Reviews into the flawed West Coast Main Line franchise could see delays of up to a year in securing an operator for South West rail services, leaving business leaders concerned that the region could miss out on investment.
Whitehall blunders over the now-scrapped West Coast Main Line rail franchise led to the suspension of three Department for Transport officials yesterday after an embarrassing eleventh hour admission that the process had been cancelled.
Transport Secretary Patrick McLoughlin pulled the plug, saying "unacceptable mistakes" were made by the DfT in the way it managed the franchise bids from FirstGroup, Virgin and two other companies.
Describing the bidding process as "flawed" and "insane", Sir Richard Branson had earlier launched a legal challenge on the decision to award the franchise to the FirstGroup.
Mr McLoughlin said that two separate enquiries would now take place, one focusing on the West Coast Main Line franchise, with the other taking a broader look at rail franchising as a whole.
These are due to conclude by the end of the year, and, in the meantime, Mr McLoughlin said that three other franchise competitions – including the Greater Western Franchise – had been "paused".
It was initially expected that a winning bid for the South West rail services would be announced by the end of the year but this has already slipped by several months, with an announcement expected in February and the new franchise likely to start in July. The current operator First Great Western, Arriva, and National Express have been shortlisted to run the new franchise, which is expected to run for 15 years.
Transport analyst Douglas McNeill, from Charles Stanley, said that the enquiry process could lead to delays of up to a year in the awarding of the franchise.
"I don't think it would be a surprise if the deadline for the enquiries slipped and, even if it doesn't, I think the Government would want to take its time to study its conclusions," he said.
While this is taking place, Mr McNeill said it was likely that First Great Western would continue to operate the Greater Western franchise.
Tim Jones, chairman of the Devon and Cornwall Business Council said this meant that investment which was written in to the tender specification would also be delayed.
"We are asset light on infrastructure, with the closure of Plymouth City Airport being a good example of how fragile that can be. Investment in rail was seen as absolutely essential," he said.
"We're now in a holding pattern. Clearly, First won't want to invest if it's for a short-term period – it's a massive lost opportunity for us.
"We were hopeful, having set a clear agenda, that we would get major investment but it now looks likely to have disappeared.
"We are the hidden casualty of a government bungle – it will have an impact on us. We are the victim of what the Government recognises as their mistake."
The debacle has also prompted speculation about the long-term future of the current franchising system which requires a careful balancing act from operators who must pay a hefty fee to government but with the prospect of making large profits.
Mr McNeill said he believed that franchises would remain but that the complexities involved in longer franchise periods in order to encourage longer term investment could be difficult to implement.
"I think what you might see is the Government backtracking from its policy of long franchises," he added.
News that the franchise had been cancelled came as a shock, including to the FirstGroup, which had, on Tuesday released a trading statement which spoke of its confidence in the DfT's procedures and its preparations to take over the West Coast Main Line franchise on December 9.
"We are extremely disappointed to learn this news and await the outcome of the DfT's inquiries," the company said in a statement.
First Great Western was originally due to run the South West franchise until 2016 but last year it exercised a break-clause in a effort to save an estimated £800 million.