Serco’s bid for extra cash to keep running Caledonian Sleeper ‘rejected because of scary numbers’

Ministers rejected revised financial proposals from Caledonian Sleeper operator Serco to keep the service running because of the “quite scary numbers” involved, The Scotsman has learned.

It is understood the company wanted a significant increase in funding in the face of high inflation and projected further fuel price increases.

Serco has already lost £65 million in the first seven years of the contract when it had expected to make a profit.

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In a surprise announcement on Wednesday, transport minister Jenny Gilruth said the 15-year franchise would be scrapped in June, seven years early, because Serco’s “rebasing” proposals as part of the deal were “not value for money”.

Serco incurred extra costs from the delayed introduction of a faulty new fleet. Picture: Jeff Holmes/ShutterstockSerco incurred extra costs from the delayed introduction of a faulty new fleet. Picture: Jeff Holmes/Shutterstock
Serco incurred extra costs from the delayed introduction of a faulty new fleet. Picture: Jeff Holmes/Shutterstock

However, it has also emerged the Scottish Government had left the door open to Serco continuing to operate the Scotland-London overnight train service through a possible new “direct contract award”.

Ministers are believed to be committed to continuing the service as a greener option for Scotland-London travel than flying.

One source said: “It is not at risk at all.”

However, observers have noted Ms Gilruth has not signalled that an “operator of last resort” would be appointed to run the service, effectively nationalising it, unlike ScotRail when Abellio’s franchise was prematurely ended in April.

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Caledonian Sleeper contract terminated after financial disagreement between oper...

The failure of the Scottish Government’s Transport Scotland agency and Serco to agree terms for the remainder of the Sleeper franchise comes despite the firm reporting record ticket sales in May and a wide range of problems which plagued its new £150m fleet since being introduced in 2019 now largely ironed out.

That indicates the sheer scale of extra funding sought by Serco having lost a “shed load of money”, as one source put it.

The company has been hit by the cost of delays to the new fleet’s introduction and its long-running faults, while it said it had been unable to fully recoup the impact of the Covid pandemic, with ticket sales plunging by more then 75 per cent in 2020/21, despite emergency Scottish Government support.

The amount of additional finance sought by Serco for the remaining seven years of the franchise to 2030 has not been disclosed by either side, but one source described it as involving “quite scary numbers”.

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They said: “Serco was trying to get more money to inflation-proof the rest of the contract.”

Meanwhile, it has emerged ministers prepared the ground for a possible premature curtailment of the franchise by issuing a public contract notice in June "to preserve their ability to make a direct contract award should circumstances arise in due course that give them cause to do so”.

The Caledonian Sleeper franchise replacement regulation stated: “Transport Scotland, on behalf of the Scottish ministers, may … wish to make a direct award of a public service contract to Serco Caledonian Sleeper Ltd.

“As an alternative ...Transport Scotland may entrust the provision of Caledonian Sleeper passenger services to a company owned and controlled by the Scottish ministers and make a direct award of a public service contract.”

Ms Gilruth said: “Work is underway to determine arrangements for the continued provision of Caledonian Sleeper rail services beyond June 25, 2023.”

John Whitehurst, managing director of Serco’s transport business, said: “We will continue to work with Transport Scotland around options for the future management of the service.”



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