UK government ditches rail contract

LONDON (AP) ? The British government's rail policy was thrown into chaos Wednesday after it canceled a disputed contract to run one of the country's busiest lines following the discovery of "unacceptable mistakes" in the way it awarded the franchise.

The announcement is a partial victory for the line's present operator, Richard Branson's Virgin Group, which lost out on the 13-year contract to run the west coast London-to-Scotland service in August to rival operator FirstGroup.

Transport Secretary Patrick McLoughlin called off the contract because of "deeply regrettable and completely unacceptable mistakes" made by his department in the way it managed the bidding process.

The errors were uncovered as the department was preparing to deal with a High Court challenge brought by Branson, who challenged the contract's award.

McLoughlin said staff had been suspended and an investigation had been launched. The bidding process will be run again.

The government's errors related to how the level of risk in the bids was evaluated. The department said in a statement that "mistakes were made in the way in which inflation and passenger numbers were taken into account."

The problem raises questions about the department's overall ability to assess and make decisions on contracts, said rail expert Christian Wolmar. Everything will be placed on hold.

"It's a very small team there," he said.

The announcement struck a nerve in a country where the privatization of railways in the 1990s has left a troubled legacy. Critics say the nationalization was rushed and resulted in a system that is both complicated and inefficient. Trains are often crowded and consumer groups argue that services are often three to five times more expensive than their European counterparts.

Train tracks are not maintained by train operators. And with some contracts as short as five years, rail operators are largely discouraged from investing in the system.

What's often lost in discussions on contracts are the passengers, said the consumer group Campaign for Better Transport.

"It shows the difficulties with the current system," said Richard Hebditch, the campaign director. "The point of the franchising is to improve the service, but I don't think that really happened."

Branson, the Virgin chief, praised transport authorities for reconsidering their decision. He said he was hopeful Virgin, which had been running the route since 1997, could continue operating the franchise.

FirstGroup said it was "extremely disappointed" at the news. Its shares plunged just over 20 percent Wednesday in London trading.

The uncertainty over the line's franchise also prompted concern about the economy in the region. Adam Marshall, director of policy at the British Chambers of Commerce, said that the government needs to move quickly to ensure that investment in the railway network does not suffer.

"The West Coast line is one of Britain's most important business corridors, and companies in cities up and down the country will be concerned that this situation could affect both current services and future investment in critical passenger services," he said.

Source: http://news.yahoo.com/uk-government-ditches-rail-contract-121147315--finance.html

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