Department for Transport: The InterCity East Coast Passenger Rail Franchise
HC 1035, Thirty-ninth Report of Session 2010-12 - Report, Together with Formal Minutes, Oral and Written Evidence
- House of Commons - Committee of Public Accounts
- TSO (The Stationery Office)
'Department for Transport: The InterCity East Coast Passenger Rail Franchise (HC 1035)' reports on the InterCity East Coast Mainline which is a hugely significant rail service, carrying around 19 million passengers a year between London, the North East and Scotland.
In 2005, a contract was awarded to Great North Eastern Railway, but financial difficulties at its holding company meant that the franchise failed 18 months later.
In 2007, a new contract was awarded to National Express to run the franchise on the basis that it would pay the Department £1.4 billion over seven and a half years. At the time, the East Coast franchise was one of three operated by National Express.
As a result of the economic downturn, expected passenger revenues did not materialise and National Express announced in July 2009 that it wanted to opt out of the contract and would not provide the necessary financial support to the East Coast franchise.
National Express paid just £120 million to walk away from a contract worth £1.4 billion to the taxpayer. The Department turned down the offer of an extra £30 million for a 'no fault' exit in order to send a warning to other holding companies.
But the Department completely undermined its position by making clear that the termination would not be held against National Express in future bids. In doing so, the Department allowed National Express to get away scot free and with its reputation intact.
By its actions in this case, the Department has potentially incentivised other holding companies with loss-making franchises to terminate, rather than renegotiate, their contracts. In future the Department must make clear to such companies that failure to deliver on their obligations will have serious lasting consequences.
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