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MPs slam rail deal 'moral hazard' after pounds 30m shortfall.

A REPORT from MPs has criticised the handling of National Express's East Coast rail franchise.

Whitehall created a ''moral hazard'' in its handling of the termination when the Department for Transport (DfT) turned down an offer worth pounds 150 million from National Express to give up the franchise by mutual consent, said the report by the House of Commons Public Accounts Committee.

Instead the department chose to terminate the contract in late 2009, and received pounds 120 million from National Express.

There will be millions of pounds worth of supply chain opportunities when work starts on the Hitachi factory next year. Their Super Express trains, which will be used on the East Coast line, will be built in a 450,000 sq ft factory at Newton Aycliffe.

The report said the DfT judged that giving up the extra cash would reduce the risk of other train operating companies with loss-making franchises seeking similar deals, but the taxpayer did forfeit pounds 30 million.

The Department allowed National Express to keep its two other franchises, and told National Express last December that the termination would not be held against them if they bid for future franchises.

The report this weekend 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 and by choosing to not hold the termination against National Express in future bids.'' The report also said that the DfT ''did not undertake sufficient due diligence'' on National Express's bid for East Coast.
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Publication:Evening Gazette (Middlesbrough, England)
Date:Jul 11, 2011
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