CrossRail - fall out from the Bombardier/Siemens decision

The Prime Minister has announced (rather quietly I thought) that there will be no review of the decision to award the Thameslink to Siemens rather than Bombardier.  This is not surprising as the alternatives were going to be extremely unpleasant - at best we could find a valid reason to annul the competition, and restart the process with the award (hopefully) coming to a different company.  At worst the UK gets a hefty fine from the European Union and sued by Siemens.  In the middle the government looks powerless to act.

The fallout continues though, and in the link here it is reported that Alstrom have withdrawn from the process to supply trains to the CrossRail project.  Now if you have not been following these projects, it should be pointed out that CrossRail and ThamesLink are major projects - far larger and more expensive than the Olympics, but with a much lower public profile.  Both should make a major contribution to travel in London and the South East. 

The government has announced that it delay the tend for the trains by a few months (from late 2011 to early 2012)  and will review the procurement process.  The shortlisted companies are Siemens, Bombardier, Hitachi and Ferrocarrilles.  Alstrom have withdrawn from the bidding process.

The question is what can the government achieve?  Although they blame the previous administration for the rules, in reality all that is happening is that the process is following EU procurement rules.  Transport Secretary Philip Hammond says he wants to change the rules so that "UK companies compete on an equal footing with Continental competitors".  Of course that is already happening, or we would be able to lodge a case with the EU for illegal support, non-competitive behaviour, cross subsidies or something similar.  If we have evidence that it is not happening, then what are we doing using the EU legal system to correct the problem.

What the minister means, and most of us would be behind him on this, is that he wants the work to go to a British company.  In practice this means Canadian company Bombardier, rather than German company Siemens.  The withdrawal of Alstrom may be a sign that they perceive the UK government to be "rigging" the process so that Bombardier wins. 

Which then leads us to ackward consequences.  If Bombardier do win, will people think it is a political fix?  Will Bombardier actually have the best bid?  Or will we be paying a higher price for lower quality to keep jobs in Britain?  And will the EU approve it?  Will it actually help Bombardier in the long term if they can only win business that is "sorted" for them?
If Siemens, or one of the other bidders win, what will that mean for the government's rhetoric?

It is politically unpopular, but the government could take the tack of pointing out that we want fair competition across Europe, and the way to do that is not to impose barriers but to ensure other countries follow the due process.  If we give preference to national companies, how can we complain about other countries doing the same?  And where does the balance lie between encouraging business competition and nurturing developing or weak business sectors?  And having given a lead that national governments can ensure business goes to national companies, what will the impact be on UK exports?

The government is encouraging British business to have an input on their submissions on proposed changes to EU procurement legislation, and I encourage companies to have their say.  However realistically the choice for the UK government is to agree to EU procurement policy, and the consequences of that single market, or to withdraw from the EU.  There is a lot of support for withdrawal in both the country and the government (though personally I do not agree) and it is possibly the time to have that debate about the benefits (advantages) and obligations (disadvantages) of being in the European Union.

Business Ethics - Bombardier

The railway firm Bombardier is blaming the government for 1400 job loses after losing a procurement process for £3bn for trains for Thameslink to Siemens. The government is saying that their hands are tied by EU procurement rules (with an insinuation it was the previous government's fault for signing up to such rules).

I have some knowledge of the sector, having done some work for ADtranz before they were taken over by Bombardier. I hope and trust that Bombardier have improved things in the intervening 12 years or so, but there were plenty of cost improvements that could have been made at ADtranz.
Curiously ADtranz had a strong presence in Germany, the D representing Daimler, so although the Thameslink trains might have been designed and built in Derby we should not think of Bombardier as a UK company - they are international.

It is unfortunate to that the contract did not go to Bombardier, and the accompanying comments that Germany and Japan would never give a contract to any firm who was not German or Japanese may have some truth - or may not. I don't have any facts to confirm or deny that. However, let us be clear - if the Germans awarded such a contract on the grounds of nationality it would be just as illegal as doing the same here (and Deutsche Bahn is partly government owned so the rules would apply).

Bombardier accused the government (in practice I assume TfL) of "just opening the envelopes" - and then giving the contract to the best bidder rather than a UK firm.

Let us think about that. TfL went out to tender, and took the best bid. We may not like the result, but what can be wrong about that? You may argue about how the specification was written, the process, and may not like the result - but basically Bombardier lost a fair process and would now like us to rig the result in their favour. You can dress it up any way you want, but that is basically what is being asked.

Assuming that we did, what would be the consequences? If Siemens have a better technical element, is it sensible to award a contract to a lower quality bid? Well Bombardier might offer to match Siemen's price - if they can do that, why did they not do it initially? Probably because they wanted to have a higher price. So, we would be rewarding a high bidder. And tax payers money to people who did not put in the best price.

Overseas companies would be put off bidding for UK contracts because after all the time and effort there would be a risk that even if they had the best bid, it would be given to a UK company for political reasons. So competition would drop, and prices would rise - and maybe quality would drop too. UK companies would learn that they do not have to be competitive to win. And everyone would realise that our UK procurement system is corrupt. That is an ugly word, but it is what people are wanting.

If you give public money to businesses who are not the winning bid because you like them more, it is corruption. All done with the best of intentions, but it is what it is. Commercial offers are no longer the determining factors, but how some one thinks and feels about you. We can dress it up with the national interest, but it is really about giving contracts to the firm that you want to. The reasons for which may be because of the UK economy, voters in a key constituency, personal relationships, or little brown envelopes. But make no mistake - you are opening the door, and many people will stroll through and you cannot control what will happen next.

I am very sorry for the people of Derby and Bombardier Transport. But that is not a reason to put aside business ethics - particularly when public money is involved. If they can prove the process was unfair, illegal or corrupt they can appeal against the decision and hope to win a rebid, or to be awarded the contract if Siemens are disqualified. Otherwise, they have to face the fact that they lost and to deal with the consequences. Complaining about it does not help the UK.

Supply The National SME Engagement Programme - Workshop

I shall be delivering 2 seminars on Wednessday 3rd March 2010 on behalf of BiP Solutions. These will cover Effective Tender Writing, and Understanding Pre-Qualification Questionnaires.

The venue is the Stuart Hotel, 119 London Road, Derby. Details are here. The cost is £75+VAT per delegate for each event.

I shall be presenting the same two seminars at the Jury's Inn in Leeds on 24th March 2010. Same price, details are here.