Rail deal goes off track

Hannah Langworth discusses the legal dimensions of the collapse of the West Coast mainline franchise process

The government has been forced into a dramatic reversal of its decision to award the West Coast mainline franchise to transport operator FirstGroup. It was announced that FirstGroup had won the franchise on 15 August, beating a number of other bidders, including Dutch train operator Nederlandse Spoorwegen, a joint bid from French companies Keolis and SNCF, and Sir Richard Branson's Virgin Trains. However, on 3 October the government revealed that the decision process had been flawed, so would be entirely rerun.

Making it legal

Virgin Trains challenged the decision as soon as it was made, pointing out what they perceived as flaws in FirstGroup's bid, particularly their view that it represented a much greater risk for the government than their own. With the help of top City firm Herbert Smith Freehills, regarded as having one of the Square Mile's best dispute resolution practices, the rail company soon put its complaints into a legal challenge. They launched judicial review proceedings against the government's decision, a legal mechanism by which the decisions and actions of government and public bodies can be examined by the courts.

Virgin's case was that the government had failed to recognise that FirstGroup had made unrealistic projections for growth in passenger numbers, which in turn had led to unrealistic revenue projections. When the government's decision to overturn the award to FirstGroup was announced, just days before the judicial review proceedings brought by Virgin Trains were due to begin in the courts, it transpired that civil servants involved in the tender process had failed to appreciate the risks inherent in FirstGroup's passenger and revenue projections suggesting that Virgin had correctly identified significant flaws in government process.

The government has said that it will reimburse the costs of all the parties involved, which have been estimated to amount to around £40 million, including £14 million spent by Virgin on their bid alone. It has also announced that it will undertake two review processes, one into the West Coast mainline tender processes specifically, and another into how the UK government awards rail franchises in general.

Runaway trains

The West Coast mainline fiasco is by no means the only public procurement process to become surrounded by controversy. Legal challenges to such procurement processes have been doubling year on year. Some of these, as with the West Coast Mainline franchise, hinge on accusations that a tender process has been mismanaged. Another common complaint is that the government or public authority involved has not been clear about how a procurement process should work. On these occasions, bidders claim that had they known the full facts or procedural details of a tender process, they would have submitted a different, and potentially more successful, bid. In bidding scenarios where, as with the West Coast mainline franchise, there's a pan-European group of bidders, accusations are sometimes made that national governments favour contractors from their own country, which is illegal in many franchising situations under European free trade agreements.

The UK government's rail-induced travel sickness may be far from over as there are four franchises due to be awarded in 2013 - Greater Western, East Coast, Thameslink and Essex Thameside - and up to 15 coming up before the next general election. These are now likely to be put on hold pending the result of the two review processes announced by the government, both of which are expected to report back by the end of the year.