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MPs criticise East Coast rail franchise termination.

Summary: A report by MPs has criticised the handling of the termination of National Express's East Coast rail franchise, saying Whitehall created a "moral hazard".

A report by MPs has criticised the handling of the termination of National Express's East Coast rail franchise, saying Whitehall created a "moral hazard".

The House of Commons Public Accounts Committee report said the Department of Transport (DfT) refused National Express's offer of Au150m to give up the franchise. The Dft later ended the contract and received just Au120m.

The report found the Dft believed that giving up the extra money would prevent other loss-making train franchises seeking similar deals.

National Express was allowed to maintain control of two other franchises and was told in December 2010 that the East Coast termination would not be held against it in future franchise bids.

The report said: "Since the East Coast termination, other franchises have been in financial difficulty and their holding companies have not sought to hand them back.

"We are, however, concerned that the department created a moral hazard by allowing National Express to pay a lesser financial penalty through terminating a contract than they would have done by paying Au150m to exit consensually, and by choosing to not hold the termination against National Express in future bids."

The committee added: "The department have potentially incentivised other holding companies with loss-making franchises to terminate, rather than renegotiate, their contract with the department, as they know doing so will cost them less and will not affect their ability to compete for other contracts."

Independent Television News Limited 2011. All rights reserved.

Independent Television News Limited 2011. All rights reserved.

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Publication:Independent Television News Limited (ITN)
Date:Jul 13, 2011
Words:281
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