Train rivals to seek compensation after Byers rejects bids

The two rival contenders for the east coast mainline are to seek compensation from the Government after the Secretary of State for Transport Stephen Byers rejected both their bids to operate the route on a 20-year franchise.

Mr Byers' decision, which went against the recommendation of his own adviser, the Strategic Rail Authority (SRA), is estimated to have cost Virgin Trains and GNER, the existing operator on the route, £3m each in bid costs.

Chris Green, chief executive of Virgin Trains, said it would certainly ask for its bid costs to be reimbursed.

"The SRA advertised it as a 20-year franchise and we bid on that basis. The Government then not only moved the goalposts, it took them down the other end of the pitch," Mr Green said.

GNER, which is owned by James Sherwood's Sea Containers, is also expected to seek a credit from the SRA through the subsidies it receives to operate the London-Edinburgh line.

Mr Byers claimed that one of the "benefits" of his decision to extend GNER's franchise by two years to 2005 instead of awarding a long-term franchise would be new train orders.

But rail executives said there was no way GNER would risk hundreds of millions of pounds on new trains if it was only certain of keeping the franchise for another two years. Rail chiefs accuse the Government of having reneged on its pledge to invest £60bn in the rail system under pressure from the Chancellor of the Exchequer, Gordon Brown. "Why doesn't Mr Byers come clean and admit that it is the Treasury and not the Department of Transport which is calling the shots?" asked one.

GNER and Virgin Trains will be able to bid again for a long term franchise in 2003. Observers point out that Mr Byers decision not to award a 20-year lease avoided a judicial review being mounted by the losing bidder.