Transport Secretary Patrick McLoughlin has said that the government has made a 'terrible mistake' in granting the West Coast rail contract to FirstGroup back in August, saying that the taxpayer bill for the mishap will be in the region of 40m pounds.

McLoughlin said on Wednesday that the Department for Transport (DfT) needs to reimburse the bid costs for the four companies that entered the competition for West Coast franchise, which runs from London Euston to Glasgow Central and Edinburgh.

After identifying "significant technical flaws" in the franchising process, the DfT said that three civil servants had been suspended with immediate effect.

"Three officials involved in the West Coast franchise competition were today suspended by the Permanent Secretary while the full facts are established. No further details will be issued at this time about the suspensions," a spokesman said.

DfT launches review into franchising process


Philip Rutnam, the DfT Permanent Secretary, said that the errors exposed by its investigation were "deeply concerning".

"They show a lack of good process and a lack of proper quality assurance. I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again."

Shares in FirstGroup dropped by as much as a fifth in London trading today saying it was "disappointed" by the decision, while fellow transport firms National Express and Go-Ahead were also unwanted after the DfT said it was suspending three future franchising decisions (on Great Western, Essex Thameside and Thameslink) until a review had taken place.

McLoughlin said in a statement this morning: "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," he said.

Virgin Rail 'back on track'


Stagecoach was making gains today - the company owns part of the Virgin Rail joint venture with Virgin Group which has operated West Coast since 1997 - after saying that it is in discussions with the DfT regarding the reviews.

Virgin Rail had launched a legal challenge against the government after its £4.8bn bid to renew the contract was bettered by FirstGroup's £5.5bn bid.

Virgin boss Sir Richard Branson said last night on his blog that FirstGroup had made a "completely unrealistic bid" and he had questioned the way the offers had been assessed.

In a post titled 'Virgin Rail back on track', Branson 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."

Related share prices
Stagecoach Group (SGC) share price
FirstGroup (FGP) share price
Go-Ahead Group (GOG) share price
National Express Group (NEX) share price