UK: Intercity West Coast: Report Of The Laidlaw Inquiry

Last Updated: 20 December 2012
Article by Clyde & Co LLP and Nigel Taylor

An inquiry into the cancellation of the Intercity West Coast (ICWC) franchise tender has presented its final findings and has identified a series of failings at the Department for Transport (DfT). The report was due to be published at the end of November but its release has been delayed while its contents were carefully considered by the DfT. Sam Laidlaw, the Centrica chief executive and a non-executive director of the DfT, who conducted the inquiry has already noted that the cancellation of the ICWC bid stems from "inadequate planning and preparation, a complex organisational structure and a weak governance and quality assurance framework".

The ICWC tender was the first to utilise a new risk sharing mechanism proposed by the DfT's Rail Value for Money study in 2011 (Risk Mechanism). Under the Risk Mechanism, the annual franchise payment made by the franchisee is adjusted based on national gross domestic product (GDP). This method is intended to make the franchise payment system more responsive to wider economic conditions. The previous "cap and collar" method, where payments are varied according to revenue levels set at the time of the bid, had been criticised for reducing train operator incentives to maximise revenue.

Where the DfT considered there to be a risk of franchisee insolvency under the Risk Mechanism, a subordinated loan facility (SLF) would be required by the bidder's parent company as a hedge against default. The findings highlight the lack of transparency in the process for determining the level of SLF required, as the DfT did not disclose its models to the bidders, a result of which was their inability to reliably predict the size of the SLF requirement.

Tellingly, the inquiry concluded that the amount of the SLF required of the two leading bidders, First West Coast and Virgin Trains, was not consistent with the DfT's own models. Instead, the final SLF required was based on the DfT's view of what was an appropriate level of capital to be injected into the bid vehicles. The inquiry also finds that the determination of the SLF was influenced by extraneous factors and that the bidders were inconsistently treated.

The report points out that a number of opportunities for a full and proper explanation of how the SLF requirements had been determined to be formally escalated and reported within DfT were missed. In addition, the senior decision makers and the Minister of State who ultimately made the decision to award the ICWC franchise to First Group were given inaccurate reports as to how the SLF numbers were calculated.

Technical modelling flaws were discovered in the DfT's model to determine the SLF numbers, including confusion between numbers in real terms and nominal values. Therefore, to the extent that the numbers generated by this model were taken into account in calculating the final SLF, they were understated by almost 50%.

Factors stated as contributing to these errors and omissions include a failure to formally escalate or report within DfT, inadequate planning and preparation, an ineffective and inflexible process timetable, the failure of the organisational structure to set out roles, responsibilities and accountabilities, quality and robustness being subordinated to completing the process on time and a culture of limited ownership and ineffective oversight.

Going forward, the report includes the following key recommendations to ensure that confidence and trust are restored to the DfT procurement process:

  1. Discipline is applied in the allocation and balance of time and resource to officials in procurement
  2. A review is made of the use of SLF as the means of mitigating the risks of franchisees walking away from the franchises
  3. A reconsideration of the commercial flexibility of the process takes place
  4. A credible timeline, incorporating contingency plans, is put in place, with reference to the complexity of the procurement
  5. The franchising programme structure is redesigned to establish clearer roles and methods of escalation of risks and concerns
  6. A skills review is carried out and a needs assessment is undertaken to identify capability, experience or leadership gaps in the DfT
  7. A review is carried out into the terms of reference of the bodies responsible for governance of the franchising programme
  8. A review is carried out into internal and external quality procedures at the DfT

Margaret Hodge, Labour chair of the public accounts committee, responded to the report explaining that the "ultimate failure of this completion was sealed by a rich mix of the department's feeble and forever-changing management and almost non-existent oversight."

A Downing Street spokesman said: "What it makes clear is that, if the problems had been properly escalated and brought to the attention of the senior civil servants and ministers, then we probably could have got this right. We wouldn't have been in the mess we are in."

The ICWC operates 26 million passenger journeys and 3.2 billion passenger miles per year, and is one of the largest rail franchises in the UK. Transport Secretary Patrick McLoughlin has confirmed that the existing operator, Virgin Trains, will continue to operate the ICWC route until 9 November 2014.

The DfT has currently suspended its outstanding rail franchise competitions for Great Western, Essex Thameside and Thameslink pending the outcome of the review process.

A wider review of the DfT's rail franchise programme, carried out by the Chairman of Eurostar Richard Brown, is expected to be published in late December.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.