DfT’s new franchising process has inflated costs

The new franchising processes introduced by the Department for Transport and Transport Scotland have added further to the rising costs of bids.

National Express Group chief executive Dean Finch said the cost of the company’s bids for the Essex Thameside and ScotRail franchises had been inflated by requirements to provide detailed evidence to back up the viability of bid plans, and this applied particularly for companies making it to the final stages of negotiations. He told City analysts that bid costs were a “real issue”.

In the first six months of this year, NEG spent £11.9m on UK rail bids, covering the majority of the  Crossrail and ScotRail competitions and finalising its Essex Thameside bid.

“They have definitely changed [the process] and the costs associated have changed as well,” Finch said.  “The new evidence based nature [of bids] is a complete change. I have never seen anything like it so the costs are extraordinary associated with that, and regrettably they go on to the winner. The losers don’t see it so much because they aren’t asked to attest their assumptions so strongly.”

Finch added that costs had also increased because NEG’s bid contractors and consultants had not been confident of the group’s ability to win UK rail franchises, and had negotiated payment based on high basic rates rather than ‘success fees’. With NEG now re-established in the UK rail industry after retaining its last franchise, Finch said the basis on which contractors are paid would change and that costs would be further reduced by recruiting more permanent bid staff.

 

This article appears inside the latest issue of Passenger Transport.

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