FirstGroup and Virgin Rail – Governments must consider the overall value of any auction

26th September 2012

As ever with this sort of process, it is impossible for outsiders to know precisely how the various bids compare and therefore whether the right decision has actually been made. In the case of the west coast franchise, however, the government does appear to have gone for the bid that offers it the highest total of cash payments over the course of the concession.

That is not necessarily a bad thing in itself but a higher headline figure does risk tempting a government to focus on the shorter term headline attractions  – perhaps to aid political point-scoring – at the expense of thinking about overall value over the longer term.

For example we know that, while the FirstGroup bid offered the government the most total cash over the contract term, the lion's share of the this is due to be paid towards the end of the concession, with relatively little in the early years. As such, the government runs the risk that, should anything go wrong in the earlier part of the term, it will have had all the problems of transferring the contract and very little in the way of payment. For its part, all FirstGroup has to lose is its deposit of £265m and perhaps an element of reputation – although how badly the long-term standing of other transport providers who have walked away from such contracts has been hurt is unclear.

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