‘Inherent Difficulties’ Of Tenders Highlighted By Virgin Trains Court Bid

Public And Private Sector Can Learn From Franchise Battle

29.08.2012

The legal challenge launched by Virgin Trains over the Government’s decision to award the West Coast Main Line rail franchise to FirstGroup is a high-profile example of the difficult situations which can emerge in competitive tenders, according to a legal specialist at Irwin Mitchell.

Virgin Trains has launched court proceedings over the move in an effort to halt the signing of the franchise contract, stating that it has concerns that the FirstGroup bid could pose ‘substantial risks’ to taxpayers and customers over the duration of the agreement.

Labour and the House of Commons Transport Committee have also backed the calls of Virgin owner Sir Richard Branson, who has demanded the matter should be properly reviewed either in Parliament or by external organisations.

FirstGroup has responded to the launch of the legal action, stating that it has ‘every confidence’ in the process. The company added that no complaints were made about the bidding war until Virgin Trains had ‘lost commercially’.

According to Laurence Gavin, a corporate and contract law expert at Irwin Mitchell, these developments have shone a light on the complex issues which can emerge when it comes to companies going head-to-head over potentially lucrative contracts.

He explained: “The dispute between Virgin Trains and the Government highlights the legal difficulties inherent in expensive competitive tenders.  There will always be at least one loser who has spent time and money on the tender exercise, and who may feel they have been treated unfairly. 

“As well as in railway operation, a variety of public authorities are responsible for putting out to tender a wide range of business such as construction of schools and hospitals, the provision of IT and the collection of rubbish.

“Consequently, there is now an industry of outsourced providers of services to the public sector and while contracts can be lucrative - the West Coast rail franchise is worth over £5bn – bidding for them is often a significant and time-consuming exercise. 

“Such bidding processes have to be run in accordance with detailed procurement regulations and, if these are not followed, the losing bidders may be able to claim damages or stop the procurement process.  In this case, Virgin spent £14m putting together their bid for a new contract and may seek to recover this as well as undo the overall procurement.”

Laurence added that there was one simple lesson for the public sector to learn from this ongoing situation.

He outlined: “The message to public bodies is simply to get it right first time and ensure that their bidding processes are watertight and cannot be reasonably brought into question. Doing so will ensure they avoid the cost and disruption that a claim may cause. 

“This is also not an isolated case, as another recent example to bear in mind is that Westminster Council recently paid out over £900k in costs and damages following a dispute with a parking services provider.

“While such cases are very high profile, it must be remembered that the principles are the same for smaller public bodies and their private sector partners.  Taking advice at the outset of a tendering exercise avoids embarrassment, disruption and expense later.”