FirstGroup loses £6bn ScotRail franchise

A decision by Scotland’s transport quango to award a 10-year contract, potentially worth up to £6bn, to run ScotRail train services north of the border to an arm of the Dutch state railway became clouded in controversy on Wednesday.

One bidder, National Express, is examining whether it has grounds for a potential challenge of the decision by Transport Scotland to hand the ScotRail franchise to Abellio, the UK arm of Nederlandse Spoorwegen, from next April. National Express is believed to have been graded just 0.24pc lower than its Dutch rival.

Rail union RMT claimed profits from Scottish rail services would be used “to underpin investment and fares in Holland”.

The award to Abellio also compounded the woes of embattled transport company FirstGroup, which has failed to win any of the four rail bidding competitions in which it has competed so far this year.

Pressure is now mounting on FirstGroup’s management, led by chief executive Tim O’Toole, to win a contract to run the London-to-Scotland East Coast Main Line. Analysts have warned that a failure to secure the East Coast franchise could lead to cash problems at the company, which was last year forced to go cap in hand to shareholders for £615m to avoid a damaging downgrade in its credit status.

FirstGroup generates £100m of operating profit a year from its rail business - around £10-£15m of which comes from ScotRail.

The company has warned that it will need to retain two large franchises and one smaller contract if it is to achieve the same level of rail income. It is currently in negotiations with the Department for Transport (DfT) over a potential five-year extension to its Great Western franchise, plus a shorter extension to its smaller TransPennine Express franchise.

Mr O’Toole said he was “disappointed to not have the opportunity to implement the credible plans we submitted”.

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National Express, which hired the former boss of ScotRail, Mary Grant, to lead its bid, said it was “surprised” at the decision and will be seeking “further detailed feedback” from Transport Scotland, which is responsible for major infrastructure decisions north of the border.

National Express complained it could see “very little” in the details released about Abellio’s deal “that was not included in our bid and we believe we combined this with an attractive offer to taxpayers”. All of short-listed bidders, who also included MTR of Hong Kong and the German-owned Arriva, have 10 days to challenge the decision.

Scotland’s Transport Minister, Keith Brown, said Abellio will “invest millions in providing an improved service and superior facilities for passengers and a better deal for

staff”.