The report, published today, says the competition failed because of an accumulation of significant errors related to inadequate planning and preparation, complex organisational structure, and a weak governance framework. Discovery of the flaws led to the cancellation of the competition on October 3 by the transport secretary Mr Patrick McLoughlin, with the result that all other franchise competitions were halted as well.
Laidlaw's final report finds that the DfT used flawed and inconsistent methodology when guiding bidders on the amount of risk capital, known as the Subordinated Loan Facility (SLR), to offer to guarantee their franchise against default. The SLR figures were then varied in contravention of the DfT's own franchise competition rules. Finally, ministers awarded the contract provisionally to First Group on August 14 on the basis of inaccurate reports and without being told about the critical flaws.
"The final report from the Laidlaw Inquiry makes extremely uncomfortable reading for the Department," says McLoughlin. "It has identified precisely what went wrong, revealing serious failures, as well as offering us a number of sensible recommendations to put things right. We will not allow these mistakes to be made again and the Department is determined to ensure all future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance."
Mr Philip Rutnam, the DfT's permanent secretary, says: "We will implement all of Mr Laidlaw's recommendations, and go further, to ensure we have the right set of skills, support and training to ensure failures like this do not happen again."
The DfT says that to comply with Laidlaw's recommendations it will ensure future franchise competitions are delivered at a good pace based on sound planning, a clear timeline, rigorous management, and the right quality assurance. It says it will create a simpler and clearer structure and governance process for rail franchise competitions, including the appointment of a director general responsible for all rail policy and franchising. Finally, the DfT says it will ensure it has the right mix of professional skills, both in-house and externally.
Laidlaw says he has "explained in detail the technical nature of certain errors, specifically around modelling flaws and the SLR sizing process." He also says the report outlines "an accumulation of contributory causes including a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight."
The DfT has yet to indicate how long it will take to implement Laidlaw's recommendations and when the franchising process can resume. A second more wide-reaching report into rail franchising is being conducted by Mr Richard Brown of Eurostar, and is due to be completed by the end of the year.