Procuring new trains

9 July 2014

Full report: Procuring new trains

The Department for Transport signed contracts for two large procurements of rolling stock – for Thameslink and Intercity Express – in line with broad objectives. These include reducing the long-term costs to the whole rail system and improving the reliability and availability of trains by transferring risks to the train service suppliers as well as increasing capacity to accommodate predicted increases in demand. But the National Audit Office will not be able to conclude fully on the value for money of either project until the new trains are in service.

The Department’s objectives were designed in part to minimize the effects of long-standing issues in the rail industry. These issues and the scale of the procurements led to the Department’s decision to lead the procurements itself, despite not having led a major rolling stock procurement before. However, there is still a lack of incentives for train operators to consider long term, whole system costs more generally, such as maintenance costs for tracks, although the Department has begun working with industry to resolve such issues.

Today’s report also highlights that the Department was departing from its stated policy of leaving train procurements to the industry, particularly following its decision in July 2013 to exercise an option in the original contract with Agility Trains to add 270 carriages to its Intercity Express order at a cost of £1.4 billion. This has created confusion in parts of the industry about the Department’s role.

The Department estimates that future payments will be around £7.65 billion for InterCity Express over 27.5 years and £2.8 billion for Thameslink over 20 years. Contracts include the cost of the trains themselves as well as the cost of maintenance and of depots. The Department also has the opportunity to gain from future reductions in the cost of financing both procurements.

Today’s report points out that both procurements achieved levels of competition equivalent to or better than other rolling stock procurements since 2000. However, in the case of Intercity Express, the Department decided to proceed with a revised bid without rerunning the competition. The Department view is that no other manufacturer could offer better value for money but this remains untested.

Just two years after the Intercity Express procurement began, the Department decided to electrify the Great Western Mainline which meant that diesel trains were no longer needed. While the programme was designed to be flexible enough to accommodate this change of direction, the NAO recommends that the Department in future major procurements produce a detailed, integrated plan to bring together infrastructure, rolling stock and franchising strategy.

The Department awarded both contracts more than two and a half years later than intended, largely because of pauses to the procurements and the challenge of securing finance for these projects during the financial crises.

“At the moment there is a gap between the Department's stated desire to play only a strategic role in the rail industry and how it is acting. It needs to ensure that the industry understands its policy on the procurement of trains and produce a detailed integrated plan bringing together infrastructure, rolling stock and franchising strategy.”

Amyas Morse, head of the National Audit Office, 9 July 2014

Notes for Editors

£7.65bn

The estimated total amount train operators will pay for using the new Intercity Express trains over 27.5 years. (2014 prices, present value)

£2.8bn

The estimated total amount train operators will pay for using the new Thameslink trains over 20 years (2014 prices, present value)

2,006

The total number of new train carriages, of which 1,140 is for Thameslink, and 866 - 369 for the Great Western Main Line and 497 for the East Coast Main line - are for Intercity Express

13

The total number of new, reconstructed or refurbished depots being delivered by the contractors: two for Thameslink, eleven for Intercity Express

24

Trains per hour through the core Thameslink route upon completion of the programme

4             

Trains per hour between London and Bristol on the Great Western Mainline upon completion of the Intercity express programme - twice the current number of services

1.42

Benefit-cost ratio for the Thameslink programme (trains and wider infrastructure programme)

2.7

Benefit-cost ratio for Intercity Express

3

Years of delay to the Thameslink programme (trains and wider infrastructure programme)

2.5

Years of delay to Intercity Express

1. The Department for Transport awarded the contracts for both programmes to private sector consortia to supply, finance and maintain new trains. Train operators on the Great Western Main Line, East Coast Main Line and an expanded Thameslink network will pay the consortia to use the trains. The Department estimates future payments will be around £7.65 billion for Intercity Express and £2.8 billion for Thameslink (2014 prices, present value) over 27.5 and 20 years respectively.

2. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained by using the relevant links on our website.

3. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 820 employees. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.1 billion in 2013.

Contact: Rupi Gohlar
Direct line: 020 7798 7066 Mobile: 07917 555388 Email: pressoffice@nao.gsi.gov.uk
PN: 39/14
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