Three civil servants got the blame for the West Coast Mainline rail franchise fiasco (see previous blog) but it is important not to overlook the role of politicians and one in particular, none other than Theresa Villiers MP for Chipping Barnet.
Shortly before the Government abandoned its award of the franchise to First Group in preference to Virgin, Ms Villiers was elevated to the Cabinet as Secretary of State for Northern Ireland from her previous role as Minister of State in the Department for Transport. Apparently the promotion surprised a number of Tory MPs and with good reason.
As a transport minister Theresa Villiers had increased the length of rail franchises to 15 years and increased the freedom of the franchisees to operate as they liked. In return the companies would supposedly carry more of the risk but they could terminate the contract prematurely on payment of a relatively small penalty (http://www.standard.co.uk/business/markets/anthony-hilton-tracking-down-the-real-rail-culprits-8203849.html). The West Coast Mainline is a profitable franchise so the franchisee was to pay money to the Government based on its forecast of revenues over the 15 years – an impossibly long period for such predictions. To win the business a bidder would need to be more optimistic than its rivals safe in the knowledge that if it stopped being profitable it could walk away much earlier than 15 years and leave it to the Government, i.e. the taxpayer, to clear up the mess.
Other rail franchises are subsidised by the taxpayer but that does not ensure they are delivered to the end of the contract. National Express handed back its franchise for the East Coast Mainline and now the trains pass through Barnet operated by a publicly owned not-for-profit entity while the Government ponders which privateer should have the next shot at running the service and receive the subsidy – corporate welfare.
So what are the lessons for Barnet Council as it considers its £1billion outsource? One is that paying a premium to transfer risk to the private sector is folly. Experience shows that if a contract becomes unprofitable for a company it delivers less than it had promised and in extreme cases it simply withdraws or demands more money against a threat of withdrawal (the latter case has already happened to Barnet Council}. The outsourcer could try to recover its losses in the courts but that is a lengthy and expensive process with an uncertain outcome.
The other lesson is that responsibility rests mainly with the political masters, who set the policy and take the decisions, rather than just with the paid officials who implement them. Barnet Council’s chief executive is leaving (hardly surprising – the job will be much smaller after the majority of the work has been outsourced and most of the staff have left). If the gamble fails there will be much pointing of fingers at the outsourcee companies, consultants and senior officers, past and present, but the responsibility will be with the Conservative councillors who vote it through and that is all of them not just the Cabinet.