WHITEHALL’S spending watchdog is investigating the collapse of the East Coast rail franchise, it emerged today.
The National Audit Office (NAO) is probing the award of a 2005 contract to rail firm GNER to run East Coast services – which was subsequently torn up last December and replaced with a temporary deal after the company said it could not pay an agreed £1.3bn premium.
The investigation forms part of a wider NAO study into rail franchising, including the process for selecting winners. The study should be completed next year.
A GNER spokesman said it was not in a position to comment on details of the NAO’s response, but said GNER had continued station and service improvements under its management contract, including a £45m transformation of its diesel trains and the installation of wireless internet on all services.
Ministers are set to reveal later this year which firm has won a replacement East Coast franchise.
Arriva Trains, National Express Group, First Group and a partnership of Virgin, Stagecoach and GNER are in the running.
NAO chief Sir John Bourn last month told then shadow transport secretary Chris Grayling that the inquiry was under way.
New shadow transport secretary Theresa Villiers said today: “The collapse of the GNER franchise is the worst example of the chaos created by refranchising under this Government.
“That is why the Conservatives wrote to Sir John Bourn last month to request the matter be investigated by the National Audit Office.
“With the Government trying to squeeze ever more money out of the franchising system, it is essential they learn the lessons of the past so we do not end up with another fiasco like we have had with GNER.”
Tyne Bridge MP David Clelland, who sits on the Commons transport committee, said: “I think it is fair to look into circumstances of the GNER collapsed franchise and see exactly what did go wrong there.”
A Department for Transport spokesman said it was good practice that the NAO reviewed major policy issues and added that it was co-operating fully.
In his letter to Mr Grayling, NAO chief Sir John Bourn said: “We are currently studying rail franchising, including the process for selecting winners, including the risks and rewards involved, the criteria used in decision making and risks to viability.
“This study will include the East Coast Main Line franchise, and we hope to complete it in 2008.”
He said the now-defunct Strategic Rail Authority let the contract in May 2005, before responsibility for franchising was transferred to the DfT.
The SRA decided on the franchise award following detailed analysis of bids received, including robustness of revenue projections, said the watchdog boss.
The East Coast Mainline route has been run by GNER since the late 1990s.
Last year GNER’s parent company Bermuda-based Sea Containers, filed for bankruptcy protection in the US and was suspended from the New York Stock Exchange.
Its financial problems were worsened by the fact that under the terms of its franchise, GNER had to pay back £1.3bn to the Treasury over 10 years.
Government ministers had warned that rail operators which fell into financial difficulty would have to surrender the franchise and would not receive financial support.