Rail companies may sue government over Great Western franchise

08 March 2013

Posted by Satvir Bhullar

Four rail companies have started legal proceedings against the government after it cancelled the bidding process for the Great Western franchise.

Ministers stopped the procurement process for the rail line, which operates between south Wales and London and is currently run by FirstGroup, claiming they need a rethink in light of the West Coast Mainline fiasco.

No compensation has been paid to the four companies that made bids for the franchise, FirstGroup, Stagecoach, Arriva and National Express, and they have now gone to court in an attempt to get their money back.

If they are successful, the government will have to pay costs of £40 million.

Each company has spent around £10 million on hiring experts and lawyers to put together their bids for the franchise and they are angry that the government has not offered to reimburse these costs.

Nigel Harris, the editor of Rail Magazine, told the BBC: "A refusal to refund may conform to the letter of the contract rules, but utterly fails the 'right thing' test."

He added: "It makes no sense to penalise innocent bidders, especially when you want and need them to re-bid."

The BBC reports that an agreement has been reached to "stay" legal proceedings until the end of March, in an attempt to allow the two sides to reach a compromise.

According to the terms laid out in the invitation to tender, the government is under no obligation to reimburse the bidders despite cancelling the process. However, whatever course of action it takes is likely to provoke a negative reaction. If the companies are compensated, there will be anger that more taxpayers' money has been spent on a failed rail franchise.

Earlier this year, a report by the Public Accounts Committee found that the collapse of the bidding process for the West Coast Main Line will cost the public at least £50 million.

These latest developments are likely to raise more concerns about how effectively the government will manage future rail projects such as the HS2 high-speed rail line and the Thameslink main line.

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