Decision to disqualify bidders from rail franchise procurements was lawful: High Court

A Department for Transport decision to disqualify three bidders from procurement competitions for the South Eastern, East Midlands and West Coast Partnership passenger rail franchises was lawful, a High Court judge has ruled.

The case of Stagecoach East Midlands Trains Ltd & Ors v The Secretary of State for Transport [2020] EWHC 1568 related to franchising competitions run in 2019..

On 9 April 2019 it was announced that the then Secretary of State for Transport, Chris Grayling, had disqualified bidders involving Stagecoach, Virgin and Arriva from each of the competitions in which they were taking part. 

By separate decisions, the East Midlands franchise was awarded to Abellio East Midlands Ltd and commenced on 18 August 2019, and the West Coast Partnership franchise was later awarded to First Trenitalia West Coast Rail Ltd and commenced on 8 December 2019.  The South Eastern competition was cancelled on 7 August 2019.

The DfT’s reason for the disqualifications was that the disqualified bidders had refused to accept the allocation of risk of pensions liabilities that had been proposed by the Government and had proposed other terms that were more favourable to the bidders because they allocated a greater risk to the Government.

Bidders had been told that they were obliged to accept the Government’s allocation of risk in order for their bids to be compliant and that non-compliance could lead to disqualification.

Arriva, Stagecoach and Virgin brought proceedings challenging the disqualifications, contending that the Secretary of State’s decision was unlawful for a number of reasons relating to pensions risks and the conduct of the procurement. 

Arriva settled just before trial on terms that are confidential to the parties. 

An expedited trial was held in January and February 2020.

In a 600-page ruling, Mr Justice Stuart-Smith has now found that the judgment finds that the decision to disqualify the bidders for non-compliance on the issue of pensions was lawful.