The award of a £1.4bn contract to Bombardier’s rival Siemens seemed to threaten the existence of Britain’s last remaining train-maker. 1200 workers were being laid off by Bombardier with more losses in the supply chain. The award to Siemens was all the more galling as it followed statements by politicians of all parties saying how important it is that we boost our manufacturing sector.
Two salient points have emerged regarding the Labour Government’s tender process. Firstly, they set this up as a ‘Private Finance Initiative’ and secondly that they used the ‘Utilities Contract Regulations’ rather than the ‘Public Contracts Regulations’. Both these decisions had huge implications for the outcome; although whether Ruth Kelly understood these implications is only something she could say.
With PFI, the process depends on the financial deals that can be arranged. Bombardier claim they are competitive but they are losing out on Siemens’ ability to raise finance cheaper than Bombardier can. There is now general agreement that the announcement that Siemens were the ‘preferred bidder’ for the Thameslink contract was down to financial considerations not technical. The Derby MP Margaret Beckett has said as much, tacitly admitting her Labour colleague’s responsibility.
Our second point is this: The Commons Transport Select Committee has recommended that the National Audit Office should look into the EU competition laws. They should be investigate why the tender was put out using the ‘Utilities Contract Regulations’ rather than the ‘Public Contracts Regulations’. It matters because Siemens has been fined for corruption. Under the ‘Public Contracts Regulations’ they could have been excluded from the bidding. So, two key decisions put Siemens where they are now. The choice of Regulations took Siemens from the side-lines to the starting grid, the choice of a PFI contract rather than a normal contract took them to pole position. The then Labour Transport Secretary Ruth Kelly and her civil servants have questions to answer and this is what we believe the NAO should investigate.
Over and above the local issue in the East Midlands is a wider issue. In August we tabled a series of questions in the House of Lords asking about the tender, asking if any attempt was made to determine the overall cost to the exchequer of each tender and what consideration given to employment, social security costs, tax revenues, balance of trade statistics; and which department is responsible for deciding which tender is most in the national interest.”
The answers made it plain that no department was considering the ‘high-level’ view, the wider implications of the tender decision. One would have thought that this should be the Treasury’s role so why are they not doing it? This story sheds a revealing, and not very reassuring, light in the way the UK government machinery works. This too the NAO should investigate.
More details can be found on the Association of Liberal Democrat Engineers and Scientists website here.
*The author is chair of the Association of Liberal Democrat Engineers and Scientists.
* Steve Coltman is parliamentary spokesperson for Loughborough and an Executive member of the Association of Liberal Democrat Engineers and Scientists although he writing here in a personal capacity.
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7 Comments
Very interesting. Thank you.
A question. How come Siemens won because of their ability to raise finance cheaper than Bombardier can? I’m not doubting that this is so as I’ve heard similar stores in other unrelated cases, but isn’t it odd that the City, which is supposed to be our economic jewel in the crown, is completely useless when it comes to supporting the real economy? It is, however, outstanding at organising bonuses!
Incidentally, I long since came to the conclusion that a big part of why government works so badly in this county, irrespective of the governing party, is that the Treasury has lost the plot so to speak and is not fulfilling its proper role.
Liberal Eye – it’s not really anything you can blame the City for. Presumably Siemens could borrow more cheaply than Bombardier because it is larger and more credit worthy. And chances are that German group Siemens and Canadian group Bombardier would both be raising some of their external financing in London but also plenty in other capital markets.
Note that Labour chose Desiros for the SWT contract. Their objections now are hypocritical or ignorant.
This is an excellent article, because it starts to get to the heart of how the UK can rebuild its manufacturing base. It is certainly true that whoever sets the rules plays a large part in determining who will win the tender.
Now the government is correctly promoting infrastructure investment as a way of getting through hard times, it should go without saying that the primary contractors for this investment should be UK manufacturers.
Government needs to talk less to financial interests in London and talk more to manufacturing companies in the regions. Financiers in London don’t care a jot whether Siemens or Bombardier get the contract, because they take their cut either way.
Thanks for the responses – Siemens is a conglomerate that contains a banking arm and they have a built-in advantage with a PFI contract – Bombardier has competed successfully in non-PFI contracts. I think Liberal Eye has hit the nail on the head. I too am beginning to suspect the Treasury have lost sight of any ‘National Interest’ and do not seem to be performing the oversight role. In a big company any new investment has to be demonstrated as being consistent with meeting the company’s longer term, high-level targets. It is not enough to demonstrate that an investment just meets local targets. All the accountants report ultimately to the Chief Finance Officer and it is they who have to know the company’s high-level targets and be convinced that an investment helps meet them. The Treasury should be fulfilling an analogous role but I don’t think it does.
It’s bonkers that, at a time when almost all European and UK banks are insolvent and survive only because their host governments are underwriting them, PFI contracts – the dodgiest of dodgy concepts at the best of times – should still in used. Can anyone say circular?
Re the Treasury I have perhaps a useful insight in that I once did the capital allocation oversight for a large multinational and it’s fairly obvious, even from this distance, that the Treasury is doing it all wrong. They are complicit in a process of fiddling the books to move things off balance sheet (e.g. PFI) and fixing project appraisals to get the ‘right’ answer by burying inconvenient costs or gimmicking the revenues etc. The Olympics is a case in point; I fear HS2 is another.
The result is pure Soviet ‘tractor factory’ economics – and equally dismal results – with just a gloss of market lipstick.
I’m just left gobsmacked in that having determined that the procurement terms did not create a level playing field and were in fact biased against a UK-based business that not one of the various Transport ministers we’ve had since the general election has had the guts to use their power as the final signatory, to call foul and cancel the current procurement process.
Yes a new procurement process would need to be undertaken creating delivery delays; however I expect UK taxpayers would be prepared to wait a little longer for the shiny new trains if it meant taxpayers money being spent on keeping UK jobs and manufacturing capability.
Also since the government owns several banks, it is in the position of offering Bombardier credit on market beating terms.