[Closed] Virgin on the rediculous, failure to to do the sums properley(trains content)

Abouttime we took back the running of the trains

I think Branson should move into politics and shake up the ****** currently installed at Westminster.

'Flaws' by innumerate civil servants or something a touch more shady? I wonder how many fat brown envelopes were exchanged between Mafioso politicians, board members and net-working cronies in this, the latest government imbroglio.

If it hasn't been for Richard Branson having the clout to raise the issue it would never have raised an eyebrow. Sadly this sort of thing happens all the time in public sector procurement - albeit on a smaller scale. Most of the time the bidders - particularly bidders who are also public sector - don't make a fuss about it as they don't want to jeopardise relationships and future opportunities.

In fairness most of the time the issue is bidders who bid too low to meet the quality requirements and then unsurprisingly go on to deliver a shoddy service, which is then re-tendered early, causing everyone more cost and upheaval. It amazes me that the media don't make more of a big deal of it.

It isn't often that I agree with you Project, but yes, nationalised rail, water, energy and health(!) all sound like a good idea to me.

So the government should be run by corporations, suppose it would stop the backhanders.

This is exactly why the establishment are so scared of Branson - he proved dodgy dealings with the lottery, has now shaken up this shady rail tender and has started to get into the finance sector, no wonder they're worried.

He got refused the lottery, for whatever reason,

His staff realised the first group bid was nt right as did a lot of us,

and he bought Northern Rock off the tax payer.

How very convenient that flaws should be found and a few nameless civil servants take the rap. Personally, I don't buy it. This process will have been checked and rechecked. It didn't give the desired result, so look for some flaw, however minor, rather than admit that the policy needed review.

Quite interesting that Branson is apparently the "white knight" in all this despite having his companies headquartered offshore and structured in a way that will ensure that any profits made from the franchise will almost certainly not be subject to full tax - whilst the winning bidder is a Scottish Plc that pays full corporation tax on all profits derived from UK operations.

I'm curious to see how much ministerial interference was in the selection process. I'm betting the treasury lent on them to go for the highest bidder and ignore due diligence.....

Personally I would rather see someone with a bit of entrepreneurial flair running things profitably than the usual old boys network of ex-public sector bosses with their closed door deals & funny handshakes that maintain the bad old public sector ways.

Fact is, Virgin ran a better service than the one First were proposing, and it was economically more viable.

Too often in this country we have seen government agencies sign off stupid decisions that then need bailing out or serious remedial action to counter institutional incompetence. Overpriced hospital lightbulbs anyone?

I don't often agree with Farmer John, but he raises important points there. I'm no supporter of First. But I'm sorely tired of Branson being, as FJ refers to him, the "white knight". His Northern Rock deal screwed the taxpayer royally. And left us with the shit.

But when the competing bid comes from a company that pays little if any tax, how can we really assess the "value" of the bids; not least when the tax advantage enables one bidder to increase the economic viability of the bid?

Virgin have some good form on this - only 5 of 200 or so virgin group companies are reported as regular net contributors via corporation tax - the rest declare "losses".

But there's always 2 sides to a story. I work for a tech startup that has Vodafone as it's major investor and has created 60+ jobs this year, not to mention the multiple incubators around Europe (I'm out at one at the moment, where there are 10+ startups, all being funded by VF and there's 6 in major European cities). Of course many would moan about Vodafone's tax "management", but the flipside of it is the funds being freed to reinvest and generate wealth.

No doubt the same with Virgin group - savings on one thing such as tax to fund a bloated welfare system fund jobs instead. That has to be a good thing.

But when the competing bid comes from a company that pays little if any tax, how can we really assess the "value" of the bids; not least when the tax advantage enables one bidder to increase the economic viability of the bid?

This can't be part of the bidding process though can it? These are two entirely separate issues. If theres tax loopholes legally being exploited, the government needs to look at closing them, you can't start mixing up that with the bidding process. Whats to stop companies manipulating their tax just to win their bid and putting it back again? What if they employ the services of other companies who don't pay tax? It'll all get even more complicated, and it seems its already too complicated.

We've been told (by Virgin) that the First Group bid doesn't stack up because they are proposing 15% more journeys than Virgin themselves proposed - a figure that is apparently fabricated, unachievable, and plucked out of thin air to ensure that First Group can steal the franchise away from the plucky offshorfortaxpurpuposes upstart Virgin, who incidentally are quite proud that they managed to increase passenger loads by, what's that you say Mr B.....against all odds....? 15%?!?

Horatio - it can. The bid required the bidders to detail their management fees which will reflect the ability to reduce or avoid tax.

What I don't understand is, if they have already submitted the bids, and why do they have to do it again? Was the original question not right? Is it not a simple as "how much are you going to pay us and what service will you provide?"

These are two entirely separate issues. If theres tax loopholes legally being exploited, the government needs to look at closing them, you can't start mixing up that with the bidding process. Whats to stop companies manipulating their tax just to win their bid and putting it back again?

I was amazed when dealing with this stuff that tax receipts were not taken into account, the Government is in a unique position in that the tax treatment of the future finances of the bidder will impact its overall "income", the purpose of privatisation is to generate operational efficiencies not tax ones - so it should be in the model.

this only came to light because bransons lawyers were about to mount a legal challenge

Im sure plenty of other government deals would fall apart under that level of scrutiny, its not like branson cant afford to through money at it till he finds a crack

that said
the minute the bid was granted virgin were saying this

I think the government; from the chancellor via spellman to the civil service accountants involved were all so desperate to balance the books that they were willfully blind to the obvious

if they even considered the point where the franchise would have gone tits up theyd be happily ensconced in the house of lords/ enjoying their final salary pension

Is it not a simple as "how much are you going to pay us and what service will you provide?"

Not really.

@Farmer J

The passenger numbers were FG were projecting was something 10% growth per anum IIRC

Alarm bells should have been ringing (and were at Virgin) with respect to FG promise of the large payments to the government at the end of the contract, all quite convenient after the company would have been taking large fees in the interim and those final payments totally dependent upon the ridiculous passenger projections.

As noted above this this has only come to light because of Branson's legal challenge, the government have had to admit that he is right after previously having denied it.

The minister is in charge, therefore the minister should take the rap when things go wrong.

and he bought Northern Rock off the tax payer.

The minister is in charge, therefore the minister should take the rap when things go wrong

I can't believe anyone with anything between their ears could have looked at First Groups cloud cuckoo-land projections, and not immediately had a very real suspicion that they intended to milk the franchise for a few years, then walk away from it (a la National Express on the East Coast Mainline) when they actually had to start paying for it.

Leaving the usual suspects - muggins taxpayer here - to pick up the bill for a private companies failure. Yet again!

I often wonder when looking at these, and PFI contracts, which muppets in Whitehall are signing these contracts off? If it were legally binding contracts between 2 private companies, there's no way on earth any corporate legal department would sign off patent fanticist rubbish like this. They'd laugh the bidder out of the building after just a cursory glance

Given that the evidence suggests that Governments couldn't run a bang in a cathouse, isn't it about time that the rail network was FULLY privatised and left to the likes of the successful Branson to get it sorted?

...whilst the winning bidder is a Scottish Plc that pays full corporation tax on all profits derived from UK operations.

And they got awarded it because.... (hint ^^)?

As noted above this this has only come to light because of Branson's legal challenge, the government have had to admit that he is right after previously having denied it.

The problem with any procurement process, is that you have to trust it entirely, there is no room for discretion or second guessing.

Their process was closed shut once they went out to tender, they had the belief that the stages they had in place would facilitate the award of the franchise to the right person.

They would have already believed that their bid process was bomproof, but when it transpired that they were going to boot out the incumbent, I would bet a months salary that they will have been bricking it. A second placed incumbent on a transaction this size almost always leads to challenge. They will have made sure that their house was in order.

At some point, the process will have been reviewed (probably by external counsel) to ensure it was robust enough to resist challenge. This will have been the first scrutiny of the process since it began.

It would have been around this time that they will have been told "Err, xxx parts were flawed"

Squeaky bum time.

They would have had no option but to roll over.

The thing is though, a flawed process doesn't necessarily mean that the result would have been any different. Don't be surpised if First still end up with the franchise.

I disagree. Sure Ministers should be accountable for a lot of things but they have to rely on others for things like ratifying the viability of bids for contracts. Do they even have any say over the people in the civil service roles making these decisions? It's not like the current transport minister was even in the post when it happened anyway.

Ministers take the credit when things go well, and it would be extremely naive to think that they can't decide who works for them.

Peterfile. From your experience, you seem very clued up on the process. A few questions for you, if you don't mind:

What would be your estimate of how long it'll take before the second bidding process is resolved, and the contract actually awarded now?

And would you hazard a guess as to the total cost of this farce? I suspect its many many times the £40 million being bandied about

Given Virgin is trhe current franchise holder of the West Coast, they would be MUCH better placed to know exactly what growth was achievable etc. Also, im led to believe that the West Coast mainline is pretty saturated in terms of spare paths available for additional trains, so how are they going to run more trains on an already congested route?

Bear in mind that any spare paths are going to be equally sought after by other passenger AND freight operators.

HS2 may in the long term create extra paths on the West Coast, as trains are routed onto the new route, but this is probably more relevant to the next winner of the franchise when it is re-let in 10 years time.

Binners, PPP and franchise stuff (particularly rail) is my day job 🙂 It's soooooo glamorous 😉

Timescale - who knows. Presumably the DfT has rolled over on the judicial review, so it should be focusing its efforts on establishing what actually went wrong. If it's a "simple" issue, like an error in the financial evaluation or assumptions which were made, then the source of the problem could be fixed (at least in principle) quite easily.

However, I suspect that they will take a look at their franchise policy as a whole, since fixing this bid process might just be like sticking a bandaid on a compound fracture.

It's quite hard one to call. On one hand, they'll be keen to downplay this as a simple error and rerun the process quite quickly, however the consequences of not having a full review (of policy generally) and getting it, or any other franchise, wrong again will have absolutely dire consequences for all involved.

Considering Virgin will probably run the services in the interim, they might take their time on this (they could also be forced to!).

Costs - absolutely no idea on this particular deal, costs can vary massively from deal to deal, but at a guess, £40m does sound on the low side to me. It depends on how they structured the process, but franchise bids (and their review) tend to be very cost/time intensive with a lot of duplication of effort (which is one of the fundamental flaws of how we run competitions like this).

Almost certainly FG will be seeking to recover any mobilisation costs.... although they may put this to one side for now...should they fail to be successful in any retender...

there will be other consequential costs which are probably unquantifiable (maintance issues impact on interconected projects and procurement programmes)

I would think the key factor for overall costs will be whether First takes legal action.

Having seen a number of government contracts, I think the key issue ruunning through this is the public sector's weakness in such contractual/procurement matters. They rarely seem to negotiate robustly, and as stated above somewhere, don't have a well-thought through process. If this could be improved throught (eg NHS etc), I think a very large sum of money could be saved.

Just my opinion, mind.

Cheers for that PF.

It does seem that if privatisation is to benefit the taxpayer in any way, then it certainly seems that Whitehall needs a few more seriously hard-nosed people to actually make decsions. As the way these things are handled at present seems unbelievably and hopelessly naive, and totally inadequate.

I suspect though, that informing them of this would lead automatically to the answer "Yes! You're absolutely right!!! Lets get a team of management consultants in!!!"

It does seem that if privatisation is to benefit the [s]taxpayer[/s] customers in any way, then it certainly seems that Whitehall needs [s]a few more seriously hard-nosed people[/s] to let go and leave it to the professionals to [s]actually[/s] make appropriate decisions.

You know what Woppit, you could well be right. Whichever way it goes, the present half way house, part public/part private shambles is clearly failing to deliver for anyone other than the lawyers

What worries me most is this public procurement of private providers sounds remarkably like what they've got in mind for the NHS. Which is frankly terrifying!!

It does seem that if privatisation is to benefit the taxpayer in any way, then it certainly seems that Whitehall needs a few more seriously hard-nosed people to actually make decsions. As the way these things are handled at present seems unbelievably and hopelessly naive, and totally inadequate.

In some ways, I actually have a little bit of sympathy for government here. Franchises (and bid processes) are pretty complex beasts, and DfT will have engaged quite a few external advisors (legal, financial, technical etc) to deal with the majority of the work. Of course, it will have been headed up by public sector employees, but they will have put their trust in their advisors (and their PI cover!) to ensure that everything was in order.

the public sector often say to advisors "this is what we want, tell us how we can achieve this". If their initial question is wrong, then the whole process is screwed and they will take the blame. However, if the right questions were asked, yet there was still an error, then some (if not all) of the blame will fall at the feet of the advisors. Hello to a mahoosiv PI claim.

From a PR perspective, government will always have to sack a few people to appease the masses (since they were effectively in control), but i've yet to meet a client who isn't reliant to some degree on his advisors.

The place I tend to see most challenges arising is in the evaluation of bids. Competitions of this scale are put together (generally) by lawyers, accountants and technical advisors, yet are evaluated by the public sector client. this introduces the risk that the evaluation criteria are not applied correctly, or even worse, subjectively.

It's a tricky situation, since the people best placed (from an expertise perspective) are probably the lawyers who drafted the tender/evaluation documentation. But could you imagine that from a risk/PR/challenge perspective??!!!! "Global law firm awards public sector contract to one of its clients" 🙂

My own view is that some procuring authorities (particularly at a local government level) lack the necessary expertise to head up these large transactions, and are overly reliant on their advisors. But what's the solution? Hire in experts from external firms? It works on some deals (we had a great project director on a multi £bn project recently, he had been brought in especially and had just come off of three other similar transactions around the world.), but finding the right people (for the right money) is very very difficult.

Interesting stuff again PF. Surely there's an argument for breaking the payscales to pay for people who genuinely know what they're doing (as you've described), when making these decisions. As this would bemore than offset by preventing expensive fiasco's like this?

Though, thinking about it.... I reckon you could probably write the Daily Mail headlines about that now. a 'Civil Servant' being paid a serious salary

Couldn't agree more, Binners. On both counts. Start paying a civil servant well and all the envy-hackles will go up in the media.

Though, thinking about it.... I reckon you could probably write the Daily Mail headlines about that now. a 'Civil Servant' being paid a serious salary

That's exactly it.

Think about it this way...the average equity partner in a good London law firm will earn around £1m a year. Is he/she really going to ditch their career to work in the public sector for 5 years on one deal for £100k a year?

Similarly, as you pointed out, it's unlikely that they'll be able to pay them their market value!

What's amusing though, is that you'd be cheaper paying them £1m a year in salary, rather than £600+ per hour for external advice! You lose the safety net of PI cover though, plus you'd still face the difficulties of picking someone up for one deal (and persuading the media that its good value)

However, it's worth considering this: I acted for the ODA on various Olympic stuff over the years. Its in house teams (e.g. lawyers and technical advisors) was made up of some extremely talented professionals at the top of their fields who had joined the ODA due to the significance of the Olympics and what it could offer them (both personally and from a career perspective). I can honestly say that it was the most professional team imaginable - these people were straight out some of the top firms in the world.

Considering the tight timetable, scale and complextity of the task, how did the Olympics go from a "get the thing built on time" perspective?

Just saying. You often get what you pay for 😉

Given that the evidence suggests that Governments couldn't run a bang in a cathouse, isn't it about time that the rail network was FULLY privatised and left to the likes of the successful Branson to get it sorted?

It does seem that if privatisation is to benefit the taxpayer customers in any way, then it certainly seems that Whitehall needs a few more seriously hard-nosed people to let go and leave it to the professionals to actually make appropriate decisions.

They tried that, it was actually not that long ago, I seem to recall the body count was quite high, not that the business owners gave a **** about the lives lost, they still tried to sue the government for taking the hard nosed but appropriate decision to take control back.

As a side point, the issue of the public sector not being able to attract the brightest sparks isn't confined to the world of business.

An immensely talented QC (regarded as one of the best in the country) is constantly being put forward for judicial positions. I once asked him why he kept declining what I thought were "career defining" opportunities.

His response was simply that the salary wouldn't even cover his four kid's tution fees. He was smiling but he wasn't joking.

I'm not saying that there aren't any talented people in civil service, it's just that the disparity in pay/opportunities at the top of the professions is too large to warrant consideration.

Err he didn't buy the bad debt though, that got hived off into NRAM (which then became UKAR after they combined it with B&B's bad debt) so not exactly doing the taxpayer a favour, he got a decent bank network cheaply.

He paid the best price, so in that sense he did do the tax payer a favour.

[b]ononeorange[/b] - Member
Couldn't agree more, Binners. On both counts. Start paying a civil servant well and all the envy-hackles will go up in the media.

You then have to think about the commercial value of the very cushy working environment they enjoy.

What worries me most is this public procurement of private providers sounds remarkably like what they've got in mind for the NHS. Which is frankly terrifying!!

Indeed. Branson can't [i]wait[/i] to get in on the act - Virgin Care is set to run children's services in Devon, as well as greatly expanding their GP empire (see their takeover of Assura). New service providers will profit via both the value of projected (taxpayer-funded) contracts & cutting back on services (e.g. using nurses instead of docs) - all the while being careful to palm off the tricky (read: expensive, messy) stuff to overstretched NHS acute care. Beardy is taking the pish, IMO.

Still, with that idjut Hunt as Health Sec and David Bennett (ex-McKinsey & Bliar advisor) as chairman of NHS regulator Monitor, I imagine the prognosis for Virgin Care is very good indeed. 👿