Audit Committee, 30 Apr 2008

Meeting date: Wednesday, April 30, 2008

Official Report 204KB pdf

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First ScotRail Passenger Rail Franchise

The next item is the First ScotRail passenger rail franchise. We have a report from Audit Scotland on the project brief, which was revised in April. I invite the Auditor General to brief the committee.

I will be brief on this. As the committee will recall, Audit Scotland is currently undertaking a performance audit study on my behalf, assessing the performance of the First ScotRail franchise and Transport Scotland's management of that franchise. The franchise was established as a seven-year term with the option to extend the contract for a further three years. The Scottish ministers approved the franchise extension on 2 April, extending it to November 2014.

Transport Scotland did not notify Audit Scotland of the intention to award the extension for the franchise. It has told me that the reason for that was concerns about commercial sensitivities and confidentiality. In view of the committee's interest in the topic, I am bringing to it a revised project brief for the study. An objective that has been added to the study is to review the process by which the franchise extension was awarded.

The study has four key objectives. The first is to review the context in which rail passenger services in Scotland operate. The second is to evaluate whether Transport Scotland is managing the First ScotRail franchise effectively. The third is to review the process for awarding the franchise extension. The fourth is to assess First ScotRail's performance against the terms of the franchise agreement.

The study will review the awarding of the franchise extension, including the timing of the extension award, whether there were clear specifications and requirements, and, if so, whether they were met. The study will also examine the amendments that were made to the franchise by the extension agreement and how those were informed.

In addition to reviewing the relevant franchise documents and processes, we will continue the engagement that we have had for some time on the topic with Transport Scotland and First ScotRail. The study team will conduct interviews with representatives from passenger groups and interview the Scottish Trades Union Congress.

We expect the report to be published in late autumn but, as always, the timetable is indicative and depends on how the study goes. Along with my colleagues from Audit Scotland, I am happy to answer any questions that the committee may have.

The report and revised project brief are very helpful. I raised the matter informally at the end of our previous meeting because I was concerned. I am even more concerned now, although I am not criticising First ScotRail in any way for what happened. I find it astonishing that the franchise extension was announced during the recess and that there was no consultation with Audit Scotland. I find it unbelievable that the reason that has been given for that is commercial sensitivities and confidentiality. Frankly, that is an insult to the staff of Audit Scotland. It is outrageous and totally unacceptable that Transport Scotland should suggest that it cannot discuss such matters with Audit Scotland because of confidentiality.

Mr Black and his excellent staff are doing really good work examining the timing and the clear specifications and requirements after the event. Surely it would have been much better for Audit Scotland to consider the specifications and requirements before the extension was announced.

I recently saw an advertisement for service quality inspection regime inspectors, who are carrying out an assessment of the performance of First ScotRail. I wonder whether they were asked for their views before the extension was awarded. It may be that the extension would have been agreed in the end and that, after examining the specifications and requirements in the report, Audit Scotland would have recommended that, but that is not how it happened. Mr Black, would you have preferred to carry out the review to inform Transport Scotland before the event rather than after the event?

I find it difficult to answer that question because we have not yet done the analysis. It is possible that the analysis will confirm that the timing and procedure that Transport Scotland adopted were appropriate, for reasons that might become clear. Unfortunately, I do not yet have the information to answer those questions. I hope that, in the course of the study, we will be able to provide an objective and reasonably comprehensive assessment of what has happened.

Surely you must agree that it would have been better if you had been consulted before. Do you not find that a bit of an insult to you and your staff?

There are times when audited bodies, at a senior level, feel it appropriate to keep me in touch with developments on a private and confidential basis. That might have been appropriate in this instance, but I have to recognise that those involved in this instance had reasons for deciding that the matter was too sensitive to share with me on a personal basis.

You are more likely to get an award for diplomacy than I am.

Yes, I think we all recognised that a long time ago, George.

In paragraph 22 of the brief, you say that the new study will not assess the awarding of the 2004 franchise as it was awarded before the Railways Act 2005. Would it be feasible to have a look at what happened at that time, as that would allow a comparison to be made between how the initial franchise was awarded and how the extension of the franchise was awarded? Do you agree that there might be some information there that could be used in the new study?

That is a matter on which I would need to take the advice of the team that is doing the work. Our starting point is that I do not have a formal remit in relation to things that happened before the responsibilities for transport were devolved to Scotland, so we have to be a bit circumspect about the extent to which we commit to going back before that point, but I am sure that if it emerged that it would be helpful to the study team to go back into an earlier period, people would be as co-operative as they could be in giving us access to that information. I would, however, prefer not to build it into a formal part of the study brief because it relates to a period in relation to which I have no powers.

But you would not rule it out if it proved to be necessary?

No.

Where did the direction to include an examination of the contract extension review process come from? It is important to understand what happened, but will the main emphasis of your report be on the performance of the service as a whole, rather than on the processes that led us there? There is a danger that we could get caught up in the process, rather than concentrate on the outcomes and results.

Obviously, within the scope of the study, we will look at performance and outcomes. I do not mean to be short with you, but that is our intention.

Your first question was about the extension.

Yes. How did it come about that your review includes an examination of the contract extension?

It was always expected that whatever we did as part of this work might usefully inform any consideration of an extension, which was always an option, or the awarding of a new contract when the term of the original one was up. There was going to be consideration of the matter, but we have now agreed to look explicitly at the process that was involved in the extension.

I would like to echo the concerns that Lord Foulkes expressed. Not notifying the study team is not just ignoring Audit Scotland, it is ignoring the Audit Committee, where we all spend our good time. Have organisations such as Transport Scotland ignored Audit Scotland and the Audit Committee before?

I cannot recall specific circumstances off the top of my head. I am sorry that I cannot help the committee in that regard.

It is worth making the point that the senior people in Transport Scotland were sensitive to the fact that this was a commercial contract and that the announcement of the award could—and, indeed, did—affect the share price of the company very quickly. Even if people had been willing to share the information with me on a private and confidential basis, it might have been problematical for the information to be shared more widely because of the impact that might have had, prematurely, on the share price. People were extremely concerned about that.

The point of the Audit Committee and Audit Scotland is to ensure that public money is being spent properly. The issue that we are discussing concerns one of the largest budgetary items around. I share the concerns that have been expressed: that we were ignored and that, in effect, your confidentiality was not trusted.

We await Audit Scotland's report, which is due later this year, with interest.

I thank the Audit Scotland team for their contribution.

We will now move into private session, to deal with agenda item 5.

Meeting continued in private until 12:37.