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Stagecoach takes legal action over West Coast franchise

May 24, 2019

UK rail operator Stagecoach is to take the government to court over its disqualification from running the West Coast Partnership franchise from 2020.

Stagecoach and its partners were barred from running three franchises by the Department for Transport (DfT) last month.

The DfT disallowed the bids because they did not meet pensions rules.

The claim alleges that the DfT breached its statutory duties, which include a “fair” tendering process.

Stagecoach is taking the legal action forward through its West Coast Trains Partnership Ltd business, in which Stagecoach has a 50% share, with French state-owned operator SNCF holding 30% and Virgin 20%.

It is also demanding a judicial review.

The DfT said it would “robustly defend” the outcomes of its competition processes.

A spokesperson said Stagecoach “knowingly submitted non-compliant bids”, and while the department would not comment on legal proceedings, it had “total confidence” in its franchising procedure.

Public procurement expert Andrew Dean, of law firm Clifford Chance, said a court was “unlikely to interfere” with the DfT’s disqualification decision, “unless Stagecoach can put forward strong evidence”.

Reaching an out-of-court settlement with Stagecoach may prove difficult for the DfT, as it would potentially encourage other disgruntled operators to launch similar challenges.

Labour’s shadow transport secretary Andy McDonald took aim at his counterpart Chris Grayling, saying that Stagecoach’s move “shows that this system is beyond reform”.

“Only Labour’s plans to unite track and trains in one public company can deliver the affordable fares and reliable rail services passengers deserve.,” he added.

Pensions shortfall

Earlier this month, Stagecoach said it had begun a similar proceeding after losing the East Midlands franchise.

Ministers had disqualified Stagecoach from re-bidding for the franchise – which has services running to Lincoln, Liverpool, Norwich and Nottingham – after DfT raised concerns about its pension commitments.

Bidders for the franchises have been asked to bear full long-term funding risk on relevant sections of the Railways Pension Scheme, Stagecoach has said.

The Pensions Regulator has estimated the UK rail industry needs an additional £5-6bn to plug the pensions shortfall, while the company has said it was being asked to take on risks it “cannot control and manage”.

Rail firms have called on the government to help make up the pensions deficit.

Martin Griffiths, Stagecoach chief executive, said: “We believe the rail system should be about appointing the best operator for customers, not about passing unquantifiable, unmanageable and inappropriate risk to train companies.”

Virgin boss Sir Richard Branson said last month that his train business could disappear from the UK after Stagecoach was barred from the three rail franchise bids, which also included South Eastern.

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