THE COURT case brought by Stagecoach against the Department for Transport over the company’s disqualification from three franchise competitions began on 20 January. Arriva’s claim against the Department for its exclusion from the East Midlands franchise competition was due to be heard at the same time, but the company reached a settlement with DfT and instead withdrew its claim.
In April 2019 it was confirmed Stagecoach was disqualified from the East Midlands, South Eastern and West Coast Partnership competitions for non-compliance concerning pensions (the latter in a joint bid with Virgin and SNCF). The East Midlands franchise was simultaneously awarded to Abellio, with the third bidder in that competition, Arriva, also excluded for submitting a non-compliant bid in respect of pensions. A spokesperson for Arriva UK Trains said: ‘We can confirm that we have agreed a settlement on terms confidential to both parties and, as a result, have withdrawn our claim.’
Stagecoach’s claim centres on the legality of the disqualification decision by the Department for Transport. The company claims there was no clear guidance as to the process for disqualifying a bid, with DfT having ‘wide discretion’ to do so, and in any case Stagecoach believes this discretion was ‘exercised in an unlawful, manifestly erroneous and disproportionate manner’.
In its opening submission to the case, released in a redacted version, Stagecoach highlights that it received ‘a series of constantly evolving and contradictory bidding instructions’ as regards DfT’s position on pensions based on a highly limited ‘pension risk sharing mechanism’ (PRSM), which it says left bidders facing ‘uncertain and potentially enormous pensions risks’.
Stagecoach accuses DfT of a lack of transparency for engaging PwC to carry out an additional financial robustness test on pensions compliant bids, which had not been set out in the Invitation to Tender and was not disclosed to bidders, thus departing from the published process. It further claims this process was also erroneous, describing PwC’s advice as ‘manifestly flawed’ in its conclusion that pensions compliant bids were robust to downside pensions risks.
BIDS NOT BELIEVABLE
A meeting of DfT’s Board Investment and Commercial Committee (BICC) in December 2018 saw committee members express concern about the process on pensions, noting it seemed ‘the believable bids were potentially non-compliant and the compliant bids potentially unbelievable’.
Following the completion of the PwC test, DfT’s recommendation was to award the East Midlands franchise to Abellio and disqualify Stagecoach and Arriva, and to disqualify the bid put in by Stagecoach and its partners Virgin and SNCF for the West Coast Partnership competition.
A subsequent submission to the Secretary of State proposed these actions along with cancellation of the South Eastern competition. On 20 January the court was told that Chris Grayling, the Secretary of State at the time, was reluctant to follow this advice and was minded to cancel all three competitions, but was persuaded he had no choice but to disqualify Stagecoach’s bids and follow the advice he received.
In the event, the South Eastern competition was not cancelled and Stagecoach’s bid for that franchise was excluded in the same manner as for the other two competitions. Stagecoach was subsequently informed of the decision on 9 April. The South Eastern franchise competition was eventually cancelled in August, after Grant Shapps had replaced Chris Grayling as Secretary of State.
Closing submissions in the court hearing were expected in mid-February.