To be published as HC 14 5 3-i

House of COMMONS



Transport Committee

UK Rolling Stock Procurement

Wednesday 7 September 2011

Colin Walton, Professor Karel Williams, Professor Christopher Bovis and Diana Holland

Steve Scrimshaw, Jonathan Faull and Jeremy Candfield

Rt Hon Philip Hammond MP

Evidence heard in Public Questions 1 - 123



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Oral Evidence

Taken before the Transport Committee

on Wednesday 7 September 2011

Members present:

Mrs Louise Ellman (Chair)

Jim Dobbin

Mr Tom Harris

Julie Hilling

Kwasi Kwarteng

Mr John Leech

Paul Maynard

Iain Stewart

Julian Sturdy


Examination of Witnesses

Witnesses: Colin Walton, UK Chairman, Bombardier Transportation UK Ltd, Professor Karel Williams, Director, ESCR Centre for Research on Socio-Cultural Change, University of Manchester, Professor Christopher Bovis, University of Hull, and Diana Holland, Assistant General Secretary, Unite the Union, gave evidence.

Chair : Good morning and welcome to this meeting of the Transport Select Committee. I would like to declare that I am a member of Unite. Do other Members have any interests to declare?

Jim Dobbin: I declare that as well.

Mr Harris: I am a member of Unite, Chairman.

Julie Hilling: I am a member of Unite and I was a full-time official with TSSA, who had members in Bombardier.

Q1 Chair: Thank you very much. Could I ask the witnesses, please, to identify yourselves by giving your name and the organisation you represent? This is to help us with our records.

Diana Holland: Diana Holland, Unite the Union.

Colin Walton: Colin Walton, Bombardier Transportation.

Professor Williams: Karel Williams, Centre for Research on SocioCultural Change, University of Manchester.

Professor Bovis: Christopher Bovis, University of Hull.

Q2 Chair : Thank you. Mr Walton, over the past six years Bombardier has been very successful in winning 11 out of 14 passenger train procurement competitions, yet it has not won one single Department for Transport contract. Why do you think that is?

Colin Walton: This is a question that we are ourselves struggling to understand. We have been extremely successful when we are dealing with train operators or ROSCOs or, indeed, TfL. Their procedures and models are very much centred on choosing the best train and then going out for a separate financing. With the Thameslink and the DfT model, both the build of the train and the financing are coupled together. This means that the person with the strongest finance can really have a very good chance of winning the order. We are seeing and reading, as the Business Secretary said, that the DfT have very much defined the Thameslink process very narrowly and there really was only one outcome. That, to us, signifies that finance has played an extremely important part of this deal as opposed to choosing the best train first. So this is one of the key areas that we are looking at and we are analysing.

Q3 Chair : Is there an issue to do with specification of the stock required?

Colin Walton: The specification was proven technology around the world, not just on one train. We believe that we have done an extremely good job of that. We have brought proven technology that we have in different countries. We have put it together in a package in what we call the AVENTRA train, and we believe that was an extremely good specification. The specification of the train plays a very important part, but also how you construct the invitation to tender in the first place is something that we need to understand and review because there are factors in there, such as the socio-economics, that you can put in there under EU rules that do not appear to have been put in in this particular case.

Q4 Chair : As you have been so successful, apart from where the DfT have been directly involved, why have you come to a redundancy situation so quickly and are saying that you may even pull out of the UK? How can that be the case when you have been so successful apart from where your involvement was directly with the Department for Transport?

Colin Walton: We have been extremely successful. We have had a number of projects going through Derby and they have created a peak. Our business and our business cycle for rail is extremely "peaks and trough" driven. So we have been going over this peak and in fact it is a very narrow peak at the moment. The contracts that we are currently building have come to an end. Some have come to an end already; others will be coming to an end in the next few months, which will only leave us, without the Thameslink, one contract going forward, which is the subservice line for London. Therefore, we had no alternative but to announce on 5 July that we would have a redundancy situation of some 1,400 people.

Q5 Chair : What is the current situation with Thameslink?

Colin Walton: The current situation with Thameslink is that we are a reserved bidder. We are obviously bound by their process and there is no contract yet signed. Siemens are the preferred bidder negotiating with the DfT and they are in the negotiation phase with the DfT.

Q6 Chair : You told us in your written evidence that you had very little or inadequate feedback from the Department about why you were not the preferred bidder. Is that still the situation?

Colin Walton: The situation is that the formal feedback we originally got from the Department was a one-hour meeting. Clearly, we recognise that we are in a commercial situation; we are a reserved bidder and could be called back to the table. But since that briefing we have had a further meeting with the Department officials, and, also, we have been gathering a lot of information with what has been said in the House in answer to various parliamentary questions. That, at the moment, has been one of our major sources of information-gathering so that we can just understand what the situation is and how the situation could look in the future.

Q7 Chair : You say that you secured more information through answers to parliamentary questions from MPs than you did from discussions with the Department. Is that still the case?

Colin Walton: We now have been given and have more information from the Department, but, still, I think the springboard to get that information was the information that we got in the public domain that helped us to go back and say, "We have heard this. Is it right? Is this your understanding?" We developed a dialogue with the Department in that area.

Q8 Paul Maynard: If you had won the contract to supply these trains, would there have been any job losses at your Derby plant?

Colin Walton: What we said is that, if we had been successful in being preferred bidder for Thameslink, we would have mitigated those job losses. Certainly, there would have been no job losses on our permanent staff, and this includes our very highly skilled staff and what we call the crème de la crème in our train design people-our engineers. These are the people that are vital to us to look and be able to bid for ongoing work. It is a skill that we really do not want to lose. We recognise we would have needed a lot of those people going forward when the Thameslink production hit our factory, and what we are looking at is a mitigation of a gap in production as opposed to having no orders now for the foreseeable future.

Q9 Paul Maynard: You made mention of permanent staff and, by implication, temporary staff. Can you just state for the record the number of temporary job losses you are now engaged upon and the number of permanent job losses? Can you explain for the benefit of the Committee, when you refer to temporary staff, in what way they are temporary, what sort of contract links they have, what sort of jobs they perform and how highly skilled they are?

Colin Walton: Yes. In the announcement where we announced just over 1,400 people, over 900 of those were what we call temporary staff. These are people that we wanted to keep for the Thameslink programme. They are very highly skilled and they fit our production cycle and our business extremely well, so we would have looked to retain those. When we work with agencies, particularly around Derby, we set length in terms of their contracts so they know it is a defined end to their contract. However, we wanted the contracts to roll on, because, in the past, when we have these peaks and troughs, we have suffered. When we are going up a peak, we have to go out to the marketplace, we have to find the right calibre of people, we have to make sure that they have the right skills, the right training and that is an extremely time-consuming learning curve for us. We know these people can do the job and we know that they can do it extremely well, and this is why we really wanted to keep our temporary staff as much as possible.

Q10 Paul Maynard: You give the appearance of having been very successful in winning contracts other than from the DfT, yet none the less you describe yourself as being in this trough. Is it not the case that you are living from tender to tender to tender, and, even if you had got this particular tender, a failure at the next tender or the next tender but one would have generated a similar situation? Is this not a reflection more on the nature of the management of the business rather than on the structure of the industry?

Colin Walton: We have our facility in the UK to cater predominantly for our domestic market and to look at export opportunities like the one that we did recently in South Africa where we built the trains for the 2010 World Cup. They were built in Derby and there was a transfer of technology to South Africa. We believe that with the Thameslink contract it would have given us, for the first time, longterm stability. As you rightly say, we have in the past had to rely on contract to contract because it has been very difficult to determine when these contracts will come out. As we know, a lot of the contracts should have been placed a long while ago, so a number of factors have caused this situation. It is true that what Bombardier wanted to do was build an export base with our supply chain. We have approximately 500 SMEs that we would have been using on the Thameslink contract and we are seen as their route to export. We wanted to take the facility and the factory away from the domestic UK peaks and troughs where possible and look at export opportunities.

Q11 Chair : Professor Williams, you cite Siemens’ higher credit rating as one of the reasons they got the contract. Is that something you can be firm about?

Professor Williams: It is interesting because, of course, the question of what is in the public domain and what is not in the public domain is relevant here. I have not seen figures on which the DfT has made the decision, nor has anybody else had sight of them. All I have is an envelope and that tells me that Bombardier has a B++ credit rating and Siemens an A+ credit rating. You can then play around with rates of interest and various other things, and on the back of my envelope it looks like it could be anything like £500 million. This comes back to the point which is made by Colin Walton about the fundamental mistake of issuing a bundled contract where you have multiple policy objectives, where you want low cost finance and you want the trains built appropriately, and you bundle it all together in one contract with one number at the end as the decision principle. Of course, you lose sight of a fair number of your objectives.

Q12 Mr Harris: Professor Bovis, I believe you wrote an article in The Guardian recently just in the wake of this decision. We are going to hear from the Secretary of State later on this morning and he will tell us that he had no choice but to award this contract to Siemens. Is it your understanding of EU procurement law that that is the case or would there have been some get-out, taking into account local economic factors when any EU Government awards a similar contract?

Professor Bovis: European law specifically on the procurement directives as implemented by statutory instruments in this country is pretty flexible. The European acquis is crystal clear. That allows, under the remit of the most economically advantageous offer, to take into account not only price but also a number of qualitative criteria. This is when the debate starts. Under qualitative criteria, what can feature as work criteria for a contract? In other European countries, in other nations across the World Trade Organisation, the elements that comprise what we understand as the most economically advantageous offer bring into play employment, industrial policy, innovation, security of supplies, reliability of supplies, and even aesthetics. Policy and law makers have a very wide remit-a nonexhaustive remit-to determine the award criteria of the contract.

The key issue in this country is how we interpret the most economically advantageous criteria in order to award public contracts. We have for a number of years successfully applied the value for money principle. It served very well. However, we have some sort of schism or gap between the UK interpretation and continental European interpretation on what value for money can bring to the table of ancillary policies to economic policy.

Q13 Mr Harris: Having looked at this subject for a while, have you any theory about why the interpretation of that procurement directive in Britain is so different from our European partners? I am talking very specifically about EU member states and not beyond them. Why is that interpretation so different in the UK? I have heard this many times before but I have not seen any hard and fast evidence that this is the case. It is more about anecdotal evidence. Have you any hard and fast evidence that it is definitely the case that we interpret it so differently?

Professor Bovis: It is the flexibility that the policy maker and the applicator of the law bring to the table in order to award the public contract. For a number of years other European countries have allowed noneconomic considerations legitimately to play a role in the procurement process. We have seen time and again since the 1980s, the 1990s, and the 2000s, member states proactively putting on the table the protection of employment, environmental considerations, issues in relation to social infrastructure and industrial policy. In certain areas of procurement, such as defence procurement, industrial policy is a key component of the award process.

Q14 Chair : Can consideration for tax revenues be included, looking at the potential implications of unemployment caused?

Professor Bovis: Yes, Madam. The court allows any consideration that has a direct link with the subject matter of the contract and at the same time it cannot be of an economic nature. It could be any nature that relates to the economically advantageous assessment exercise of the contracting authority.

Q15 Mr Harris: People watching this will come to the conclusion that this Government and its predecessors have conspired to give the British worker a raw deal for no apparent reason. What is the motivation for this very strict interpretation in Britain? You cannot expect us to believe that the British Government has some kind of ulterior motive. If best value is not served by giving these contracts abroad, then what is the motivation?

Professor Bovis: There is not a specific motivation to give a contract to a specific undertaking or economic operator, but it is how you arrive at the destination to award the contract that delivers public services. The UK, from a traditional point of view, focuses on best value from the appraisal of the price-the lowest price. It is in the public domain that the invitation to tender for the Thameslink project focused on two specific issues: specification compliance and lowest price. At every step the Thameslink project complied 100% with the letter and the spirit of the law. But if you applied the same situation in another member state or in another part of the World Trade Organisation that obeys the same rules on procurement, you will arrive at a different destination.

Q16 Mr Harris: This seems to me the very heart of this whole issue. Do other members of the panel want to make a comment on this?

Diana Holland: As the majority union representing the workers there, we totally agree that, had the social impact been included in the costings, there is potentially a very different outcome than the one that we have today. We have done some work not just on the direct loss of jobs but also looking at the supply chain. We have identified that there are suppliers, the majority of which are in the UK but across the world, but there are a very, very large number in Derby and also throughout most constituencies that will be directly affected by this. So, had the immediate impact on jobs within Bombardier been taken into account as well as the potential loss of jobs throughout the country, there would be a very different decision here.

Also, to add to the earlier point about the way in which the contract was structured on this occasion, it is the first time that the manufacturing and the leasing were linked together in this way. To go back to the important point that Colin Walton made, as a result it has not been the kind of considerations you would expect to be informing the awarding of this contract around the delivery of trains and about the importance of the community benefiting. We feel that the total cost has not been counted properly in this contract.

Q17 Julian Sturdy: Mr Walton, can I just take you back to your comments at the beginning to the Chair’s opening questions, and Mr Williams also alluded to this as well? I just want to get this clear in my mind. Are you saying there were real problems with the criteria and the parameters of the tender process-the ITT when it was set out-and do you believe that it was favoured toward Siemens or favoured toward one company?

Colin Walton: When we look at the information that we have today and we look back to the tender, there are two elements in the tender that could have well made a different outcome. The first is the fact that the manufacturer had to bring finance. The financial model seems to be the one that has taken priority over the choice of the best train. The other element is that no socio-economics were taken into consideration. If those two areas had been looked at, I do not know the outcome but it could have been very different. Also, the duration of the tender was much longer than what was initially thought to be the case. Therefore, clearly, people had time in that tender to develop some elements of their product more, taking it along the route of a further enhancement of design. That time was used in the tender period at the outset, yet clearly we all expected a relatively short tender period, which has gone on many more months.

Professor Williams: In response to Mr Sturdy, the bundling introduced a bias in favour of Siemens because they had the superior credit rating and that gave them an advantage of maybe several hundred million pounds on the deal. Apart from that, the other issue which all your witnesses are emphasising is that value for money was defined very narrowly as price for quality, as though it were you or I choosing a toaster at John Lewis or my central administrator choosing stationery supplies. That calculus is entirely appropriate for a small-scale decision by you or me at John Lewis. It is not appropriate for a £1.5 billion contract which is relevant to the future of train building in the UK.

Therefore, as soon as one says that, the scale makes this a kind of procurement industrial policy, if you like. It is necessarily industrial policy, whatever you do. As soon as you say it is industrial policy, then you come back to Professor Bovis’s point about how the Europeans would often take into consideration a broader set of considerations. On that, if you look at our report, you will see that some of these considerations have some considerable weight. Each Bombardier worker pays £17k of taxes a year and makes £10k a year of tax contributions. Average pay in the rail supply industry is £44k total compensation. These are material considerations, material sums, which should have been taken into account and should now be taken into account if the question of penalties for breaking or changing things is to be introduced, because clearly there are items in the ledger which the DfT did not consider.

Q18 Kwasi Kwarteng: You are suggesting that there should be wider considerations than purely financing, but, clearly, a difference between an A+ credit rating and a BB+ credit rating is quite considerable, and you have said that that is £500 million. Mr Walton, there was a perception that Siemens were perhaps going to be more reliable in delivering the contract. I am not taking a view on that, but, if you look into yourself, were there any operational considerations that you felt you could have tightened up on to make your bid more attractive? Let me put it another way. If you look at what you have done in the past, do you feel that somehow your track record may have impaired your bid for this contract?

Colin Walton: We have been told that our track record did not impair our bid. If we look at our deliveries to date, we have delivered the Stansted Express train, which is a generation very similar to the Thameslink train, and we have delivered that ahead of schedule. We have restructured our facilities at Derby, we have done management change, we have been working with our supply base, and we now feel that we have a very robust delivery programme that has been put to the test on Stansted Express and met those criteria. So we were very confident that we could deliver this train.

Q19 Kwasi Kwarteng: Let me go back to the financing. Clearly, a difference between an A+ and a BB+ rating is very considerable indeed. In fact a BB+ in the market is a junk bond.

Colin Walton: Yes.

Q20 Kwasi Kwarteng: So investors are taking a look at your cash flows and thinking that you are not very stable in credit terms as far as they are concerned. Clearly, you operate in a very cyclical business; it is highly capital-intensive. A lot of the swings in the ups and downs of troughs mean that you are going to have to make some sort of retrenchment in terms of redundancies and savings, and when the peaks are good you do well. Your business perhaps is not as stable, which is suggested by the credit rating, as investors want to see. My question is, simply, given that you are in a highly cyclical business, do you think that this one contract would have made all the difference in terms of your outlook, not just in terms of the employment but in terms of the business situation, because clearly investors have taken the view that you are a fairly unstable business in terms of the cash flows?

Chair : Mr Walton, it is all about this contract.

Colin Walton: Here we could be mixing up our global, which is where the rating comes, as opposed to our UK-specific. The issue is that we are the global leader for train manufacturers; we are the largest in the world and we are the global leader. We are also the third largest aerospace manufacturer in the world. We have a credit rating that is very similar to other people in that business and those sectors. Clearly, Siemens is a bank. It is identified as a bank and it has a better credit rating than we have. When I look at the cyclical trends, the cyclical trends are very much partly a UK phenomenon. In some parts of the world they really try and balance out the peaks and troughs because the more it can be balanced out the more even and better prices that the customer gets.

Q21 Kwasi Kwarteng: You would have a better credit rating as well.

Colin Walton: That could certainly affect the credit rating. It is one of the factors that could on a world basis. There is no doubt that the Thameslink contract was extremely important to Derby and this is why we are carrying out a full UK review. With regard to the outcome of that review, we anticipate to start getting the outputs at the end of September, early October.

Q22 Kwasi Kwarteng: I would just like to rephrase a question that my colleague made. If this contract had gone through, could you specify the number of redundancies that you would have made?

Colin Walton: If the contract had gone through and we were the preferred bidder, we said that we would mitigate the job losses because we would have needed the skills in a period of time going forward. We would have had a gap that we would have had to manage. There were different ways that we were looking at managing that gap, bringing in new work from elsewhere on a shortterm basis and working with our agencies to see if they could take up those jobs in other organisations around the city.

Q23 Kwasi Kwarteng: Forgive me, have you got a number? We know that there are 1,400.

Colin Walton: We have said that there would have been no job losses, certainly on the permanent staff. We would have mitigated as much as possible on the temporary staff and we were hoping to mitigate that down to a zero level.

Q24 Kwasi Kwarteng: Despite the fact that you are in a highly cyclical business.

Colin Walton: Despite that fact. This is an order that, coupled with the SSO order that we had for London Underground, would have gone 2014, 2015, 2016, and therefore it is very important. We would have seen a vision of the future. It would have given us time to look at all the skills, to work with our work force, to retrain, and to look at our apprenticeship schemes which we have ongoing. All those would have been factors. At the same time we were working with our SMEs particularly around our plant at Derby and at the same time we were looking for export opportunities. Clearly, as one of the prerequisites of exporting, one of the first things your customer asks is, "Do you have a domestic market?" Of course, we would have been able to say, "Yes", and it would have helped in our export activities. We need to evaluate all that now and that is the purpose of the review.

Q25 Kwasi Kwarteng: Out of interest, just remind me where the bogie is made.

Colin Walton: The bogie was designed in the UK and the frame is made in Germany. A lot of those components of the bogie come from the UK and go out to Germany where it is assembled.

Q26 Iain Stewart: I would like to go back to Professor Bovis’s comments about the qualitative criteria in which you say there is some flexibility. I just want to be clear in my mind. Do these have to be explicitly stated in the tendering criteria at the start of the process or can they be applied after the tenders have been received?

Professor Bovis: Categorically, all criteria, including the specific features of the most economically advantageous award criteria, should be stated at the outset of the project, advertised in the Official Journal and weighted accordingly at the beginning of the procurement exercise so that the economic operators know what they have to expect in terms of competition. If a contracting authority changes the criteria midway through the procurement process, it is subject to review. It breaches European law and cases have been brought before the European Court of Justice where the whole project is stopped.

Q27 Iain Stewart: Therefore, the problem in this circumstance was the narrowness of the criteria at the start of the process, and the Secretary of State’s room for manoeuvre now is very limited. In addition to that, if you are allowed to bring in these wider socio-economic factors, how does that square with not being allowed to be protectionist, nationalistic, in setting the criteria so it is clear you are going to award that contract to your domestic supplier?

Professor Bovis: The two sides of the equation, as you correctly identify, are protectionism, which is outlawed by the European Directives in European law, and on the other side of the equation is flexibility, which is inherent in the procurement directives. The court has said on many occasions, and the UK Government has admitted time and again in policy documents, that considerations that do not relate to economic considerations, meaning the lowest price, can legitimately be part of the evaluation process of the award criteria if they are proportionate, if they are put into the tender documents ab initio, from the beginning, and everybody in the procurement process-all economic operators-is aware of that. Best practice and case law analysis and policy analysis from the European Commission and also from cases across the European Union and across the world in terms of World Trade Organisations suggest that compliance with contracts after the award of the contract in relation to the actual delivery of public service leaves a wide door open for socio-economic, industrial policy or even other environmental considerations to be taken into account. So when they draft the contract ready to conclude, at that stage it is perfectly legal to insert these considerations. The UK advises time and again that, even on a tie break between the two economic operators, socio-economic issues can be the deciding factor.

Q28 Iain Stewart: One last question if I may. I am not a lawyer but I cannot help concluding that the EU rules are sufficiently opaque and fuzzy that Britain plays by the rules and loses out where other European countries can find a way to favour their domestic suppliers. Would I be fair in reaching that conclusion?

Chair : Is that what the evidence shows?

Professor Bovis: I am not sure that you would be fair suggesting protectionism and favouritism, because Britain-the UK-is one of the champions in complying with public procurement. It is a bastion of legitimacy and compliance with the acquis and a number of issues.

Q29 Chair : Professor Bovis, would it be correct to say that other European Union countries award more contracts to domestic suppliers?

Professor Bovis: Yes.

Q30 Jim Dobbin: This has been alluded to in responses from the panel here, but it is really important that we get this on the record because it is very important for the country, the east midlands, etc. If this is all confirmed, is this the end of train building in Derby? What impact will it have on the economy of the east midlands and what impact would the Thameslink decision have nationally on the economy, because this is the crux of the whole argument?

Colin Walton: I clearly cannot comment on the outcome of the review that we are currently undertaking, so it would be absolutely wrong of me to speculate in that area. I am sure you will appreciate that the first people we will be sharing that with will be our work force and our unions. I will let you know the outcome of our review as soon as I possibly can and I will send it to the Committee.

With regard to the wider economic factors around Derby and particularly the rail supply chain, Derby is the centre of the world’s largest railway cluster and it is something of which we should be extremely proud. There are over 250 companies around the area, of which 96 are in one federation called the Derby and Derbyshire Railway Forum. They have gone out and looked at their members and done a study with their members; so has the local chamber of commerce and so have the unions. Unfortunately, their findings are that there is a lot of dependency on Bombardier in that area, and you can expect that, and job losses are already taking place. That is extremely unfortunate.

I also chaired the local enterprise partnership and we are very concerned because Derby is seen, and certainly was last year, as the techno capital of the UK. That is predominantly because of Rolls-Royce, Toyota, Bombardier and JCB. What is happening and what people are very concerned about, and, as Chair of the LEP I am particularly concerned about, is that it could be that one of the main cornerstones there in Bombardier is going to see a drastic reduction. Clearly, as an LEP Chair, it is a big worry. It is also not just an east midlands or west midlands issue. Bombardier’s supply chain is extensive across the UK and this is why we are doing a UK review. Also, our suppliers out there will have their own supply base around where they do their components. It is a national issue and it is an extremely important one, as you rightly say.

Q31 Mr Leech: Mr Walton, you said that the specification for the Thameslink contract was similar to the Stansted Express, which you built. What similarities are there and what differences are there, and if the specification had been exactly the same as the Stansted Express would the contract have ended up being cheaper and would it have increased your chances of winning that contract?

Colin Walton: It could not have been the same. The Stansted Express is based on our ELECTROSTAR product. The AVENTRA product that we offered for Thameslink is an evolution of that product. It uses a lot of the commonality of components, but it also uses a lot of other components that we have developed around the world and are proven that we believe are now best in class for a future EMU that is the next stage. The ELECTROSTAR is an extremely good product. It is the lightest product running in the UK at the moment, has more miles than any other product in the UK and has been a real good workhorse for the UK, but we wanted to take it to the next step. Therefore, we wanted to look for proven technology, which the specification called for. So we looked around the world for where we have proven technology that would enhance our ELECTROSTAR platform and we have repackaged and restructured it into what we believed was a real cutting edge product in the AVENTRA.

Q32 Mr Leech: Earlier in your comments you described there needing to be the best train. What is the definition of the "best train"? What elements of the train products make it the best train?

Colin Walton: For us, it is very much tied in with what the operational criteria are of the rail network. Obviously, you want the train that fits the best operational standards. As you can imagine, London Underground standards are very different from mainline standards. It is what we believe is the most reliable train, the train that delivers the right specification, the train that meets the criteria, the train that is very much energy-efficient, and as light as possible for today’s market, particularly in the UK where you have track access charges, so weight is very much a premium. This is why our bogie-the FLEXX Eco-is so important because that helps us bring the overall train weight down.

Q33 Mr Leech: What makes your train better than what is on offer from Siemens?

Colin Walton: I do not want to do a direct comparison with Siemens, but I can tell you why we believe our train is as good as you can get and is state of the art. We have taken the best technologies that are proven around the world. These are cuttingedge products from the global market leader. We have put those together. We have the key element of a proven bogie. The bogie that we have has done 1.5 billion miles in service and that is in regular service in the UK. We have taken those kinds of technologies, put them all together and packaged them together and this is why we believe we had a terrific train on offer.

Q34 Mr Leech: One last very brief question to Mr Williams. You helpfully quantified the difference between an A+ rating and a B++ rating.

Professor Williams: I guessed at the consequence, yes.

Q35 Mr Leech: But you gave us an indication of what the difference would be. Would you have any concerns about a company with a B++ rating being able to deliver the contract?

Professor Williams: At that stage I think my response would be "poor Derby", because the B++ is not the result of some kind of verdict on Derby. It is the result of where the merrygoround of changes of ownership stopped in the early 2000s. After BREL was privatised in 1989, in the following 12 years there were five changes of ownership. If the merrygoround had stopped at a different place, we could be talking about Daimler’s credit rating or ABB’s credit rating.

Q36 Chair : Could you just tell us how you see the position now? That is what we want to concentrate on.

Professor Williams: I do not see that the credit rating of Bombardier, the parent, should be the key consideration in allocating this.

Chair : Mr Kwarteng, is that on this point?

Q37 Kwasi Kwarteng: On this particular point there is a massive difference in terms of financing. One of the bankers was saying that it was £700 million over 30 years, which is an appreciable amount of money. Someone allocating the contract will look at this very materially on the economic grounds. Yes, there are other factors, but the difference between an A+ rating, which is solid in investment terms, and a B++ or BB+ rating is night and day to an investor, and it has a material impact in terms of consideration in awarding a contract.

Professor Williams: If you have a bundled contract, which is what the DfT decided to go for, it is almost inevitable, given the difference in credit rating, that you will choose the company with the higher credit rating because the difference is of the order of £500 million to £700 million on the back of different envelopes.

Q38 Julie Hilling: Does the decision going forward affect Bombardier Crewe?

Colin Walton: We are clearly looking at our entire UK footprint and Bombardier Crewe is part of that evaluation. Bombardier Crewe would have played a major role in Thameslink on the overhaul of the Thameslink trains, the refurbishment of those trains, the overhaul of equipment and where we have our spare parts handling. So Bombardier Crewe would have played a role in Thameslink and that is part of the review.

Q39 Julie Hilling: Then I have just a general question to people. If the decision is not reversed on this contract, what does the Government need to do to protect the train-building capacity of the UK?

Diana Holland: First of all, we do not want to accept that it is too late yet.

Q40 Chair : What do you want to happen now?

Diana Holland: We look to the example of the Intercity Express Programme when the announcement was made that, during the procurement process, it had undergone so many changes in response to a changing set of external and internal circumstances that they took a three-month review at that point for value for money of the contract. Because it is a very long contract and it is a really important decision, it is a moment for the Government to step back and to look again at this. We are deeply, deeply concerned that the whole nature of the contract, as has been described here and the later discussions there, has meant that we have a contract being awarded around the credit rating of a company rather than on its ability to manufacture trains.

Q41 Chair : Are you saying you want it to go back to the beginning on this?

Diana Holland: No. We feel that it should not be necessary to do that and that would obviously be a great concern because I think the delays have been part of the problem here, but we would ask the Government to look at that-

Q42 Chair : What would you like to happen?

Diana Holland: We would like to ensure that the very genuine issues that can be taken into account that have been overlooked-for example, the training facilities, the apprenticeships that have been promised and will not be able to be delivered, and the job losses across the whole economy-are taken into account. We obviously want the lessons to be learned for the future and I understand with Crossrail that they are looking into doing that. But it is absolutely critical at this moment in time that the Government does not hide behind everything and say it cannot do anything. There has been cross party, very positive support today. There has been a train with involvement across the council from all political parties saying we think you should think again. This is a moment when the country can do that.

Q43 Chair : Professor Williams, in the written evidence you have given us, you seem to be challenging the implications of losing this contract for jobs. You seem to be saying that the jobs would not be in the UK. Is that right?

Professor Williams: One needs to say that, because one is unhappy with the outcome, one should not talk up every figure in sight to get a result that is politically congenial. One of the things we have to face is that this is part of a much larger problem about the decline of British manufacturing and broken supply chains so that, for example, the multiplier effects, the backward linkages into the supply chain in the UK are much weaker than they are in Germany. 25% of intermediate output in rail engineering is domestically sourced in the UK and 55% in Germany. We have a situation where the employment benefits of the Derby contract backwards are partly in Germany, but, when that is said and done, that is not an excuse for letting it go, because in a country with a £68 billion trade deficit on manufactures last year and where high quality manufacturing jobs are hard to get, we need to be thinking about how we rebuild the supply chains and not simply let them go.

Q44 Chair : Mr Walton, we do not have time to have a lot more detail on this because we have more people to question, but could I just put this point to you? In his analysis, Professor Williams suggests to us that the jobs implications for the UK are not as extensive as you and others are saying. Do you accept that?

Colin Walton: The situation with the Thameslink contract is that we would have placed some 70% of the orders with UK companies. We have an extensive supply base on our SMEs-over 500 suppliers-so there would have been a considerable amount of work for those suppliers. We are very much encouraged by the Secretary of State for BIS and Transport writing to the Prime Minister because it clearly seems that there is recognition that there is a need to look at the contract and the process again going forward. We are very much mindful that this process on Thameslink has had something like five reiterations of bids with an extremely long time scale. What we would like to see is clearly a decoupling of finance from the purchase of a train. I think it has been well demonstrated today that that has been a deciding factor. We would also like to see the best price put forward first. This cyclical number of keeping on having to put best prices forward and change the specification just adds to the length of the process and makes it extremely expensive. We believe that socio-economics should play a role and we also believe that the right train should be purchased and then the finance dealt with separately. Connecting the two together is bound to deliver the outcome that we currently have today, with the effects of that outcome.

Diana Holland: The knockon effect on the supply chain is not minimal. There are over 800 sites that are going to be directly affected, and the qualitative research we did with over 100 manufacturing sites, which included Bombardier and Siemens manufacturers, shows that already nearly half of them have said that within the 12 months they have either already lost jobs or they will lose jobs, and there are some that are saying they will close altogether.

Chair : Thank you very much for answering our questions.

Examination of Witnesses

Witnesses: Steve Scrimshaw, Managing Director, Rolling Stock, Siemens plc, Jonathan Faull, Director General for Internal Market and Services, European Commission, and Jeremy Candfield, Director General, The Railway Industry Association, gave evidence.

Q45 Chair: Good morning, gentlemen. Welcome to the Transport Select Committee. Could you please identify yourselves for our records and give your name and the organisation you represent?

Jonathan Faull: Jonathan Fall, Director General, European Commission.

Steve Scrimshaw: Steve Scrimshaw representing Siemens in the UK.

Jeremy Candfield: Jeremy Candfield, Director General of the Railway Industry Association.

Q46 Chair : Thank you very much. Mr Scrimshaw, why do you think you were made preferred bidder? Have you been told why and what is happening now?

Steve Scrimshaw: I think we were made preferred bidder because, under the evaluation criteria, which is a lot more complex than has so far been described, which takes into account lots and lots of different factors like energy consumption, weight, maintenance periodicity, damage to the infrastructure, etc, as well as capital cost, as well as finance, everything, we were judged to be the best value for money for the UK taxpayer.

Q47 Chair : Would that include an assessment of the implications for jobs in the UK?

Steve Scrimshaw: No. That was not part of the published criteria; so I do not think that impact would have been assessed as part of the evaluation. That is probably something you need to address to the Secretary of State.

Q48 Chair : If that had been in the criteria, would it have affected the outcome?

Steve Scrimshaw: I do not genuinely know how they would take that into account because it is a very broad issue to try and take into account. I understand a procurement review has been suggested and we welcome that, providing it does not lead to uncompetitiveness, protectionism and delivers value for money for the taxpayer.

Q49 Chair : How many jobs will come to the UK with your contract?

Steve Scrimshaw: We have declared as part of the preferred bidder announcement that we would create 2,000 jobs in the UK, of which around 1,400 would be the building of depots and the ongoing maintenance for around 30 years, which probably could be the same as Bombardier, I would guess, and another 600 in the UK supply chain, which would involve around 300 at our facility in the north-east of England.

Q50 Chair : Is that an assessment or is that a commitment?

Steve Scrimshaw: That is what we are committing to do as part of it. The numbers are near enough. It is not an exact science.

Q51 Chair : Mr Candfield, what is your assessment of the implications for the supply chain if the contract with Siemens is finally agreed?

Jeremy Candfield: It is very difficult for us to say on the basis of the data that we have available. We do not have sufficient information about the supply chains of either company. From time to time we carry out business surveys of the Association’s membership. They are not necessarily representative of the industry as a whole, but they do give some indications about mood, confidence, activity levels and what people say about the future. In the most recent one, which was carried out just after the announcement was made, a number of companies from Bombardier’s supply chain indicated that they were expecting a lower level of activity, but that was not in any quantified form. Four indicated that they could be at risk of closure as a result of the decision if it was carried through and the total number of employees in those four companies would be about 130 or something of that order.

Q52 Iain Stewart: I would like to ask a technical question first to Mr Candfield. We have received evidence from both Bombardier and Unite about the design of the Siemens bogie for this train. They are claiming that it is not tested compared to the Bombardier bogie, which is a proven technology. In your experience of the rail industry over the last 30 years or so, have there been other procurement decisions made where significant components of the train have only been at the design stage and not proven?

Jeremy Candfield: I do not have the information to answer that question. I am sorry.

Q53 Iain Stewart: Could you perhaps supply that afterwards?

Jeremy Candfield: Certainly. I would be very happy to look at it.

Q54 Iain Stewart: Network Rail has approved the design and the Department has said that it will undergo extensive testing before it is introduced into service. From your perspective is that sufficient, or do you have any concerns that, after testing, the bogie may not prove to be acceptable and we would have to revert to Bombardier’s design as a reserve supplier?

Jeremy Candfield: Perhaps it might be helpful if I clarified the Association’s activity because we would not be involved in the consideration of individual companies’ products or proposals in the normal way of business. You will be aware from our written evidence that both Bombardier and Siemens are members of the Association. So I can readily speak about matters where the Association has a collective view, but, on matters which pertain directly to the individual companies, that would not normally be an area where the Association has a view. I would not be able to comment in those areas. On the generic points, if I have understood your question correctly, I am sure it would be a matter of concern for the industry as a whole if there were a risk of a substantial failure to a key component emerging at a late stage. But I have no reason, on the basis of the very limited information available to me, to think that that might the case.

Q55 Iain Stewart: Mr Scrimshaw, as it is your design, would you like to comment?

Steve Scrimshaw: Sure. We are a leading bogie manufacturer in the world; you are probably aware of that. In the last five or six years we have made something like 33,500 bogies for the global bogie market. I could repeat the same as Colin Walton did. All the components that go into our bogie are from the best of what we have got around the world and we have been developing these bogies since the DfT’s technical strategy was issued in 2007. The bogies are being made right now, will be on test later on this year, beginning of next year, and they will accumulate a million miles of operational service in our dedicated test track at Wildenrath long before they arrive in the UK. As well as that, they will meet all of the necessary standards in the specification and all the necessary standards for bogies, so I do not think it is a risk.

Q56 Mr Leech: Mr Scrimshaw, you have said that if you win the contract it will create 2,000 jobs in Britain. How many of those jobs would be permanent jobs?

Steve Scrimshaw: Good question. I think in the building of the depots it is a project- related activity. There were four bidders in this competition and not just the two of us. But this would be the same for all the competitors, so there is the building of the depots. Once the depots finished, they would disappear. In terms of the longterm maintenance, they would remain because it is a 30-year contract, potentially. With regard to the jobs that we do in the supply chain, once Thameslink has finished, for the Thameslink project they would be doing other projects, potentially. From their global rolling stock into the UK, we have a similar supply chain, as was mentioned by Unite. We have over 400 suppliers in the UK. We spend about €75 million to €80 million in the UK for global projects and I cannot see any reason why they would not continue in other projects. But once the Thameslink project is finished it is finished.

Q57 Mr Leech: But the vast majority of those jobs would, in effect, be simply for this contract.

Steve Scrimshaw: Certainly for this contract, yes.

Q58 Mr Leech: Were the decision to be overturned and Siemens did not win the contract, what impact would that have on jobs in Siemens?

Steve Scrimshaw: In the UK?

Q59 Mr Leech: I was actually going to say in the UK and then my followup question was going to be abroad.

Steve Scrimshaw: In the UK the 2,000 jobs would not be created, and obviously the works that we would be doing in our factory in Krefeld and in part of Vienna would not be there either.

Q60 Mr Leech: I am not talking about the jobs that no longer would be created. I am talking about the impact on jobs at your current locations in Britain and abroad and whether there would actually be any losses.

Steve Scrimshaw: We have 16,000 employees in the UK. In our facilities in Hebburn, for example, if we were not to get the Thameslink contract, the impact there would be that the jobs would not be created in Hebburn. So there might be an impact there.

Q61 Mr Leech: You have not really answered the question. In the same way that the contract is incredibly important to Bombardier, how important is it to Siemens in terms of protecting jobs within the Siemens company?

Steve Scrimshaw: This is growth business for us. So it would be establishing a new development of our business in the UK, which we want to do. We want to continue growing in the UK and continue to be successful.

Q62 Kwasi Kwarteng: The point is that you would not actually lose any jobs.

Steve Scrimshaw: No.

Q63 Kwasi Kwarteng: If you lost this contract, you would not have lost jobs.

Steve Scrimshaw: We might lose some but I do not think it is a great loss.

Q64 Chair : So it is about new jobs rather than losing existing jobs.

Steve Scrimshaw: It is about new jobs.

Q65 Mr Leech: Why do you not consider building trains in Britain?

Steve Scrimshaw: Our structure is somewhat different from Bombardier’s. We have a network of manufacturing facilities and we look at levelling the resource across those factories so we share manufacturing content across the factories. We have a capacity for our factories currently that suits the market demand. We do not have an excessive number of factories. Recently we closed a factory in the Czech Republic because we had too much capacity. So that is the reason. We have sufficient capacity.

Q66 Mr Harris: Mr Faull, are the Commission aware of any glaring difference between the interpretation the British Government places on the EU procurement rules and the interpretation which other EU nations place on those same rules?

Jonathan Faull: No. There are occasional disputes and there are cases which go all the way up to the European Court of Justice, but there is no widespread difference between this country and the others on the basic elements of the legislation.

Q67 Mr Harris: In your experience then, some of the contracts that are let by other nation states for large sums of money, more than £1 billion or Euros, as far as you are aware, do not take into account local employment effects and local taxation revenue. Are they done basically on exactly the same basis that this contract has been let by the DfT.

Jonathan Faull: Broadly, yes.

Q68 Mr Harris: That is in direct contradiction to the previous witnesses. Have you any idea-

Chair : Mr Faull, you said "broadly".

Jonathan Faull: Well, there are disputes. If everybody obeyed the law all the time perfectly, we would not need enforcement mechanism and courts to do it. There are disputes occasionally, not that often, but, broadly speaking, the rules are complied with throughout the European Union. We have provided written evidence to the Committee and the figures show that that is the case. The United Kingdom benefits very considerably from that situation.

Q69 Chair : We may be talking about interpretation of the rules and not breaking the rules. How often do other European countries use the most economically advantageous criteria in the contract?

Jonathan Faull: That is frequently used, but, to be very clear about a point which I heard was raised earlier, a local employment condition would be unlawful in any member state and would-

Q70 Chair : But is that criteria used in other European countries?

Jonathan Faull: No.

Q71 Chair : Not employment criteria but the category of most economically advantageous criteria is used.

Jonathan Faull: Yes, indeed. That is used and can be used, and must relate to the subject matter of the contract itself.

Q72 Mr Harris: Is it more often used in other nation states than in Britain?

Jonathan Faull: No, not to my knowledge. We can provide figures if we have them on that. I am looking round to see my colleague. If we have them, we will supply figures.

Q73 Mr Harris: In your experience then, Germany and France, for example, grant these kind of contracts in as great a capacity to foreign-based companies in other parts of the EU as the British Government does. There is no imbalance there at all, as far as you are aware.

Jonathan Faull: It is not absolutely identical but there are no very wide divergences.

Q74 Mr Harris: Mr Scrimshaw, would Siemens be prepared to commit to sourcing a particular percentage of component parts through British manufacturers when and if this contract is confirmed?

Steve Scrimshaw: I think that is what we are doing, Tom. Out of the 2,000 jobs, 600 are going to be from the UK supply chain. We are actually doing that.

Q75 Mr Harris: There will be a specific percentage committed by you.

Steve Scrimshaw: Yes.

Q76 Mr Harris: Has Siemens as a German company received contracts from the German Government in recent years-in the last 10 years or so?

Steve Scrimshaw: Yes, we have. Siemens is classed as a German company. We have been in the UK for 168 years. We were in the UK before we were in Germany, but I understand the meaning. Yes, we have had some contracts from Deutsche Bank, for example, in Germany. I have some figures. We have had some something like three contracts in the last five years. Bombardier, in comparison, has had 21 contracts.

Q77 Mr Harris: What kind of size were those contracts?

Steve Scrimshaw: We have had something like half a billion Euros. I think Bombardier had maybe three or four. You can maybe ask Bombardier-

Q78 Mr Harris: I was asking for Siemens actually and not for Bombardier. If Bombardier were here I would probably ask them, but you are Siemens and so I am asking you.

Steve Scrimshaw: Half a billion.

Q79 Kwasi Kwarteng: In your role as an industry practitioner, someone who has worked in the industry, how surprised are you at the thought that a company would be reliant on one contract for its ensured future?

Steve Scrimshaw: I would suggest it is very unusual. Businesses go through a business planning cycle normally every year. They look at what the market is like for the next five or six years. If you just talk about the transport business, there is an interaction with the Department for Transport at all different levels, with train operators, etc. Most manufacturers, us included, have a view of what life looks like a number of years out.

Q80 Kwasi Kwarteng: You would have to do this because it is a highly cyclical business.

Steve Scrimshaw: Absolutely.

Q81 Jim Dobbin: Just to clarify for the Commission, what would be the EU legal implications if the Secretary of State considered reversing this decision? What would be the legal status of that?

Jonathan Faull: If the Secretary of State reversed the decision in the sense that he went back to the very beginning and faced whatever contractual consequences he may have with Siemens, but that is a matter for the United Kingdom’s law and not for ours, he can do that. He can go back and say, "I am going to start the procedure all over again, at the beginning." That he can do.

Q82 Jim Dobbin: I am asking the question because the inference in the press has been that if he took that decision it would be illegal.

Jonathan Faull: I can assert very clearly it would not be, although there might be consequences that he would have to face. There may be a breach of contract in it, but that is not a matter for us. Perhaps I should specify. When an award is made in a public procurement procedure by a member state we do not know about it. We only hear when things go wrong, when somebody complains to us or when people start suing each other, or where Parliaments ask us to come and give evidence about it. I do not know at all the details of this particular award. If the Secretary of State has reasons to say, "I want to look at this again and start again from the very beginning" and remains within the bounds of the EU law in doing that, then we have nothing to say about it.

Q83 Paul Maynard: Can I just ask Mr Faull this in particular, referring to the EU contracts and the notion of most economically advantageous? Different countries will have different ways of reaching a definition of that term. To your knowledge, do any other EU nations seek to include what we are generically calling social criteria? It may relate to, say, employment protection or reducing skill shortages. If they do, do they have to be on the face of the tender and therefore open to all or would it be the case that they could choose to apply their social criteria without it being visible and therefore not subject to this notion that no single member state or area of a member state can be disadvantaged by the tender?

Jonathan Faull: First of all, in answer to the last question, in order to be fair to all potential bidders the criteria should be known in advance. My answer to the last question is that the criteria should be set out on the face of the tender documents from the very beginning and not added on later on. Secondly, within the notion of MEAT-apologies to any vegetarians here but we call it that in our charging: the Most Economically Advantageous Tender-that is certainly allowed. It is very widely used. My colleague has now given me a rough estimate figure saying in 70% of cases it is used and 30% price only. The MEAT test, if you like, must relate to the specific subject matter of the contract, and within that there may well be social considerations and employment of certain categories of people of the sorts you mentioned, but not-

Q84 Chair : Is it possible, Mr Faull, in that, to include assessments of benefits incurred to the tax revenues and unemployment benefits that might be involved?

Jonathan Faull: Criteria which relate directly or indirectly to geographical location within a member state of the European Union are not permitted. They run counter to the very basic principles of the common-now single-European market.

Q85 Chair : Does that mean, in assessments, that, if it was related to a geographical area, the impact of unemployment could or could not be assessed in terms of the cost of revenues?

Jonathan Faull: The impact of the award of a contract on employment or unemployment necessarily cannot be taken into account as a relevant consideration.

Q86 Chair : The award of this contract was anonymised and we are told that the Minister did not know who the contract was being awarded to until after he had made the decision. Is that common practice in other European countries?

Jonathan Faull: It is certainly used as a practice. I do not know how common it is, but we can check that. Again, I am saying we can check that. We do not know a lot of what is going on because we only know when something goes wrong.

Q87 Julie Hilling: The previous witnesses said that part of the criteria that could be used was industrial policy. Therefore, as part of the criteria in the bid, can it be the loss then of train-building capacity in a country so that if the contract is awarded to Siemens then potentially we have no train builders left? Can that be used in terms of that industrial policy as part of the bidding process?

Jonathan Faull: In those stark terms, no. It can be used in the way in which a tender is crafted to encourage recourse to small and medium sized companies, subcontracting arrangements, but anything which indirectly-and that would be the case-requires location origin in a particular country is obviously discriminatory.

Q88 Chair : Explicitly that could not be done, but the organisation seeking the contract could put criteria in the contract that related to it.

Jonathan Faull: That is a commercial decision for the company themselves.

Q89 Chair : That is a matter of decision for the Government, if it was a Government involved, that it would be done that way. We do have to end in a moment; we do have a Secretary of State about to come in. Mr Candfield, I just want a very brief answer from you. We are talking a lot about a specific contract here but we are concerned with general issues. Would you say there is a general concern about the way in which rolling stock is procured?

Jeremy Candfield: Yes, absolutely. We have shown in the Association’s written evidence the extreme volatility in the ordering of rolling stock which has taken place in this country for the last 15 years. That imposes a very substantial cost on the industry and its members, and ultimately on the taxpayer. We have a concern about the multiplicity of vehicle types which are procured. We would favour a much smaller number of types of vehicle. We would prefer to see a procurement system which operated more swiftly and more economically than we see taking place at the moment, and we would welcome seeing a greater degree of discussion in advance of the decisions on the timing of procurements of where and when-or, in particular, when-capacity is most likely to be available in the supply industry’s plants to meet that demand in the interests of getting the best outcome both for suppliers and for clients.

Chair : Thank you very much, gentlemen, for coming and answering our questions.

Examination of Witnesses

Witnesses: Rt Hon Philip Hammond MP, Secretary of State for Transport, gave evidence.

Q90 Chair: Good morning, Secretary of State, and welcome to the Transport Select Committee. I understand you would like to make a statement.

Mr Hammond: I do not want to make a lengthy statement. I just wanted to be clear about something that I think Mr Walton has already touched on in his remarks, which I was watching earlier. The situation at the moment is that Siemens have been selected as preferred bidder and Bombardier remain reserved bidder. The terms of the bids that both companies have made remain confidential. Of course I have seen the terms of both bids, but there will be a limit to what I can say about some of the issues contained within them because of the commercial confidentiality that remains both as a contractual term between the Department and the bidders and because of the Department’s need to protect the interests of the taxpayer because we may be negotiating with both of the parties-the preferred bidder and the reserved bidder-in the future.

Q91 Chair : What was the main reason for Siemens being made preferred bidder rather than Bombardier?

Mr Hammond: The bids were evaluated against a set of predetermined criteria that were set out at the time that the ITT was issued in 2008, with a very rigorous structure of assessment under different categories. Different parts of the bids were assessed and scored separately and then aggregated together. On the basis of that evaluation the Siemens bid represented better value for money, and in accordance with the criteria that had been set out Siemens were thus awarded preferred bidder status.

Q92 Chair : How important was what you saw as Siemens’ ability to raise finance as opposed to its ability to build trains?

Mr Hammond: There has been a lot of speculation in the press about this because the project was structured as a package to build, finance and maintain the trains over, potentially, a 30-year contract period. Clearly, finance is a part of the package, but I think it would be wrong to suggest that the difference in the credit rating between the companies and, thus, the difference in cost of longterm finance is likely to have been a determining factor. It will have been a factor but it is unlikely to have been a determining factor in the difference between the bids.

Q93 Kwasi Kwarteng: We have heard a lot about employment losses and the potential impact of Bombardier losing out on the contract. What is your understanding of the situation with regard to Bombardier and the redundancies that they have announced? Do you believe the argument that, had they been awarded the contract, their position with regard to employment would be the same as it is now-they would not have had to make those redundancies? What do you think about that?

Mr Hammond: The redundancies that have been announced are deeply regrettable, but the company has indicated, and we all know, that they were coming to the end of a number of substantial orders that they had been successful in winning. They are in a consultation process that is expected to lead to a number of redundancies that will be effective in October 2011. My understanding is that production of the Thameslink train would have been expected to begin in 2014. Bombardier says, and I heard Mr Walton saying this this morning, that if they had won this order they would have hoped to mitigate those job losses, which of course would be a desirable thing to do. What I did not understand completely was how Bombardier would have gone about mitigating those losses given that there appears to be a three-year gap between the current effective redundancy date and the start of manufacturing in the plant for Thameslink delivery. It may be that work could have been brought into the Derby plant from elsewhere, and, if there is such a possibility, we would be very interested in hearing about the possibility of bringing work into the Derby plant from other parts of Bombardier’s business. That would be very good news.

Q94 Kwasi Kwarteng: Let me make this absolutely clear. Your understanding is that there was a gap between the end of their existing contracts and the commencement of building for the Thameslink project.

Mr Hammond: That is my understanding and I think that is what Mr Walton said this morning. Bombardier says that it would have sought to mitigate redundancies and I am absolutely sure that is what they would have tried to do. I think it would be interesting to understand how that would have been done.

Q95 Mr Harris: Secretary of State, you have described as "astonishing" that the French and Germans manage to build so many of their own trains for railways. Have you had discussions with your officials about how we can be slotted into that same "astonishing" category?

Mr Hammond: Let me answer that question in two ways. First of all, it is important that we recognise when we talk about a large proportion of German trains being built in Germany that does not mean that Siemens are winning all the orders for German railway trains because Bombardier also manufactures in Germany. When Bombardier wins a German order, the trains get manufactured in Germany. When Siemens wins a German order, the trains get manufactured in Germany. But because Bombardier is currently the only manufacturing company in the UK, if an order is won by anyone at present other than Bombardier in the UK, it is manufactured outside the UK. However, and I have listened carefully to what has been said so far this morning, it is my perception that we need to look at how these things are done in other EU member states. We need to consider how socio-economic factors are taken into account in other EU member states while being fully compliant with EU procurement law. We need to look at how other member states seek to take into account their strategic national interests without breaching EU procurement law and see whether there are lessons that we can learn for the way we do public procurement in the UK.

Q96 Mr Harris: That is an extremely interesting commitment, Secretary of State. Does that mean that, if you had access to a time machine, you would go back and look again at the very start of this contract and perhaps do what 70% of the contracts from EU Governments do and take into account those locally economic advantages for this particular contract, hypothetically?

Mr Hammond: I do not have access to a time machine so I am going to focus on how we deal with future contracts. However, fortuitously, you were the Rail Minister-

Mr Harris: I know.

Mr Hammond: -at the time of this ITT issue so perhaps you might like to answer your own question.

Mr Harris: I was wondering if you might bring that up. No more questions, Secretary of State.

Q97 Iain Stewart: A lot of the controversy about this decision seems to centre on the technical aspect of the design of the bogie for the train. In your assessment of the different bids how critical was that part of the decision?

Mr Hammond: I should be clear that, contrary perhaps to some of the impression that has been given, in evaluating the bids there were other criteria than cost taken into account, very substantial other criteria, including technical criteria, technical performance of the train offered. Things like weight and power to weight ratios were very important, as was deliverability of the options proposed by the different bidders. The Department has evaluated the technical aspects of the trains offered by both Bombardier and Siemens and it has also evaluated the deliverability of both of those options. I think I can say this. Both trains involved an element of innovation and design development and I would be horrified if they did not. Frankly, with an order of this size, as these trains have got to last for 30 or perhaps 40 years, if we do not expect a degree of innovation each time we procure a large number of new trains, then the technology will never move forward. In every case, and in this tender in both cases in the final two bidders, they were offering designs based on an existing platform and a number of proven components, but also incorporating some innovative elements of technology where the Department needed to look at the track record and capability of the bidders to see whether what they were proposing was deliverable. We needed to talk to our partners, Network Rail in particular, who did the technical evaluation of the bogie, designed to make sure that they were comfortable with what was being proposed, and in this case they were.

Q98 Iain Stewart: Thank you. That is quite a significant point because we are being asked on the evidence we have received to balance the representation that the Siemens bogie design is untested against the tried and tested Bombardier design. I am trying to get a sense, in rolling stock procurement, to the extent that there has been an innovative part of the design, that you do award contracts on the basis that some component parts have not yet been proven but will subsequently be rigorously tested. Are you satisfied that the Siemens bogie falls into that category?

Mr Hammond: Yes. On this issue, as with every other issue that has been raised in the media and the public debate since June, I have pressed my officials and the people who have carried out the technical evaluation very hard on this. While much media attention has focused on the bogie, where Siemens has offered an innovation on their existing product, there were elements in both offers which represented innovation which required further design. Indeed, one of the issues for Bombardier is that having won the Thameslink design would have secured the future of their design department at Derby. I think Mr Walton made the point this morning that the design and engineering department is very important, and, of course, that design and engineering department would have been deployed in producing those detailed designs from the innovative solutions that formed part of their offer, as indeed they did part of Siemens’ offer. But the Department and its advisers were quite satisfied that both trains offered by Bombardier and Siemens were technically proficient and were deliverable.

Q99 Julian Sturdy: Secretary of State, earlier in the evidence sessions we have had, Mr Faull from the European Commission indicated that, if the Government wanted to reopen the decision process, that would be possible. He also indicated that there would potentially be compensation depending on the wording within the contract, but he indicated quite clearly that the Government would have to go back to the beginning, terminate and start again. I just want to get clear what impact that would have not only on the Thameslink programme but also what the consequences would be on the other networks across the country as well.

Mr Hammond: I have been very clear from the beginning of this debate that there is a nuclear option and it is absolutely true that the Secretary of State has the ability to abort this whole process and decide to look afresh at the need for the Thameslink project, the affordability of the Thameslink project and to start all over again. But the consequences would be very significant. The Thameslink project is already 16 years behind schedule on its original intended delivery date. You will remember that in its original iteration it was known as Thameslink 2000. It has already had very large amounts of capital investment sunk into it. There is the new viaduct at Borough, the new station at Blackfriars, which is now well under way, and platform lengthenings up the line. There are about 3,000 construction jobs at the peak involved in this project at the time when London Bridge station is due to be rebuilt. All of those would be put at risk.

The benefits for passengers who are currently travelling on one of the most overcrowded commuter routes into London would be further deferred. The cascade of released rolling stock from the existing First Capital Connect services which are planned to be deployed in the north-west to support the electrification programme between Liverpool and Manchester and on the Thames Valley commuter lines to support the first stage of electrification of the Great Western Mainline would also be delayed and thus would put in jeopardy those electrification programmes, because the value for money case for those electrification programmes would be significantly affected because of the time value of money if the benefits were delayed by the rolling stock not being available.

Q100 Julian Sturdy: What sort of delays are we looking at? Do you have any time scales on those, potentially?

Mr Hammond: On a procurement of this complexity, which is looking at an innovative design solution because we have imposed a very exacting technical specification in terms of acceleration requirements to get the number of trains per hour through the system that we need in terms of weight because of environmental considerations, and in a procurement that requires the bidder not merely to deliver the train but to finance and to maintain it over a long period, we believe that it would take between two and three years starting from scratch to complete the process. Of course, if we aborted the current procurement, we would not be able to restart the process immediately. I do not know if Mr Faull said this because I had to stop watching in order to come over here, but we would have to reflect on what we need. In order to go down this path, we would have to make a decision that the current procurement was inappropriate. We would have to go back to the drawing board and start again, scoping what it was we wanted, so there would be a pause and then a new procurement which we believe would take between two and three years.

Q101 Chair : Is there anything that happened during the securing of the IEP contract that would make you think you did not actually have to go back to the beginning again and you could do a reassessment?

Mr Hammond: No. What happened in the IEP contract is that my predecessor decided, I think rightly, with a general election approaching, that it was appropriate not to take such a big decision, such a long-term decision, without reviewing it. So he asked Sir Andrew Foster to carry out a review of the value for money and affordability of the project and to look at the potential for alternatives.

Having received and considered Sir Andrew Foster’s report, we decided to go ahead with the IEP project. That was not about deciding whether to procure from one bidder or another. It was about deciding whether the project should go ahead. It would be perfectly possible, as I have just said, for me now to call a pause and order a review into whether the Thameslink project is affordable, desirable and appropriate. But my judgment is that, with billions of pounds of taxpayers’ money already committed, a series of other projects dependent upon it and the long time delays, that would not be appropriate in this case.

Q102 Chair : But Bombardier have said to us that there is no need for any retender process to take as long as you are suggesting because the nature of the contract is well defined. Is that correct? Have you considered that?

Mr Hammond: Yes, I have. The advice I have is that we would have to go right back to the beginning. It is not about the nature of the contract being defined. We would have to rescope our requirement from scratch and we believe that the procurement in this case of the trains, together with a maintaining and financing responsibility, represents a transfer of risk which delivers good value for money for the taxpayer. We believe that a procurement that involves that package of innovative train design, risk transfer through financing and ongoing maintenance obligation will take something in the order of two to three years to complete.

Q103 Chair : You have taken advice on that.

Mr Hammond: I have taken advice on that. I have not only taken advice but I have cross-examined the advice that I have received. I have looked at the examples that have been quoted in the media and, indeed, some examples that have been given to me by industry players of shorter procurements, and in every case there is a defining difference that explains why the procurement process has been shorter. My conclusion is that, at the very best across Europe, if you are procuring a simple train, the purchase with public money of a train which is already in production, it would be possible to do that procurement in perhaps nine or 10 months. But, elsewhere, we see procurements that are of the complexity we are talking about here, for example, the German Intercity Express procurement, where the procurement period is again of the order of three years.

Q104 Chair : When you were seeking that advice, were you looking for a way to do it or a way of reassuring yourself you could not do it?

Mr Hammond: I will be very frank with you, Madam Chairman. My approach to most things in Government is one of frustration about the time everything takes to do. My background is private sector. I am used to things being able to be done in much shorter time scales than they generally seem to be able to be done in the public sector. So I approach this as I approach many things, asking the question, "You are saying three years. Why can’t it be done in three months?" But I do find that very often, usually, there are very good answers to that question. They often lie around European regulations and sometimes our own requirements for transparency and accountability, all of which are there for good reasons but which very often do delay the process.

Q105 Kwasi Kwarteng: Obviously we are talking about general procurement and, in the light of this, your letter in June with the Business Secretary to the Prime Minister is of interest. The letter mentioned the need "to manage our public procurement so as to sustain a competitive supply base over the longer term". Would you like to tell the Committee more about that because that seems like quite an interesting comment to make?

Mr Hammond: Yes. The Prime Minister has now agreed that the growth review, which is ongoing, should consider public procurement and that work stream has started. I would like to test the idea that we need to look at the way we do public procurement in the light of the evolution of procurement practice in the private sector, which has moved, in my judgment, quite significantly over the last 15 years from transactionally based best value to medium to long-term best value, looking at how to build and then support supply chains which ensure that you, the buyer, obtain the best long-term solution. Many commercial companies which may have once had a reputation for ruthlessly bearing down on the price charged by their suppliers have realised that in many cases working with suppliers, sometimes even investing in suppliers, is the way to deliver the best value to them in the longer term. I am not personally sure that we have yet captured that in the way we manage public procurement. I would like to see how other European countries are doing this. I would like to draw on the very best and most recent commercial good practice and see whether we can do it better in the UK.

Q106 Paul Maynard: Many commentators and politicians have observed that, with this decision, it appears to be the end of train manufacturing in the United Kingdom. Do you consider it appropriate to think of train manufacturing as a national critical industry in the same way as we do the defence industry, stressing sovereign capability? Do you think that such an approach would benefit the passengers for whom we are, after all, building these trains?

Mr Hammond: Defence is in a class of its own because, of course, the European procurement rules allow different treatment in the case of defence industries where national sovereign capability is considered strategic. My job here is to ensure that the long-term best interest of the UK railway is served and I certainly would like to see a train-building industry remaining a viable train-building industry in the UK. Fortunately, we know that that will happen. Hitachi is committed, under the IEP project, to building a train-building plant in Newton Aycliffe in County Durham, which will have 600 direct employees. But I want there to be competition within the UK. I want us to be in a position in the future where, when we are looking at tenders for trains, we can have a genuine competition running between British- based manufacturers so that the benefits of competition are delivered but we can still hope to see the orders executed in the UK because there is more than one bidder manufacturing in the UK.

I very much hope that Bombardier will remain as a thriving train producer in the UK. They have been extraordinarily successful in the past and I cannot emphasise that enough. This is not a company that needs propping up. This is an extraordinarily successful company. They have won 11 of the last 14 train procurements in the UK. They have delivered over half of all the rail vehicles bought by the system since privatisation, plus all of the new rail vehicles bought by London Underground in the same period, so they have had an extraordinary run of success and I hope they will go on being extraordinarily successful as a UK-based train manufacturing business in the future.

Q107 Paul Maynard: Given all you have just said and given what you wish the growth review to undertake, how would you seek to avoid undesirable protectionism -undesirable at least to those of us who believe in free markets?

Mr Hammond: I believe in free markets but I also believe in level playing fields. One of the things we need to make sure is that our UK-based businesses are competing on a level playing field with the foreign competitors with which they are competing. It is a finely balanced judgment. We have heard already this morning from other witnesses about socio-economic impacts and the ability to take into account appropriately relevant socio-economic impacts. That is one of the things that the growth review will look at.

We have also heard very clearly, I think it was from Mr Faull, that a local employment condition would be illegal. This is not about imposing local employment conditions. It is not about saying the contract has to produce jobs in the UK, but it may be about taking into account directly relevant socio-economic factors that would give us perhaps a different perspective on how we made the decision. It would be another category of criteria that was included in the evaluation set.

Q108 Chair : You have spoken about Bombardier’s success, yet they have not succeeded in winning a contract directly from the Department for Transport. Why should that be?

Mr Hammond: There have been two Department for Transport-led procurements: the IEP and Thameslink. Bombardier bid in consortium with Siemens for the IEP and were unsuccessful, and of course for Thameslink. These were bigger, more complicated transactions that included long-term maintenance obligations and financing obligations. Bombardier will have to draw the appropriate lessons in due course from the analysis of what has happened, but on the face of it one might think that there are lessons about the way they approach the overall package rather than just the train building itself, how they position themselves-

Q109 Chair : What do you mean by that? Is that about financing?

Mr Hammond: No, it is not just about financing; it is also about the maintenance of the trains over a long period. It is about focusing the supplier on the whole life cost of the train, which after all is what matters to the railway. It is not what it costs up front. It is what it costs us over the whole of its life to deliver reliable service to the passenger railway.

Q110 Chair : It has been suggested there might be a departmental prejudice against Bombardier.

Mr Hammond: That would be extraordinary as a suggestion. I do not think that is the case at all. I have detected nothing that would suggest that, but I would say that the evaluation process is very precisely laid down, it is very rigorous and-this is all in the public domain because it was published at the time of the ITT- there is a mechanism within it that provides a different approach at the final hurdle if the bids are within 5% of each other than if the bids are not. So there is already a recognition that where there is a wide gap there will be a certain process, and where the gap is very narrow it might be appropriate to revisit some of those areas.

Q111 Chair : In this case was the gap narrow or big?

Mr Hammond: In this case a reading of the process as laid down in the ITT and the way this has been approached would answer that question. But, if I may, because of the commercially confidential nature of the process, I do not think I can answer the direct question. If I am subsequently advised that I can, I will write to you.

Q112 Mr Harris: Do you think the DfT in this Government and previous Governments have been guilty, as the industry have said, of overspecifying contracts across the board-procurement and franchising but particularly procurement? Do you think that is a valid criticism?

Mr Hammond: It depends what you mean by overspecifying. There has been a move away from prescriptive input specifications towards the type of contract that we are now talking about where the outputs are specified and in the case of IEP the payments were clearly linked to the availability of trains for service. It was very much thrown back to the provider to work out how to deliver the best package between upfront capital investment and ongoing maintenance spend to deliver reliability. I think that our focusing on the outputs and specifying the outputs, leaving the private sector partners to work out the best combination of capital investment and ongoing application of maintenance to deliver that, is the right way to go forward.

Q113 Mr Harris: On the financial structure of this particular tender, the building and maintaining over 30 years, it has been suggested that that put Bombardier at something of a disadvantage because of their credit rating. Does the combination of the financing for this particular contract say something about the DfT’s lack of confidence in the existing structure where the ROSCOs-the rolling stock companies-would normally take the financial hit over the period of use of the trains? Do the DfT no longer believe in that particular set-up and are they moving more towards this building and maintaining contract?

Mr Hammond: No, it does not mean that. It means horses for courses. Let us use NXEA as an example. It needs trains for the Stansted Express. They are buying a train which is an existing proven train, as Mr Walton explained this morning. It would be perfectly sensible for that train to be bought by a ROSCO and leased on some kind of a dry lease from the ROSCO by the train operating company. If we are talking about a very large-scale procurement, as we were in the case of Thameslink, with an innovative train design, certainly at the time that the Thameslink procurement was started in 2008 under the previous Administration, there would quite rightly have been questions about the ability of any ROSCO to take on and finance a transaction of that scope. In fact, I can say categorically it was clearly beyond the capacity of any of the existing ROSCOs to do that, particularly as the financing markets deteriorated and the project, as you will know better than I do, was designed around what at the time looked like a very, very uncertain financing climate.

Q114 Julie Hilling: You talked earlier about the Hitachi contract protecting the skills of train builders, but surely that contract is one of assembly rather than building the trains? Then, just moving on from that, how are we going to retain in the economy those skills of train building going forward, because clearly there is an ageing work force? How do we ensure that there are apprentice teams? How do we ensure in our economy that we still have the ability to build trains going forward? Are there further contracts coming forward? I appreciate you talked before about taking into account the other elements that can be taken into account, but are there things coming forward then that we can look at to protect that train-building capacity in the UK?

Mr Hammond: The answer is that there may be. As you know, with regard to the Crossrail order, for which Bombardier is a prequalified bidder, as also is Siemens, the ITT will be issued next year. That is quite a large order of 600 vehicles. I take on board the feast and famine point, absolutely. We are looking at the requirements of the network over the next few years and looking to see what we can do to make that procurement pipeline more attractive for the supply chain across the board. But if I can just go back to your slightly dismissive comment about Hitachi’s plant in Newton Aycliffe as an assembly plant, this is a difficult point and I know there is a lot of emotion around this. But the train-building business is a global industry and, as we have already heard this morning, some of the key components for the Bombardier Thameslink train would have come from other countries. The bogies for Bombardier’s trains built in Derby are built in Germany and delivered to the Derby plant. The body panels, as far as I am aware, are not manufactured there. All train building, to some significant extent, is an assembly process.

I am sure this is what Mr Walton would say if he was sitting here, but the key element is design. The Derby plant at the moment has a very significant design capability and it is that that is the key going forward. Retaining that design capability is the key to Bombardier’s future in the UK. Once Hitachi establish their assembly plant here, the key to making that a sustained fixture of the UK economy will be eventually persuading them to tap into the UK’s undoubted expertise in train engineering and design to establish a design centre in the UK as well. That will certainly be one of the objectives that my colleagues at BIS will have over time in working with Hitachi.

On the question of the design and engineering function at Derby, we are looking at proposals from the industry, which are well known in the public domain, for example, around possible modification of the existing Voyager units that are already in service, that would create design work to see whether it is possible to support the supply chain by bringing any of that work forward or by giving the go-ahead to any of those industry-originated proposals. We will certainly do everything we can to support the wider supply chain.

Q115 Kwasi Kwarteng: In your answer to my colleague you have touched on the international nature of the industry. Going forward, given that there is not this international dynamic, do you think that it might be selfdefeating if you were to try and promote home-grown expertise in this, because on the one hand you have acknowledged that it is an international businesses, but on the other you are saying that you want to see British talent and expertise specifically in design? Is there a tension in that?

Mr Hammond: No. There are lots of businesses that are international but we want to see the UK thriving and prospering as a base for them. That is not about just British companies. It is about being a place where global companies want to come and do business. Car industries are very international business and yet the UK has been extraordinarily successful in attracting particularly Japanese companies to come here and make the UK a base for their operations.

It is also worth saying, and I do not want to teach grandmother to suck eggs because I know members of the Committee are very much aware of this, that the requirements of the UK rail market are technically different from the requirements of the European market. Although it is a global business, the product required for delivery to the UK is always a UK- specific product. It is reasonable to assume that, if there was not a UK-based competitor, the industry might find it more difficult to get good value for money when it is ordering relatively small quantities of a UK-specific product. Unfortunately, there is nothing we can do about that UK specificity, and that goes back, as you know, to the Victorian times.

Q116 Kwasi Kwarteng: You understand the quandary you are in because every time that Bombardier does not win a contract, because it is the only builder in Britain, you are going to be under the same pressure and criticism. What do you think about that? Is that something that you think is sustainable?

Mr Hammond: First of all, it is not for me to answer for how Bombardier run their business model, but I thought listening to the evidence earlier it was very interesting that Bombardier have a business model which involves manufacturing plants in all the major markets that they serve. The truth is that the Bombardier plant in the UK is unlikely to get an order for delivery to France, Germany or Italy, whereas the Siemens business model is different and the Siemens plant in Germany can expect to get orders for delivery to France, the UK and Italy because they have a dual source model in Germany and Austria.

Q117 Kwasi Kwarteng: That is a reflection of how different companies are structured.

Mr Hammond: It is a different business model.

Q118 Chair : Is it the case that the winner of the Thameslink tender is most likely to win the Crossrail tender?

Mr Hammond: I do not accept that. I have read that in the press and I understand that there will be some commonality of components, and issues around size of production run may create some advantages at the margin. This will be an important issue for the Department in terms of ensuring that we have a properly competitive process and we get good value for money in Crossrail. The Department’s analysis is that there will be a strong competition around Crossrail, and I hope and expect that Bombardier, as a prequalified bidder, will be bidding strongly to win the Crossrail project.

Q119 Chair : You do not think they are at a disadvantage.

Mr Hammond: I do not think they are at a material disadvantage. I do not think the fact that Siemens is the preferred bidder for the Thameslink project creates a disadvantage to Bombardier that is material in the context of all the other issues that they will need to address, because clearly they will want to look at the outcome of Thameslink and address the areas where they feel they need to do some work in order to be successful on the next procurement.

Q120 Chair: Secretary of State, you have been very positive in some of the things you have said, but in relation to this issue you did say that you simply inherited the tender process that had been started by the previous Government, and that of course is correct. But you did have 14 months in Government before we came to this. Would you say that this is a wake-up call?

Mr Hammond: The wake-up call is around the way we do procurement and that is why we have now sought from the Prime Minister, and secured, agreement that the growth review should look specifically at public procurement and the role public procurement plays. But in that 14 months we would not have had any lawful opportunity to change the course of the Thameslink contract process. The parameters were set out at ITT and it would have been unlawful for us to change those parameters subsequently in a way that advantaged or disadvantaged any bidder.

Q121 Chair : But did you consider this matter? You say now it would have been unlawful. Did you think about these issues before this controversy erupted?

Mr Hammond: To be very honest, no, I did not. The process was ongoing. My understanding throughout this process has been that Bombardier was highly confident. I visited the plant earlier this year and they indicated to me that they were highly confident. Having regard to the way we do things in the DfT, I had no sight of the ongoing dialogue with the bidders. Ministers are not party to those discussions. They are carried out at official level in confidence. I took at face value from Bombardier that they were very confident of the process that they were in and the bid they had put forward. At no point as far as I am aware in the Thameslink process-at no point-did any of the bidders raise any query about or any objection to the terms of the ITT, the way the project had been bundled with finance and maintenance included, or the evaluation criteria that were set out. We heard no objection, concern or question about any of those things until the outcome was announced.

Q122 Chair : What happens now in relation to the Thameslink contract?

Mr Hammond: The Department officials are negotiating with Siemens, as I think Mr Walton indicated earlier on, as the preferred bidder to nail down the contractual terms. If those contractual terms can be nailed down in line with the bid that has been received and in a way that delivers value for money as defined in the ITT to the taxpayer, then the Department will proceed to contract with Siemens. If it proves impossible to do that, if Siemens seek to renegotiate significant elements of their bid, then Bombardier remains the reserved bidder.

Q123 Chair : What is the time scale for this?

Mr Hammond: I expect that we will move to a contract early in the New Year.

Chair : Thank you very much.

Prepared 14th September 2011