It was my understanding that FirstGroups bid was significantly higher than Virgins, and was one of the reasons given for winning the award, in preference to Virgin. It was this bid valuation that Richard Branson called ludicrous.
It now seems that the DfT failed to properly assess the risk, failed to ensure an adequate risk capital bond to protect the taxpayer, and failed to properly assess the business case of leaving a large balloon payment until the end of the franchise period.
Some of these factors are a legal requirement of the bidding process, and this was the basis of Virgins court case. The now Secretary of State has admitted the error was entirely down to flawed decision making within the DfT. In addition to costing the taxpayer a substantial fee in compensation, this decision also means that several other high profile franchise bids have also been halted - this means the taxpayer faces the prospect of paying large sums in contract extensions to existing franchise holders.
As far as Justine Greening - the Secretary of State for Transport who presided over this franchise process - is concerned, most of the time it is perhaps inappropriate to blame the minister since they may not have the relevant expertise - but Greening was and is an accountant by training, and has worked for some big name companies. It seems that she at least should have been able to spot the mistaken risk assessment.
http://www.guardian.c...-mean-rail-franchises
Franchising and privatisation are supposed to reduce the cost to the taxpayer,improve the quality and quantity of the service, improve the rolling stock, and drive fares down. None of this seems to have happened.