THE news from Scotland reaching Moir Lockhead at his holiday hideaway could not have been more welcoming. FirstGroup, the transport company he helped to build, had won the race to run the country’s railways.
But the announcement from the Scottish Executive on Friday morning left others in the industry puzzled and surprised. Not only had FirstGroup overcome serious objections to its bid, the incumbent operator National Express, appeared finally to be turn
ing the ailing ScotRail into a viable proposition. According to insiders, it was also on course to make a first-ever profit.
Lockhead, away from it all and enjoying a relaxing early summer break, issued a statement responding to the decision, describing it as "terrific news for us and our new customers. We were the only Scottish company to be shortlisted and are very proud to be given the opportunity to run Scotland’s railways".
FirstGroup, whose operational headquarters is in Aberdeen, not far from Lockhead’s home on a farm in Royal Deeside, will take over the mantle from National Express in October. For seven years, and possibly a further three if an extension is granted, it will have to find solutions for a network that the commuter loves to hate but grudgingly admits has seen some improvements.
Yet the biggest question this weekend was why National Express had been dropped just at a time when it appeared to be getting it right. On most measures it was improving its performance and dealing with many of the complaints that had been at the root of travellers’ gripes, such as overcrowding, frequency, cleanliness and reliability. As one source said: "They must be a bit puzzled as they were doing a good job. FirstGroup will inherit a bloody good service."
To those who continue to suffer unexplained cancellations and carry on standing in spite of the longer trains and more frequent service, the praise and talk of improvements may seem a little overdone. But it is easily overlooked that the company inherited a state-run system that was under-funded and badly in need of an overhaul.
From a standing start, therefore, it was forced to wait two years for the first trains to be delivered, eating into the early stages of the initial seven-year franchise. Now, with more than £200m invested in new rolling stock, FirstGroup will take control of a network with renewed assets and more to come.
Regular travellers, however much they may resent admitting it, should have noticed the benefits from 19 extra train ‘sets’ and 30,000 more journeys provided. Less visible, but equally important, passenger accidents are down 23%, and the number of trains passing danger signals has fallen by 34%. The figures contributed to ScotRail moving towards the top of the Strategic Rail Authority’s performance league table for trains travelling on time.
Therefore, when the announcement came last week, there was widespread surprise among those who thought the franchise was in the bag - except that the SRA rarely awards franchises to incumbents - a possible clue to the final outcome. In ScotRail’s case, it makes a recommendation to the Scottish Executive which makes the final decision, but it is seen as little more than a rubber-stamping exercise following a lengthy period of consultation.
The fact that an Aberdeen company was awarded the lucrative contract by an Aberdeen MSP immediately raised eyebrows. But transport minister Nicol Stephen’s aides insist that the process of awarding the deal to FirstGroup was entirely above board, and nobody seriously doubts it.
Even so, Stephen worked as a consultant for the company before becoming an MSP in the area. He also addressed a FirstGroup event at the Scottish Liberal Democrats’ conference in Dunfermline. His speech took place during the franchise bidding process.
Before accepting invitations like this, the ministerial code of conduct says ministers must "satisfy themselves that doing so does not place them under any real or perceived obligation nor risks the commercial position of the Executive".
An Executive spokeswoman said: "It would be improper to suggest that this may have had any bearing on the decision to appoint FirstGroup as the preferred bidder. The process was carried out on an anonymous basis."
Stephen was presented two weeks ago with the three shortlisted candidates - the third being Arriva - along with the SRA’s recommendation about which company should get the contract. But the actual identities of the companies were kept hidden - Stephen was simply asked to choose between company A, B or C. He eventually concurred with the SRA’s recommendation - still without knowing which firm he had chosen.
"He only discovered the actual identity of the winner at 5pm last night," said one official on Friday. "The whole process up until then was entirely anonymous."
The SRA notified the Stock Exchange for an announcement to go out on Friday morning. Officials at the Scottish Executive also insist that the new contract is far tighter than the previous deal - even though they will be in negotiations for several more weeks with FirstGroup to discuss the detail of its programme for bringing in the improvements that they, and the Strathclyde Passenger Transport Authority, have demanded.
"We have set new performance targets and we have set even tougher penalties if they fail to meet those targets," said an official. "The contract requires the operator to improve every year. It means there should be an improvement in services, both in terms of frequency and quality of services, every year."
All of this will mystify the board at National Express, whose chief executive Phil White was said to be "stunned" by the decision to deny his company the chance to build on the progress it had been making. It was particularly galling for the company as it had been forced to sell most of its bus operations in Scotland as a condition for getting the rail franchise at privatisation in 1997. From being in a potentially commanding position to provide bus and rail services north of the Border, its only presence in Scotland now is providing the bus services in Dundee.
There is also some irritation and anger that little account seems to have been taken of the costs and organisational difficulties in the early years, when the company was expected to revive a tired and battered system.
"When the first franchises were handed out everyone was bidding blind. They had little experience of rail," said one insider. "Clearly, there was a lot of confusion and uncertainty at the time about how to run the services and what needed to be done."
A company spokesman agreed that the company had gone through a learning process but was now being denied the chance to build on what it had achieved. "We now know this business, we know where the costs are, what needs to be done. We were able to identify improvements sensibly, knowing what we had done and what it was possible to achieve."
Another puzzle for the unsuccessful bidders is that so many questions were asked of FirstGroup’s bid, which was referred by the Office of Fair Trading to the Competition Commission. An interim report included 11 points of contention over the bid, centred on a possible loss of competition by combining the biggest provider of buses in Scotland with a company that would become the biggest operator of rail services. A main concern was that bus services could be reduced or fares increased to shift passengers from bus to rail.
FirstGroup, it noted, would account for almost 70% of all revenues from the operation of public transport in Scotland - a situation whereby the company "could be expected to distort competition between FirstGroup and other operators, including in areas where it does not currently operate, but where it could leverage its control of the rail franchise to extend its bus operation."
It was further known that objections had been raised to FirstGroup’s potential control of local markets, notably in Glasgow, and it was thought these were sufficiently vocal and serious to count against the company’s chance of success.
But in spite of these concerns, the company emerged as preferred bidder and is now in detailed discussions over these issues. A final report is expected from the Competition Commission at the end of the month. The company is also talking to the transport minister on how it will respond to the specific demands to improve the punctuality and reliability of services, passenger safety and comfort - including higher standards of cleanliness - security and travel information.
The Executive also wants to know how it plans to reduce overcrowding so that no one should have to wait more than 10 minutes for a seat. The franchise award also allows for extra services to be added as and when necessary at a reasonable cost to help deliver the Executive’s ambitious plans for the Scottish network.
Nicol Stephen, in an official statement, emphasised the impartiality of the decision and made a point of thanking just about everybody who had helped improve services - with one notable exception.
"This has been a hard-fought and challenging competition with each bid being subject to rigorous scrutiny," he said. "The decision to appoint FirstGroup as the preferred bidder demonstrates our commitment to providing the best deal for passengers and the Scottish economy. Their bid offered the highest quality overall and the best value for money."
He said the Executive had invested in new trains, improved station security and provided better travel information. Passenger numbers were improving. Along with the Strategic Rail Authority, he said the Executive had invested in longer platforms across the country to reduce overcrowding and accommodate the new trains.
"We expect FirstGroup to build on this solid starting point and make real improvements to the quality of rail services in all parts of Scotland. We have worked very closely with the SRA and SPT in this process, and I would like to thank them for their dedicated efforts in securing this deal for Scotland’s rail network."
In what one insider considered a snub, the only mention in the statement of National Express was to name the company among the bidders; its efforts in contributing to the improved services was not acknowledged.
Additional reporting by Eddie Barnes