In June the Department of Transport awarded the £1.5bn Thameslink rail contract to a consortium led by Siemens, rather than the competing bid from a consortium led by Derby-based Bombardier. Some 1,200 new train carriages will now be built in Germany. Bombardier then announced 1,400 redundancies and many feared their next move would be the closure of the Derby facility, the last surviving UK factory capable of making trains.
The coalition government’s Transport and Business Secretaries who awarded the contract predictably blamed the outcome on their Labour shadows who had originally drafted the contract in 2009. But remarkably, all the Westminster politicians agreed with thousands of petitioners from Derby and a chorus of critics in the national media who denounced this as a |bad decision.
If there was much disquiet about the outcome, there was less clarity about how things might be put right. This was an opportunity for the ESRC-funded Centre for Research on Socio-Cultural Change (Cresc), run jointly by Manchester University and The Open University. Within a month we produced a report, available on www.cresc.ac.uk, focusing on the issues of “bundling”, and the definition of the public interest.
The Thameslink contract was a public procurement contract in the Private Finance Initiative (PFI) style which covered the building of carriages, their maintenance, plus the lease finance. Because the contract “bundled” train building and rolling stock finance together, judgements about which company could build better and cheaper trains were contaminated by the question of who could raise lease financing more cheaply. There never was a level playing field because Siemens had an A+ credit rating against Bombardier’s BB+, giving Siemens a finance cost advantage of maybe £700 million.
Cresc’s report has been welcomed. Among other things it reinforces the Treasury Select Committee’s recent criticism of PFI financing of schools and hospitals. Here again, the state stands to lose more through ineptly designed contracts than it gains from private sector management skills, unless it changes its approach to awarding public contracts.
Professor Karel Williams teaches at Manchester Business School, and is co-author of ‘How not to build trains’