First Group is open to suing the government if the two cannot agree terms on its South Western Railway franchise.
Responding to reports the company could bring legal action, a spokesperson said any suggestions of this were “purely hypothetical”. First Group’s new boss Matthew Gregory had told the Sunday Times if the two sides could not negotiate an agreement he would “have to turn to other means”.
First and Chris Grayling’s Department for Transport are renegotiating the contract for the South Western Railway franchise, which First Group won with Hong Kong operator MTR. The original terms included a promise to pay the government £2.6m in premiums. It was based on growth of about seven per cent per year.
But track and signalling issues, strikes and the timetable crisis which struck last year have hampered business. Passenger numbers have missed original targets.
First Group hoped the original contract would protect it from falling GDP and central London employment. Clauses ensuring this have not been triggered, however.
As a result, Gregory last week wrote down £102m of future losses from the franchise.
“We prefer to work with our customer to find resolution through discussion and negotiation. If there’s a contractual issue that we are unable to deal with through negotiation, we would have to turn to other means.”
A spokesperson told City A.M: “We have a strong track record in industry partnerships, and have always worked constructively with the Department for Transport.
“Our preferred option to agree any contractual remedies would always be to engage in discussions with the DfT and any suggestion of legal action is purely hypothetical.”
The government is already facing a number of legal claims over rail franchises. Stagecoach and Arriva are already suing after they missed out on the East Midlands contract.