Government Response
This sets out the Government's response to the Report
of the Select Committee on Transport into the Thameslink Rolling
Stock procurement.
UK rolling stock market
Recommendation 1. Although it may not
be feasible or desirable to smooth out completely peaks and troughs
in procurement there is scope for the DfT to ensure that there
is a steadier flow of opportunities to UK-based manufacturers
and the supply chain. (Paragraph 15)
Recommendation 2. We recommend that
the Government clarify how it intends to use Network Rail's passenger
rolling stock RUS in ensuring that there is a steadier flow of
procurements in future as well as clearer information to industry
about the work which the DfT expects to initiate via operating
firms or generate itself. We also recommend that the Government
clarify whether the medium-term procurement plans mentioned in
the Chancellor of the Exchequer's autumn statement will include
a plan for rolling stock. In the meantime, we would encourage
the Government to assist the UK train building sector in finding
opportunities for work before the next major train procurement
projects are completed. (Paragraph 16)
The Thameslink procurement
Recommendation 3. We recommend that
the Government explain how the measures announced in the Chancellor's
autumn statement to improve procurement practices will achieve
a more strategic approach to large-scale procurement and publish
an implementation timetable. (Paragraph 23)
DfT response. The Government
welcomes the Transport Select Committee's support for future procurements
to have a "sharper focus on UK strategic interests".
The Growth Review published in November 2011 outlined a package
of measures designed to help industry build its supply chain capability.
These included greater visibility of future contracts, improved
dialogue with suppliers and a simplification of the procurement
process.
As part of the Growth Review, the Government published
an update to the National Infrastructure Plan in November 2011
together with an 'Infrastructure investment and Government construction
pipeline' schedule which included information on future major
rail investments. The Department plans to publish in April a pipeline
of potential rolling stock replacements, which will be informed
by the Association of Train Operating Companies' view of its members'
future rolling stock procurements. Future updates of this pipeline
will reflect the industry's response to the opportunities they
have taken to procure investment encouraged by the Coalition's
policy of, where practicable, longer (up to 15 years) franchises.
The National Infrastructure Plan and the rolling stock pipeline
will, together, provide enhanced visibility of future investments.
This forward view will give the UK supply industries the confidence
to invest in their capability and be well placed to compete effectively
for future orders.
The recent announcements on HS2 and Crossrail, together
with the future Train Operating Company-led intentions that will
be described in the rolling stock pipeline, mean that even subsequent
to the Thameslink and IEP contracts being signed there will be
significant additional rolling stock requirements. These will
provide opportunities for the UK supplier base to compete and,
if successful, provide employment security and job creation.
The Invitation to Negotiate (ITN) for Crossrail's
Rolling Stock and Depot has recently been issued by Crossrail
Limited. Four bidders[2]
have received the ITN having performed strongly at the pre-qualification
stage. Relevant recommendations from the procurement strand of
the Growth Review have been reflected in the ITN. In particular,
the Invitation to Negotiate includes requirements for 'responsible
procurement'. This means that bidders are required to set out
how they will engage with the wider supply chain and provide opportunities
for training, apprenticeships, and small and medium size businesses
within their procurement strategy. Bidders are also required to
establish an appropriate local presence to manage the delivery
of the contract. Further, bidders are being asked, in the Invitation
to Negotiate, to specify from where each element of the contract
will be sourced. Although, under European Union procurement rules,
this cannot be an assessment criterion, the successful bidder
will be required to report actual progress against their proposed
estimates.
Recommendation 4. There would now appear
to be few defenders of the previous Government's decision to exclude
socio-economic criteria from the Thameslink procurement. We note
that it would not have been possible for the terms of the contract
to have been amended, following the change of Government in May
2010, without starting the procurement afresh with a new invitation
to tender. Looking ahead, we fully support the Government's intention
to have a "sharper focus on the UK's strategic interest"
in major public procurements. We hope that this new approach to
procurement does not come too late for the Bombardier plant in
Derby. (Paragraph 24)
DfT response. The Government
welcomes the Select Committee's finding that "there would
now appear to be few defenders of the previous Government's decision
to exclude socio-economic criteria from the Thameslink procurement"
and that "it would not have been possible for the terms of
the contract to have been amended…without starting the procurement
afresh".
As the previous Secretary of State set out to the
Committee, restarting the procurement would have added very significant
delays to the delivery of the Thameslink project, putting at risk
the creation of up to 5,000 jobs and further deferring the benefits
for passengers. It would also have put at risk the cascade of
released rolling stock from the existing First Capital Connect
services which it is planned will be redeployed in the North West
and on the Thames Valley commuter lines.
Since the publication of the Committee's report in
December 2011, Bombardier has confirmed it will retain its train
design and manufacturing facility in Derby. Bombardier has been
successful in winning Southern's order for 130 carriages, and
the Department is making payments required under the terms of
the franchise agreement in order for Southern to meet its additional
contractual commitments. This £188m investment has helped
to secure jobs at Bombardier's Derby manufacturing base. In addition,
there are active discussions between Cross Country Trains, Bombardier
and my Department regarding the possibility of investment in the
existing Voyager fleet. A compelling value for money case will
need to be demonstrated if this investment is to proceed, but
the Government has already stated that there could be a good case
for this project and the parties involved have been asked to move
to the next stage of work including a firm priced proposal on
which a final decision can be made.
Recommendation 5. It is hard to escape
the conclusion that Siemens' A+ credit rating made a significant
contribution to its success in winning the Thameslink procurement.
Omitting credit ratings from the evaluation criteria for future
rolling stock procurements, beginning with Crossrail, is a sensible
step. We have a wider concern, however, that bundling train manufacture
and financing together in procurement exercises will skew the
market towards larger multinational firms, possibly at the expense
of excellence in train design and domestic manufacturing. We recommend
that the Government work with the railway industry to establish
how train manufacturers can create finance partnerships which
offer good value to the taxpayer whilst promoting long-term best
value. (Paragraph 29)
DfT response. As the previous
Secretary of State made clear in his written evidence on the role
that credit ratings played in the evaluation process, credit rating
would have influenced the price offered by both bidders; and it
was just one of a number of factors accounting for the difference
in price between the Siemens and Bombardier bids.
The Government notes the Committee's comments on
the "bundling" together of the train manufacture and
financing and its concerns that this could "skew the market
towards larger multinational firms possibly at the expense of
excellence in train design". However, both Bombardier and
Siemens are large multinational firms and are very experienced
and capable of designing and manufacturing high quality trains.
The re-franchising programme over the next few years
potentially offers rolling stock manufacturers a number of opportunities
and we expect them to be engaging early with potential franchise
bidders and rolling stock financiers.
Recommendation 6. We would expect the
DfT to take a robust attitude to any further allegations of corruption
involving Siemens, or any other firm it contracts with, and not
to hold back from excluding firms from procurement exercises where
there is sound evidence of corruption. (Paragraph 33)
DfT response. The Government
notes the Committee's conclusion regarding corruption and welcomes
the opportunity to reassure the Committee that it does indeed
take a robust attitude towards corruption. The previous Secretary
of State for Transport made clear in his written evidence that
the Thameslink ITT contains the requirement for bidders to notify
the Department of any changes to the information provided to the
Department as part of the pre-qualification process. No relevant
notifications have been received since the issue of the ITT.
Conclusion
Recommendation 7. We think that it
would be in the public interest for the procurement process to
be independently reviewed and we have written to the Comptroller
and Auditor General to ask him to undertake this work and to report
to Parliament before summer 2012. (Paragraph 38)
DfT response. The National
Audit Office (NAO) confirmed in its letter to the Committee on
16 December that it will conduct a value for money review of the
overall Thameslink Programme once the contract has been awarded.
The Government looks forward to the NAO's conclusions.
8. If the Government proceeds to sign
a contract with Siemens we recommend that it publish the reasons
for favouring Siemens over Bombardier and the difference in the
cost of the two bids. (Paragraph 39)
DfT response. The Government
notes the Committee's recommendation. In his evidence to the
Committee, the previous Secretary of State explained that much
of the information relating to the Thameslink rolling stock procurement
is commercially confidential and cannot be released. In light
of the Committee's recommendation, the Government is willing to
give further consideration to the matter. However, the Government
will need to give due regard to the commercial sensitivities of
all bidders.
2 The four bidders are Bombardier, CAF, Hitachi and
Siemens
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