Thursday 18 July 2019 6:47 pm

Arriva seeks £200m from government over East Midlands franchise snub

Rail giant Arriva is claiming £200m from the government over its controversial decision to disqualify it from the East Midlands franchise, City A.M. can reveal.

Court documents seen by this newspaper show that Arriva Rail, which is owned by German parent Deutsche Bahn, is seeking to recover the amount following the Department for Transport’s (DfT) decision to award the franchise – valued at £755m – to Dutch rival Abellio in April.

Read more: Chris Grayling could be forced to take the stand as Stagecoach launches legal action over franchise snubs

The DfT said it had excluded Arriva and Stagecoach from the process because both refused to accept open-ended pension liabilities with the government, and so had submitted “non-compliant” bids.

Stagecoach, the current owner of the East Midlands franchise, was the first to launch legal action, branding the DfT’s decision “baffling”.

The operator, which runs the franchise with Richard Branson’s Virgin Trains, argued that rail firms should not be asked to shoulder some of the railway’s pension deficit, which the Pension Regulator has estimated to be in the region of £7.5bn.

It later said the liabilities could rack up to “well in excess of £1bn”.

A court order from Stagecoach says it is seeking “in excess” of £250,000, but the actual figure is likely to be far higher.

In its claim, Arriva argues that the DfT’s decision to disqualify it and Stagecoach meant that only one operator – Abellio – was eligible for the contract.

Read more: Arriva joins Stagecoach in taking government to court over East Midlands franchise

“This effectively meant that the procurement was won or lost on the basis of the tenderers’ appetite to assume the risks which the pensions requirements sought to allocate to tenderers, as opposed to the content of the tenderers’ proposals in respect of price and/or quality,” it said.

It accused the DfT of “manifest errors of assessment”, “irrationality”  and “disproportionality”, and has demanded that the agreement with Abellio is quashed.

On Wednesday transport secretary Chris Grayling admitted that the decision to exclude Stagecoach and Arriva was taken on “very clear legal advice”, but that it was “not something I would have chosen to do” and that it was a “matter of regret”.

Read more: Chris Grayling admits Cabinet overruled him on Eurotunnel ferry settlement

A DfT spokesperson said: “We do not comment on legal proceedings. However, we have total confidence in our franchise competition process and will robustly defend decisions that were taken fairly following a thorough and impartial evaluation process.”

Arriva, Stagecoach and Abellio all declined to comment.