Britain scraps $9 bln West Coast rail deal, cites govt errors

By Stephen Mangan

LONDON, Oct 3 (Reuters) - Britain scrapped on Wednesday a $9 billion deal that had awarded the West Coast rail line to FirstGroup Plc , citing flaws in the government's figures, just a day after the company had said it was prepared to take over the key mainline train service this year.

FirstGroup in August won the 13-year deal for the London-to-Scotland line with a bid of around 6 billion pounds ($9.4 billion), but the decision was challenged by Virgin Trains, a joint venture between high-profile billionaire Richard Branson's Virgin Group and Stagecoach .

Branson called for a review because he believed FirstGroup's numbers did not stack up, and Virgin launched legal proceedings against the government in August in a bid to prevent the contract.

"I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process," British Transport Secretary Patrick McLoughlin said in a statement.

"A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held," he said.

The move means that the Department for Transport (DfT) will no longer be awarding a franchise contract to run the West Coast service when the current contract expires on Dec. 9, and the bidding process will need to be re-run.

Bus and rail operator FirstGroup had said on Tuesday that its focus was on ensuring a smooth transition for staff and passengers as it made plans to start running the franchise on Dec. 9.

Evidence of "significant flaws" in the DfT's calculations emerged as officials were undertaking detailed evidence-gathering in preparation for its legal battle against Virgin Trains, according to the department's statement.

In light of the findings, the government said it is no longer contesting the judicial review sought by Virgin Trains in the High Court.

Civil servants that made the significant mistakes in the way they calculated the risks for each bid are facing suspension while an investigation takes place, the statement said.

Two independent reviews into the way the franchise process was conducted and the future of the bidding process for franchises are due to be delivered, one later this month and the other in December, said McLoughlin.

The government has also paused three other outstanding franchise competitions pending the findings of the independent reviews.

(Reporting by Stephen Mangan; Editing by Chris Gallagher)

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