Branson goes to court over rail contract

LONDON Tue Aug 28, 2012 11:55am EDT

Travellers walk to a Virgin train at Euston rail station in London August 15, 2012. BREUTERS/Neil Hall

Travellers walk to a Virgin train at Euston rail station in London August 15, 2012. B

Credit: Reuters/Neil Hall

LONDON (Reuters) - Richard Branson's Virgin Trains group launched legal proceedings against the British government on Tuesday in a last-ditch bid to prevent a rival bidder from signing the contract for the West Coast railway train operating franchise.

The government had earlier rejected a plea by the billionaire businessman to rethink the bidding process which awarded the rail contract to FirstGroup (FGP.L) for around 6 billion pounds, sparking a bitter row.

"We have tried for three weeks to get clarity over the Department for Transport's decision and to have a number of key questions answered," Virgin said in a statement. "On each occasion we have been refused information.

"We are left with no choice but to commence court proceedings as we believe the procurement process has ignored the substantial risks to taxpayers and customers of delivering FirstGroup's bid over the course of the franchise."

Branson's Virgin Trains, a joint venture between Virgin Group and Stagecoach (SGC.L), had run the services between London and north west England and Scotland for 15 years but lost out in the contract extension bid earlier this month.

The tycoon attacked the decision as "insanity" and said the Department for Transport's (DfT) decision needed to be reviewed because FirstGroup's numbers did not stack up.

He even offered to run the service on a not-for-profit basis for a few months beyond the handover date on December 9 to allow time for a review. Virgin and even some customers have suggested that the cash-strapped government accepted the highest offer without questioning whether the financial terms made sense.

"The current process is geared to selecting the highest risk bid and needs to be independently audited to prevent a repeat of former franchise failures," Virgin said.

FirstGroup has said the department's process was rigorous, detailed and fair, with bids thoroughly tested.

"There has been no complaint about the process, which was carefully described in advance, until Virgin Rail Group had lost commercially," it said.

The DfT said earlier on Tuesday that there would be no delay in handing the west coast rail franchise over to FirstGroup, although Virgin believes a legal challenge will prevent the contract from being signed. A spokesman for the department declined to comment on the legal challenge.

Branson is backed by more than 150,000 people, who have signed an e-petition urging the government to reconsider the franchise award.

FirstGroup expects the route, which has annual revenue of around 900 million pounds, to generate sales growth of 10.4 percent and margins of roughly 5 percent over the life of the contract.

(Reporting by Kate Holton and Rhys Jones; Editing by Mark Potter and David Cowell)

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