Stagecoach paid almost £600million more than the next nearest bidder to retain Britain’s biggest rail franchise, according to documents released by the Department for Transport (DfT) under the Freedom of Information Act.
The transport group agreed to pay £1.191billion for the 10-year South West Trains contract - twice as much as any of the three other bidders was willing to pay.
The revelation helps explain why Stagecoach is engaged in a legal battle with the Department for Transport over the terms of its contract. Stagecoach is facing steep losses on its SWT franchise because it is failing to hit targets for passenger and revenue growth.
Its potential losses next year will grow by up to £100million if its legal action against the DfT fails.
The losing bidders for SWT were First, Arriva and National Express in alliance with Hong Kong’s MTR Corporation.
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The publication of the amounts they bid is a blow to the reputation of Brian Souter, chief executive of Stagecoach, who prides himself on his ability to secure advantageous terms in negotiations with the Government.
The DfT had previously refused to publish any details of losing bids but, following the intervention of the Information Commissioner, it agreed to release the amounts without saying which company bid which amount.
The three losing bids were fairly similar - £636 million, £513million and £501million - suggesting the losers all took a very different view to Mr Souter about the value of the franchise.
Mr Souter was desperate to retain the SWT contract during the bidding in 2006 because if he had lost it, the company’s rail division would have been reduced to a 49 per cent stake in Virgin West Coast. Since then Stagecoach has won the East Midlands franchise.
Joe Thomas, rail analyst at investment bank Investec, said: “Stagecoach did pay a high price for the SWT franchise and as the economy has turned sour that has come back to haunt it.”
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Stagecoach’s dispute with the DfT concerns the start date for the revenue support mechanism, under which the DfT pays a proportion of franchisees’ losses if they fail to hit revenue targets.
The DfT claims it is February 2011 for SWT but Stagecoach argues it is next April.
A Stagecoach spokesman said: “You can’t look at the bid value numbers in isolation. They only mean something if you have the rest of the proposal the bidder put to the department and what caveats they put into their bid.”
He declined to say what caveats Stagecoach had put into its bid, saying they were confidential.