Thameslink and Crossrail Contracts

Tuesday 20th November 2012 Westminster Hall

16:00

[Chris Williamson (Derby North) (Lab)]

It is a pleasure to serve under your chairmanship for the first time, Mr Howarth.

Bombardier is the last train-making company left in the United Kingdom. We have got to this state, frankly, if we go back into relatively recent history, because of the privatisation of the rail industry, which has led to an unco-ordinated approach to the procurement of trains and much short-termism. The train manufacturing industry in this country is left hanging in the balance.

As a result of the Government’s decision last year to appoint Siemens as the preferred bidder for the Thameslink contract, 1,440 jobs at the Derby Bombardier factory were lost. Some 1,600 remain, and 12,000 people work in the supply chain in the rail industry, which accounts for some 900 companies. Bombardier is therefore still a significant player, even though it is the last remaining train maker in the UK.

I want to set out what I believe have been fundamental errors in the Thameslink procurement process. I also want to make the point—I hope the Minister agrees—that it is not too late to correct those errors. I hope, too, that he will give an assurance that the mistakes made in the Thameslink process will not be repeated in future contracts, particularly in the Crossrail contract that is due to come up in the next few years.

[Pauline Latham (Mid Derbyshire) (Con)]

Does the hon. Gentleman not want to look forwards, rather than totally backwards, and be positive? Does he not agree that further contracts, such as for Crossrail, are coming up, and that we should be careful not to jeopardise that by ranting on too much about the past. We should look forwards for Bombardier and ensure that we do everything, on a cross-party basis, to get it the contract for Crossrail.

[Chris Williamson]

Of course, we need to look forward, and I shall come to that, but it is also important to look backwards for a while, because it is not too late for the Government to do the right thing. There are problems with and delays in the Thameslink contract, so it is appropriate to take that historical context into account.

[Dr Matthew Offord (Hendon) (Con)]

I thank the hon. Gentleman for securing the debate, which, as chairman of the all-party group on the Thameslink route, I particularly welcome. When he looks back, will he consider the previous Government, who designed the tendering process, and acknowledge the role that they played in this fiasco?

[Chris Williamson]

There is clearly a problem, and whoever is responsible is, in a sense, not really the point. I accept that there were clearly faults with the process designed by the previous Administration, but in taking account of the comment made by the hon. Member for Mid Derbyshire (Pauline Latham), it is important to look forward, while also acknowledging the impact of what we have seen over the past 18 months or so.

Time is short, so I will try to motor along. I have a lot to say, and I want to give the Minister an opportunity to respond to my points. I was about to make the point that we were told 18 months ago that preferred bidder status for the Thameslink contract had been conferred on Siemens. Before the 2011 summer recess, I was told by the then Minister of State, Department for Transport, the right hon. Member for Chipping Barnet (Mrs Villiers), that the contract would reach financial close by the end of that year. She said that the Department could not countenance any further retendering of the process, because that would build in far too long a delay, which would impact on the infrastructure project. However, here we are, some 18 months later, and we do not seem to be that much closer to a final decision or the financial close on the award of the contract.

In answer to a parliamentary question that I tabled, the Minister of State, Department for Transport, said that the DFT is now looking

“to secure financial close early in the new year.”—[Official Report, 25 October 2012; Vol. 551, c. 1005W.]

That will be well over the 18 months and getting on for two years, so I am not sure that the arguments made in the first instance hold any water.

I have several questions that I hope the Minister will respond to if he gets the chance. Is he confident that the timetable will not slip yet again, because it has slipped time and again? Will he explain why the forecast date continues to slip, which is rather curious and which I do not understand? Will he tell the House whether he or the Department is aware of any problems with the proposed deal? Is the slippage caused by Siemens asking for more time, or are the delays caused by problems in his Department? Will he confirm that there will be no further slippage in the time scale? In which month in the new year will financial close eventually be reached? Will it be spring or earlier?

I want to go through some of the series of errors in the Thameslink tendering process, if I may. The contract is clearly a Government one, but the DFT has not managed it as though it were. Furthermore, the tender evaluation was discriminatory. The EU’s Commissioner for the single market, Michel Barnier, has said that, as far as the Commission is concerned, the Thameslink contract is being undertaken by a contracting authority; in other words, it is a Government contract. The Secretary of State for Business, Innovation and Skills, no less, has said that the consequence of the process

“was bound to lead to the outcome it did.”

The fact is that the Department is bound by regulations. As this is a Government contract, regulation 23 of the Public Contracts Regulations 2006 is relevant. It stipulates:

“Subject to paragraph (2), a contracting authority shall treat as ineligible and shall not select an economic operator in accordance with these Regulations if the contracting authority has actual knowledge that the economic operator or its directors or any other person who has powers of representation, decision or control of the economic operator has been convicted of any of the following offences”—

including, among others—

“(a) conspiracy within the meaning of section 1 of the Criminal Law Act 1977… ; (b) corruption within the meaning of section 1 of the Public Bodies Corrupt Practices Act 1889… or… ; (c) the offence of bribery”,

as well as various other offences.

Paragraph (2), which is referred to, states:

“In any case where an economic operator or its directors or any other person who has powers of representation, decision or control has been convicted of an offence described in paragraph (1), a contracting authority may disregard the prohibition described there if it is satisfied”—

this is the key point—

“that there are overriding requirements in the general interest which justify doing so”.

I would be grateful if the Minister explained what “overriding requirements” led the Department to disregard the fact that Siemens has fallen foul of sub-paragraphs (b) and (c)—in other words, corruption and bribery. I believe it is common knowledge that it has been found guilty of those offences in America and in its home country, Germany.

Siemens AG is part of the Cross London Trains consortium, so the Department should have taken into account its obligations as set out in the regulations. Let me stress that I have nothing against Siemens per se, but I want to ensure that the law is applied appropriately and that the best interests of the United Kingdom, and of my home city and constituency of Derby, are served by the Government’s decision.

On the discriminatory nature of the matter, the process of evaluation is separated into four distinct component parts, or stages, which do not seem to be related to each other, and each part has to be satisfied in its own right. Once a bidding company has passed a stage, that stage is not referred back to, and it seems not to have any relevance to the next stage. I say that the process is discriminatory because, as experts agree, credit ratings are the key to the decision at the fourth, most important stage of the evaluation process; the quality of the product and the deliverability of the trains are utterly irrelevant. That process gave Siemens an unfair commercial advantage because it had a superior credit rating. The Department for Transport should urge the Minister, even at this late stage, to terminate the process and retender it on the basis that it was discriminatory and unfair.

Another reason that the Department should consider terminating the process and starting again is that a number of civil servants who were suspended over the west coast main line debacle were also involved in the Thameslink process—that was confirmed in responses from Ministers to written parliamentary questions that I tabled. That also flags up another significant question mark over the validity of the decision to award the contract to Siemens.

Will the Minister give an unequivocal guarantee that Crossrail is being taken forward correctly? Are the obligations placed on contracting authorities being observed by his Department and by Transport for London? Will he confirm that the Crossrail tender evaluation criteria will be non-discriminatory and will not give an unfair financial advantage to any bidder based on their credit ratings? Moreover, will he assure us that the socio-economic factors have been included in the Crossrail invitation to tender, and if they have, how have they been included? Will he give us some information in relation to the proposed eVoyager contract, which is also really important to the future of the Bombardier factory in Derby?

Will the Minister put in place an independent inquiry to consider the workings of the Department for Transport with regard to the procurement of trains? From what we have seen over the past 18 months or so, it seems pretty obvious that there has been a problem with the way the Department for Transport approached the process.

I have further questions for the Minister. What alternatives are being considered if Siemens is unable to reach financial close? In response to a written parliamentary question, the Minister said that the Department was assessing other options in the event of it being unable to reach financial close with Siemens. What are those options?

[Dr Offord]

In the next few moments, I will give the hon. Gentleman an opportunity to catch his breath and focus on some of his comments. He has presented an eloquent case for his constituents, and I would not take that away from him. None the less, I hope he agrees that I present an equally valid case on behalf of my constituents, who want a speedy resolution to the Thameslink project. That project is vital to them as it runs through the constituency.

The hon. Gentleman started by saying that there were flaws in the process. So far, he has identified issues that he considers unfair; perhaps he is questioning their validity and clarity.

[Mr George Howarth (in the Chair)]

Order. An intervention should be just that, not a mini-speech. I hope that the hon. Gentleman is coming to the close of his intervention.

[Dr Offord]

Of course, Mr Howarth. My point is that the hon. Member for Derby North (Chris Williamson) has not identified any flaws in the tendering process. Will he address that matter, before the Minister rises to speak, by describing those flaws?

[Chris Williamson]

I am sorry if the hon. Gentleman has not followed my contribution, because I outlined what I consider flaws in the process. First, this is a Government contract and it has not been treated as such; it has been treated differently. Secondly, it is discriminatory, because it gives an unfair advantage to one of the bidders for the contract. The Government are under an obligation to ensure that there is a level playing field for bidders for such a significant contract, especially when the unfair advantage is given to a foreign competitor against our own British-based train-making company. Those are the flaws. Regrettably, we do not have time to go into further detail. If we had a longer debate, perhaps we could do so. I hope that the Minister will deal with those specific points.

Let me return to the final few questions that I have for the Minister; I hope he will give them some attention. If the Department for Transport is unable to reach financial close with Siemens—there seems to be a large question mark over that—will Bombardier, as the reserve bidder, be automatically awarded the contract? Do alternatives that the Department is considering include allowing Siemens to build the trains and other organisations to provide the funding and finance? If Siemens fails to deliver on the Thameslink contract, will it be excluded from further bidding for the Crossrail contract? We deserve a response to that question, because there has clearly been a significant delay in the process. It would be inappropriate if Siemens were allowed to bid for another contract if it were unable to deliver on this one.

If Siemens is eventually awarded this contract, will the Minister give a commitment and assure us that we will not see a repeat of what happened under the Intercity Express Programme contract? In that case, the Bombardier consortium and the Hitachi-led consortium put in bids on one basis under the original tendering process. After preferred bidder status was conferred on the Hitachi consortium, there was substantial and significant change to the design of the IEP contract trains. That seems unfair, because, as I understand it, the design is now very similar to the offer that could have been delivered by Bombardier in the first instance, although it was not allowed to put that alternative design forward at that point.

Time is short and the Minister has only 11 minutes left, although there are still quite a few questions that I would like to ask. I hope he can answer some of my questions, especially the one about considering putting in place an independent inquiry to look at the workings of the DFT in relation to the procurement of trains.

16:19

[The Parliamentary Under-Secretary of State for Transport (Norman Baker)]

Thank you very much for calling me to speak, Mr Howarth. I will do my best in the 10 minutes or so available to try to answer as many points as I can.

First, I welcome this debate on Thameslink and Crossrail, two schemes that are of great importance to this country’s rail industry and, more widely, to supporting growth and jobs. I know that the hon. Member for Derby North (Chris Williamson) has been an active campaigner on behalf of Bombardier, which is natural, as it is situated in his constituency and city, and the company of course plays a key role in Derby’s economy. I am pleased to respond to this Adjournment debate on a subject that I know is of great importance to him and his constituents. I am especially pleased to do so in the week after Southern announced that it intends to exercise an option for 40 new Electrostar carriages from Bombardier, which I am surprised he did not mention.

Let me start by saying that rail is a success story and this coalition Government is committed to continuing to invest in the success of rail. Since the 1990s, both the number of passenger miles and passenger journeys on rail have nearly doubled. In the same period, use of rail freight has expanded by more than 60%, and in the past decade we have seen significant increases in passenger satisfaction and train punctuality. However, this Government requires, and is driving, even more improvement. We are investing £18 billion in this spending review period alone on a programme of rail improvements as large in scale as anything seen since the 19th century.

In Derby, the Department for Transport is investing in transport improvements, including investing £4.9 million from the local sustainable transport fund; more than £2 million from the better bus area fund; more than £8 million in highway maintenance and pothole repairs; and more than £9 million as part of the integrated transport block. We have also provisionally approved a £4.4 million contribution to a replacement road-over-rail bridge over the Derby to Birmingham railway line.

Thameslink is an urgently needed programme that will provide additional capacity for key London commuter routes and relieve overcrowding on the London underground. It includes major infrastructure works at key London stations, including the complete modernisation of London Bridge station and the procurement of next-generation rolling stock. In time, it will include changes to franchise arrangements to support delivery of the service.

Thameslink is already making a difference to passengers. Farringdon and Blackfriars stations have been transformed, platforms along the route have been extended to support new 12-car services, and enabling works have begun on the reconstruction of London Bridge station and its approach tracks. I take this opportunity to commend the industry, and especially Network Rail, for the work that has been done to upgrade Blackfriars, which was unique in scale and difficulty. I saw that work at first hand and thought that they did a fantastic job.

As the hon. Gentleman highlighted, there have been delays in awarding the Thameslink rolling stock contract. The Thameslink train order is a significant investment and the detailed contract terms need to be right, so that we can meet the demanding customer and performance requirements of this next-generation rolling stock. The contract places much greater responsibility for the train’s performance in service on the train manufacturer and maintainer than has been the case traditionally. That is the right thing to do, and given the size of this order, it takes time to get the detailed contract documentation completed. The Government is confident that it is very close to final agreement of these commercial arrangements, and we expect to be able to conclude the associated documentation by the end of this year.

As the hon. Gentleman stated, we recently revised our target date for achieving financial close to early in the new year. Of course, agreement on financing has to come after agreement on commercial arrangements, and we have to allow a proper period for the rating agency and banks to perform their due diligence. As he will appreciate, the lending environment remains challenging for all projects. Notwithstanding that background, Siemens remains confident that the funds can be secured for Thameslink.

Members will know that the Government has recently paused existing franchise procurements, including for the new Thameslink franchise, while reviews take place of the serious errors that were uncovered on the west coast main line franchise competition. The Government is wholly committed to learning the lessons from that episode, but Members will appreciate that I cannot pre-empt the findings of the independent inquiries looking into those matters.

Regarding train fleets, however, I am quite clear that the key features needed by the new Thameslink trains are those that support the demanding performance requirements needed to operate a high-frequency service through the central core between Farringdon and St Pancras of up to 24 trains per hour in either direction. Those are very different train performance requirements from those needed by trains on other routes operated by Southern. Hence, a different train fleet is required for Thameslink.

There has been some question whether there will be sufficient electric trains from the existing Thameslink programme to support all the announced electrification schemes; I think the hon. Gentleman has raised that issue in parliamentary questions. Let me be clear that the Government’s electrification programme covers both regional and commuter services, alongside long-distance, high-speed services for passengers and freight. The existing Thameslink rolling stock will be cascaded to regional and commuter lines, the very uses that it was designed to be suitable for. Overall, there is sufficient cascaded stock available to meet the needs of the electrification programme. We are working with our industry partners to ensure that that rolling stock is made available in time for the electrification of the routes.

Thameslink is also good news for jobs. The rolling stock contract will support the creation of an estimated 2,000 jobs in the UK, supporting manufacture of train components, construction of depots and subsequent maintenance of the new fleet of trains.

[Chris Williamson]

Will the Minister give way?

[Norman Baker]

I will give way shortly.

In addition, at the peak of construction activity, we expect an additional 3,000 people to be employed directly on the Thameslink infrastructure works as a whole, with as many people again employed in related jobs in the wider community. I am happy to give way now to the hon. Gentleman, but he asked me a lot of questions and left me only 10 minutes to respond.

[Chris Williamson]

I beg the Minister’s pardon, but will he concede that the 2,000 jobs that he referred to a few moments ago would be created whoever won the contract, including Bombardier?

[Norman Baker]

Of course—I am absolutely happy to accept that. I welcome new jobs wherever they are created in this country. These are train-related jobs that help both the rail industry and the wider economy.

At this point, I will try to answer some of the questions that the hon. Gentleman put. Some were related to the past, and I take the point made by my hon. Friend the Member for Hendon (Dr Offord) that the hon. Gentleman’s speech was largely about the past, rather than the future.

The hon. Gentleman asked specifically about Siemens and read out extracts from the legislation relating to the position that he thinks applies in this case. I should make it clear that for convictions to give rise to the requirement to exclude Siemens plc from the Thameslink rolling stock project, those individuals involved in the activities that resulted in convictions would need to be in a position of power, representation, decision or control of Siemens plc. The Department investigated the position at the pre-qualification stage and was satisfied that that was not the case. Consequently, we can reiterate that the Department does not consider there were grounds to exclude Siemens plc from the Thameslink rolling stock contract.

The hon. Gentleman also mentioned Crossrail, of course, as he looked to the future. Before discussing Crossrail, I should finish talking about Thameslink by referring to the point made by my hon. Friend the Member for Hendon in an intervention on the hon. Gentleman. My hon. Friend’s point was that Thameslink was largely done and dusted by the time that this Administration came to power and, to use the phrase that I think my right hon. Friend the Secretary of State for Defence used at the time, when he was Secretary of State for Transport, all he did was “open the envelope”. That is the consequence of that particular process.

Moving on to Crossrail, the £14.5 billion Crossrail project will create vital new transport infrastructure to support economic growth. The project will deliver a 74-mile railway; 13 miles of new tunnels under London; new, expanded or upgraded stations along the Crossrail route; and a new fleet of trains. When the project is complete, Crossrail services will run from Maidenhead and Heathrow in the west to Shenfield and Abbeywood in the east. For the millions of people who will use its services, Crossrail will deliver faster journey times and better connectivity, while reducing overcrowding on other services. Overall, it will provide a 10% uplift in London’s rail transport capacity. Crossrail is not only great news for passengers, but good news for the economy, as it will support growth and the UK’s long-term competitiveness. Crossrail will provide 14,000 jobs at the peak of construction and is predicted to facilitate employment growth of up to 30,000 jobs by 2026.

The Government, working with Transport for London as its co-sponsor, established Crossrail Ltd as a single-purpose delivery body for the Crossrail project. Crossrail Ltd is responsible for procuring the many contracts needed to deliver the project, the largest of those being the contract for an initial order of around 600 new carriages—the exact number is a matter for the bidders—and a new depot at Old Oak Common. The contract is expected to be worth in the region of £1 billion and is likely to include options to allow TfL to expand the fleet in future years to accommodate demand and respond to possible changes, such as High Speed 2. The procurement of Crossrail’s rolling stock marks the beginning of Crossrail’s transition from Europe’s largest engineering project to an operational, world-class railway. These will be modern, high-capacity trains that replace many older, inner-suburban trains that run into Paddington and Liverpool Street.

Our priority is to deliver that new railway, which so many people are looking forward to, on schedule and to ensure that we do so as efficiently as possible, with value for money for the taxpayer and future fare payers always in mind. We are clear that we want to secure the right train at the right price to deliver the benefits of Crossrail to London and the south-east. The only way to achieve that is through a strong and fair procurement policy. Four bidders—Bombardier, CAF of Spain, Hitachi and Siemens—submitted first-round bids by the deadline of 29 October. I have no knowledge of what is in the bids, but I hope that Bombardier, along with the other bidders, has submitted a strong, competitive bid that meets the exacting requirements of Crossrail. I am sure that the hon. Member for Derby North would like us to follow proper EU procurement policy and rules.

Those first-round bids are being assessed by Crossrail Ltd. It expects to be in a position to shortlist bidders next spring, so as to move to the next stage of the competition. It is hoped that a preferred bidder will be announced later next year, with the project moving to financial close in 2014. The first train is expected to enter service between Liverpool Street and Shenfield—the first section of the Crossrail route that will be operated by TfL—in 2017. The full Crossrail service is expected to be fully operational in late 2019, with the central tunnel section opening in advance of that.