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Why Bombardier really missed out on the Thameslink contract Why Bombardier really missed out on the Thameslink contract
(3 months later)
"There's nothing normal about this transaction," a senior banking source laughed to me the other day as I queried some of the finer contractual points of the Thameslink rolling stock contract finally signed on Thursday, which will see Siemens build 1,140 carriages for London's north-south commuter rail line at a cost of £1.6bn."There's nothing normal about this transaction," a senior banking source laughed to me the other day as I queried some of the finer contractual points of the Thameslink rolling stock contract finally signed on Thursday, which will see Siemens build 1,140 carriages for London's north-south commuter rail line at a cost of £1.6bn.
However, some would say that there is something all too normal about it – namely a foreign firm scooping up a lucrative procurement at the expense of British jobs. Since the Siemens-led consortium was named preferred bidder for the contract two years ago, furious MPs – including on David Cameron's own cabinet – trade unionists and well-meaning commentators have denounced the bloody-mindedness of the Department for Transport (DfT) in handing the contract to a firm that will build the trains in Germany. The losing bidder, Bombardier, has threatened to cut 1,400 jobs at its Derby factory without the contract to keep them going.However, some would say that there is something all too normal about it – namely a foreign firm scooping up a lucrative procurement at the expense of British jobs. Since the Siemens-led consortium was named preferred bidder for the contract two years ago, furious MPs – including on David Cameron's own cabinet – trade unionists and well-meaning commentators have denounced the bloody-mindedness of the Department for Transport (DfT) in handing the contract to a firm that will build the trains in Germany. The losing bidder, Bombardier, has threatened to cut 1,400 jobs at its Derby factory without the contract to keep them going.
In the eyes of critics, the Thameslink contract covers a multitude of sins: not only was it awarded to the "wrong" bidder, but requiring private finance unduly weighted it in favour of Siemens. To blame the government for not simply awarding the contract to Bombardier is the easy answer and many people have lunged for it. But not only does it ignore the fact that Bombardier lost the competition according to objective criteria (hence it didn't appeal the decision), it overlooks a deeper, more intractable truth about how we procure not only trains, but many of our public works.In the eyes of critics, the Thameslink contract covers a multitude of sins: not only was it awarded to the "wrong" bidder, but requiring private finance unduly weighted it in favour of Siemens. To blame the government for not simply awarding the contract to Bombardier is the easy answer and many people have lunged for it. But not only does it ignore the fact that Bombardier lost the competition according to objective criteria (hence it didn't appeal the decision), it overlooks a deeper, more intractable truth about how we procure not only trains, but many of our public works.
Bombardier's problems in maintaining the UK's last full-service train factory did not begin with Thameslink. Since the breakup of British Rail in the 1990s, main line rolling stock has been ordered, financed and leased to train operators by rolling stock companies (Roscos). With no incentives and only sporadic obligations to buy new trains, rolling stock procurement lapsed into what the Railway Industry Association dubs "feast and famine": large order volumes followed by barren periods. No train orders at all were placed in the first three years of privatisation. Such an uncertain pipeline, it points out, severely tests the willingness of train manufacturers to risk their capital by building factories here, and drives up costs.Bombardier's problems in maintaining the UK's last full-service train factory did not begin with Thameslink. Since the breakup of British Rail in the 1990s, main line rolling stock has been ordered, financed and leased to train operators by rolling stock companies (Roscos). With no incentives and only sporadic obligations to buy new trains, rolling stock procurement lapsed into what the Railway Industry Association dubs "feast and famine": large order volumes followed by barren periods. No train orders at all were placed in the first three years of privatisation. Such an uncertain pipeline, it points out, severely tests the willingness of train manufacturers to risk their capital by building factories here, and drives up costs.
Rosco train procurement follows no national strategy, and is divorced from stewardship of the rail network by privatisation and fragmentation. Uncertainty over the state of the infrastructure on which a train is running leads to unreliability, and Roscos are not always liable for train faults.Rosco train procurement follows no national strategy, and is divorced from stewardship of the rail network by privatisation and fragmentation. Uncertainty over the state of the infrastructure on which a train is running leads to unreliability, and Roscos are not always liable for train faults.
The Thameslink Programme is a major upgrade of a Victorian railway line to massively increase capacity. The DfT had to be sure that the new trains would meet their specific performance standards and be compatible with the new track, signals and train control systems being installed. To make up for the Rosco model's shortcomings, the then Labour government had little choice but to order the trains centrally.The Thameslink Programme is a major upgrade of a Victorian railway line to massively increase capacity. The DfT had to be sure that the new trains would meet their specific performance standards and be compatible with the new track, signals and train control systems being installed. To make up for the Rosco model's shortcomings, the then Labour government had little choice but to order the trains centrally.
The result was probably the most complicated, multi-faceted train procurement in railway history. Injecting private finance into the equation required banks and a battery of advisers to run financial models, assess risk and write contractual conditions for every last contingency including worst case scenarios such as banks (or the trains) collapsing. Thameslink trains will have to meet a rigorous performance specification, with delays or technical faults punished by docking rental payments. The complexity, and the delay, was exacerbated by the sheer number of stakeholders: the DfT, three equity investors, 20 banks, First Capital Connect, Network Rail… Insider sources tell me the two-year timeframe from preferred bidder to contract signing was reasonable in the circumstances.The result was probably the most complicated, multi-faceted train procurement in railway history. Injecting private finance into the equation required banks and a battery of advisers to run financial models, assess risk and write contractual conditions for every last contingency including worst case scenarios such as banks (or the trains) collapsing. Thameslink trains will have to meet a rigorous performance specification, with delays or technical faults punished by docking rental payments. The complexity, and the delay, was exacerbated by the sheer number of stakeholders: the DfT, three equity investors, 20 banks, First Capital Connect, Network Rail… Insider sources tell me the two-year timeframe from preferred bidder to contract signing was reasonable in the circumstances.
Ditching private finance might have made Thameslink proceed quicker, but would have done nothing to preserve British jobs (or guarantee Bombardier winning the contract). If we are to attract train builders to the UK, we must offer a steady pipeline of procurement. There is ample scope to do so: to replace the appalling 1980s Pacers that blight commuting in Lancashire and Yorkshire, the ageing InterCity 125s on the Midland main line and many of the first-generation BR electric commuter trains. A single corporate body set up by statute could order the trains, set the standards and raise its own finance, cutting out contractual disputes and providing vision 10 years into the future. We have Network Rail; why not Network Trains?Ditching private finance might have made Thameslink proceed quicker, but would have done nothing to preserve British jobs (or guarantee Bombardier winning the contract). If we are to attract train builders to the UK, we must offer a steady pipeline of procurement. There is ample scope to do so: to replace the appalling 1980s Pacers that blight commuting in Lancashire and Yorkshire, the ageing InterCity 125s on the Midland main line and many of the first-generation BR electric commuter trains. A single corporate body set up by statute could order the trains, set the standards and raise its own finance, cutting out contractual disputes and providing vision 10 years into the future. We have Network Rail; why not Network Trains?
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