New transport secretary Patrick McLoughlin has axed a contract awarded to FirstGroup to run the key West Coast mainline rail network.
He cited “significant technical flaws” in the bidding process which saw incumbent operator Virgin Trains lose out to FirstGroup’s £5.5 billion bid.
McLoughlin ordered two independent reviews – one into what went wrong with the West Coast competition, and the second into the “wider rail franchise programme”.
Staff at the Department for Transport will be suspended over the flaws.
“Mistakes were made in the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result,” McLoughlin said.
“I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.
“A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held.
“I have ordered two independent reviews to look urgently and thoroughly into the matter so that we know what exactly happened and how we can make sure our rail franchise programme is fit for purpose.”
McLoughlin added: “West Coast passengers can rest assured that while we seek urgently to resolve the future arrangements the trains that run now will continue to run, with the same drivers, the same staff and timetables as planned. The tickets that people have booked will continue to be valid and passengers will be able to make their journeys as planned.”
Cancellation of the deal will be seen as a victory for Virgin founder Sir Richard Branson who queried the process from the start.
He said: “I am pleased to say that the DfT has looked at all of the facts and found significant flaws in the way it’s officials handled the process.
“They have basically acknowledged that what we had been saying is correct. The same procedures were not followed and ‘deeply regrettable and completely unacceptable mistakes’ were made by the department.
“We also appreciate the DfT publicly acknowledging these errors, and are hopeful they will now accept that Virgin Trains should carry on running the West Coast Main Line and ensure that passengers continue receiving our team’s award-winning service.”
FirstGroup said: “We are extremely disappointed to learn this news and await the outcome of the DfT’s inquiries. The DfT has made it clear to us that we are in no way at fault, having followed the due process correctly.
“We submitted a strong bid, in good faith and in strict accordance with the DfT’s terms. Our bid would have delivered a better deal for West Coast passengers, the taxpayer and an appropriate return for shareholders.”