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Virgin Trains to Run U.K. West Coast Line Until Late 2014

Richard Branson’s Virgin Trains was handed a deal to run Britain’s premier rail route for two more years on the day a government-backed probe found that a decision to strip it of the contract was based on faulty calculations.

Virgin will operate the West Coast main line from London to Scotland until November 2014 under a simple management contract while the government reworks terms for a long-term franchise, the U.K. Department for Transport said in a statement.

Branson failed to keep the route in the first place after the DfT used flawed methodology in guiding bidders on the amount of risk capital required and then varied the resulting figures in contravention of competition rules, the inquiry into the franchise failure found. No evidence of bias in favor of winning bidder FirstGroup Plc was detected, the report compiled by Centrica Plc Chief Executive Officer Sam Laidlaw said.

“The final report from the Laidlaw Inquiry makes extremely uncomfortable reading,” Transport Secretary Patrick McLoughlin said in the statement. “The department is determined to ensure future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance.”

The West Coast contract was halted on Oct. 3 following the discovery of what the government called “serious flaws” in the choice of FirstGroup’s 5.5 billion-pound ($8.9 billion) bid.

Government Risk

Virgin was initially told it could retain the route for nine to 13 months after the DfT decided against handing it to state-backed Directly Operated Railways Ltd.

Under the arrangements for Virgin to keep West Coast the U.K. government will take on revenue and cost risk, with Branson’s venture, which is 49 percent owned by Stagecoach Group Plc, taking 1 percent of revenue as a flat fee.

Under a franchise arrangement the operator takes on more of the risk and potential reward, and the contract announced today can be revised to allow Virgin to do so, the DfT said. The two-year deal was sealed with the company’s existing franchise deal that had run since 1997 due to expire at 2 p.m. on Dec. 9.

Terms include timetable modifications to include an hourly service from London to Glasgow, Scotland’s largest city, together with other service enhancements, according to the DfT.

“We are determined to ensure not only that passengers continue to experience the same levels of service they have in the past, but that services improve,” McLoughlin said.

Today’s contract will also make it easier for passengers to claim compensation for train delays under a new program starting April 1, he said.

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