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Massive cock up - The Ex-Communicator

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October 3rd, 2012

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07:38 am - Massive cock up
In the UK, since John Major's privatisation of the railways, the railway system was split up into overlapping sections, and private companies have to bid to run them. They 'bid' by offering to pay the government money during the life of the franchise. This year the contract to run the West Coast rail was taken away from Virgin and given to FirstGroup. That is because FirstGroup promised to pay the government a mad amount of money - I forget how many billions - but all at the end of the franchise period. Basically the business plan of the owners was to make money up front, and then let the company go bankrupt in five years (or be bailed out by public money as usual). That meant they were technically the 'highest return' bid and they could undercut Virgin. I mean, I don't love Virgin but this was just cynical gaming of the system.

Anyway, Richard Branson announced he was taking them to court over it, and a lot of people thought that a lot would come out in court about the processes used, possibly about corrupt practices, I don't know.

Today The Government have announced the suspension of the franchise process. They have suddenly 'discovered' that there were flaws in the process. They are going to start again. They are compensating Virgin and the other companies involved to the tune of £60m.

This almost literally could not come at a worse time for the Government, because it is only a few hours since the leader of the opposition gave the best speech he has ever managed, focusing on the Government's incompetence, U-Turns and favouritism. So, my conclusion is that they must have been absolutely desperate to shut Branson down. He'll get the franchise now, and keep his mouth shut. He's a business man.

(16 comments | Leave a comment)


[User Picture]
Date:October 3rd, 2012 03:33 pm (UTC)
The rules for bidding on government contracts in general are simply ludicrous. There seems to be only a minimal element of competence to do the job, with 99% of the decision resting simply on money.
[User Picture]
Date:October 3rd, 2012 04:25 pm (UTC)
It's not just government contracts. Some contractors to our private sector employers have clearly had, as a model for bidding, "underbid our costs to the top brass, then recoup the loss by underperforming to the employees who have to work with us". The bosses don't see the effects of lowest-bidder-no-matter-what; they only see the lovely cost savings.

The idea is not unlike that of the vendors of collateralized debt obligations: separate out the bits so the buyer sees a low cost and a high value, and an apparently low risk. But the risk isn't low, it's just carefully made obscure to the buyer by the vendor.
[User Picture]
Date:October 4th, 2012 12:21 pm (UTC)
So right. And you have to follow the procedure even while you are thinking 'this cost is not realistic at all'

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