In December, the Laidlaw Enquiry published its final report into what went wrong with the West Coast trains procurement exercise. The enquiry revealed an unfortunate series of evaluation errors and organisational problems at the DfT.
The key problem with the process was around the sizing of the subordinated loan facility (“SLF”) that the DFT required the parent company of each bidder’s group to provide. Rail franchise operators depend upon revenue from ticket sales and therefore are particularly exposed to general economic conditions which influence passenger numbers. These loan facilities functioned like parent company guarantees - the DfT would be able to call upon them in the event that the franchise operator found itself unable to make the necessary payments to the DfT under the terms of the franchise.
The Report found that there was a lack of transparency about how the required level for the SLF would be determined. As a result bidders were unable to predict the SLF level required in respect of their bid. Guidance was offered by the DfT but it was inadequate. Further, officials departed from the guidance when applying the methodology to determine the necessary size of the SLF in relation to each bid. In particular, in some cases, extraneous factors were taken into account that were not contemplated by the guidance, meaning that bidders were in fact not treated equally. Readers will remember that the core principle of treating bidders transparently, equally and in a non-discriminatory manner lies at the heart of the procurement regime.
The enquiry uncovered several organisational problems with the way the DfT functioned during this procurement. It noted that there had been opportunities within the process to backtrack and address the breaches, and that external advisers had warned the DfT of the legal issues. These opportunities were not taken. Inaccurate internal reporting up the chain of command meant that the senior civil servants and the Minister made the award decision based upon incorrect information. There was inadequate oversight and supervision. The timetable for the procurement was overambitious, given the complexity and novelty of this type of franchise. Inadequate resources were allocated to running the process. The organisational structure of the DfT did not set out clear enough responsibilities and there was confusion as to how those involved in the process were to work together.
There were also technical flaws in the way the DfT employed the model for determining the required SLF levels in relation to bids. Figures output from the model were inaccurate as they were not appropriately inflated. The model employed an “elasticity factor” to assess and take account of the likely relationship between the UK’s GDP and likely ticket revenue. The evaluation team did not use the elasticity factor set out in the guidance but instead chose a different factor. Inconsistent and confusing information was given to bidders about this, and ultimately, the figures output from the model were significantly understated as the model had not been used properly.
The West Coast franchise was of course a particularly complex and novel type of procurement. Nonetheless, the lessons to take away from the debacle do translate across to more ordinary procurement processes too:
- Consider the likely complexity and novelty of the requirement/process and ensure appropriate time and resources are allocated, especially around reporting and oversight
- Clearly set out roles and responsibilities
- Provide a clear route for escalation in the event that technical breaches in the procurement come to light
- Ensure that evaluation teams have full training on how to use evaluation models, particularly where these are complex