons transport committee said it is holding an inquiry following the revelation last week that the current franchise operators Stagecoach and Virgin would hand back the contract in a matter of months.

The joint venture, in which Stagecoach is the 90% majority holder, had originally signed on to run the contract from 2015 to 2023. Previously it had announced it would be ending the contract three years early. But transport secretary Chris Grayling told the House of Commons last week that things had become “much more urgent”.

He said: “I have already informed the House that the franchise will in due course run out of money and will not last until 2020. But it has now been confirmed the situation is much more urgent. It is now clear that this franchise will only be able to continue in its current form for a matter of a very small number of months and no more.”

The government has also acknowledged that Stagecoach had overbid in order to win the contract and said it was looking at its bidding process. Speaking today on Radio 4’s Today programme, rail minister Jo Johnson said: “They overbid, it’s very simple like that.

“They overbid and [DfT] is looking very carefully at the bidding process to ensure that there aren’t incentives in the system going forward for bidders to overbid. We want to ensure that bids are credible so that we avoid this kind of [thing] happening on a systematic basis. But the point is in any private sector enterprise there’s always going to be an element of risk and it’s unrealistic to expect government to be able to eliminate that altogether.”

Stagecoach said it had been exposed to more performance related costs than it initially accounted for and that its debts as a result could be £19m more than assumed on previously published financial statements. 

This is the latest in a string of rail franchising issues the government has faced. Last month a National Audit Office report said the government had failed to use its performance levers to improve the Govia Thameslink franchise to the national average.

Towards the end of last year the government announced plans to restructure the way it runs rail franchises, including plans to break up some of the larger contracts. Part of this contract was a new East Coast Mainline contract that combined both track maintenance and the provision and operation of trains.

In his statement to the House Grayling said the government had still made a profit from the East Coast Mainline contract, and there would be no state-funded bailout of any rail provider. He added that the government was still planning to roll out the new combined contract in 2020 but that there had been no decision yet on the provisions in the contract.

“The priority now is to ensure the continued smooth running of the East Coast franchise for its passengers,” said Grayling. “I have therefore asked my officials to conduct a full appraisal of the options available to the government to ensure continuity of service until we implement the East Coast Partnership on the route from 2020.”

DfT declined to add any comment beyond Grayling’s statement to the House. 

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