The handling of two big train contracts by the Department for Transport sowed confusion in the industry and potentially missed out on better-value alternatives, according to a report from the National Audit Office.
The spending watchdog said the department had reduced the long-term costs of the rail system when inviting bids to build the Intercity Express Programme and Thameslink trains, although it said a conclusive verdict on value for money could only come after the trains enter service. The government said that it "ultimately delivered the best deal" for taxpayers.
But the NAO said that the department's decision to run the tender process, in a switch from its stated policy of leaving train procurements to the industry, had "created confusion in parts of the industry about the department's role". It was concerned that it had made assumptions about financing and the market that were "untested".
In the case of the Intercity Express Programme trains, the contract was eventually awarded to the preferred bidder, the Agility Trains consortium of John Laing and Hitachi, although Agility submitted a revised bid. The DfT proceeded without rerunning the competition in the belief that no other manufacturer could offer better value for money, but this remained untested, the NAO said. The NAO criticised the department's handling of relationships with bidders during the procurements, saying that it had increased the risk of legal challenge. Both contracts were eventually awarded more than two and half years late, partly due to the challenge of securing finance.
Under the private finance arrangements, estimated future payments for the IEP trains, for use on East Coast and Great Western services and currently being built in Newton Aycliffe by Hitachi, will reach £7.65bn over 27 and a half years, including the cost of maintenance and depots as well as trains. A similar deal for the Thameslink trains, to be built by Siemens, will see payments of £2.8bn over 20 years.
The NAO said the department could potentially refinance the deals. Margaret Hodge, chair of the Commons public accounts committee, said: "The [two] programmes required £6.5bn in initial funding which led the department to adopt a PFI model as it could not find funding within its existing budgets. I am pleased to learn that whilst completing these deals during difficult financial times, the department has retained the ability to re-finance at a later date to secure better value for money for the taxpayer."
But she added: "I am worried however that the department accepted a revised bid from its preferred bidder, Agility Trains on Intercity Express, without first checking whether other providers could deliver a better deal. I would have expected a more considered judgment from the department given the scale of the project and the amount of money involved."
The NAO also concluded that better strategic planning of infrastructure and train needs could have prevented significant changes during the procurement process, with the decision to electrify the Great Western main line meaning diesel trains were no longer needed.
NAO head Amyas Morse said: "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."
Rail minister Stephen Hammond said: "The IEP and Thameslink deals represent great value for money for the taxpayer, delivering the services that passengers need and expect by providing more seats on faster more reliable, quieter and greener trains. Both programmes are essential in providing a much needed increase in capacity on these key routes, as well as supporting growth, employment and connectivity across the country.
"By taking charge of these deals, the government took the right course of action and has ultimately delivered the best deal for passengers and taxpayers."
But Mick Whelan, general secretary of train drivers' union Aslef, said that train procurement was following rail franchise awards in allowing firms to make private profits at public expense.
He added: "There's a dangerous lack of rigour, and a dangerous lack of transparency, in all this. We fear the public purse will, once again, be ripped off by a government that regards public services as an opportunity for their mates to turn a handsome profit."