LONDON (Reuters) - Britain's Department for Transport (DfT) encouraged "ambitious" bidding on revenue projections for the failed East Coast main line contract, a rail expert told MPs on Monday.
Last week the British government said it planned to renationalise the route between London and Edinburgh, scrapping a contract with Stagecoach <STG.L> and Virgin, prompting a committee to hold the post-mortem to find out what went wrong.
Problems with the bidding process were partly to blame for the demise of the contract, rail experts told the cross-party Transport Select Committee.
"The Stagecoach-Virgin bid for East Coast was very ambitious, which was essentially what the department was asking for in the invitation to tender," said Iryna Terlecky, Director of TBI Consulting.
"It was asking for ambitious bids. It gave additional credit in the policy score for ambition."
Changing circumstances during the years over which a contract runs were also to blame, the committee was told, including issues relating to economic growth, discretionary travel and home-working trends.
Stagecoach and Virgin's contract ended five years early after they over-estimated profits.
Terlecky said it was common knowledge that other franchises were experiencing similar difficulties and that the DfT had the option of adopting a more flexible approach if it wanted to prevent other contracts from failing.
It is the third time since 2007 that the 393-mile (632 km) route between the English and Scottish capitals has been returned to government hands after contracts failed, which another expert attributed to the romance of operating what is seen as the country's flagship line.
"It's viewed as the jewel in the crown of the railways and I think that has led to optimism ... it's a very, very profitable franchise," said Elaine Holt, former chief executive of Directly Operated Railways, which ran the line before Stagecoach-Virgin.
The DfT's approach became more cautious over the past six months, once it knew that the East Coast contract was failing, Terlecky said.
"There has been a significant change to the way that financial robustness of a bid is assessed ... It was made clear that the financial robustness (tests) that were being done would now be done on a much more cautious central estimate."
(Reporting by Sarah Young; Editing by Alexander Smith and David Goodman)
