Stagecoach has been disqualified from bidding for three current UK rail franchise competitions over concerns it has failed to safeguard the risk of sections of the Railways Pension Scheme (RPS), it has emerged.

The Department for Transport (DfT) informed the group that it has been formally excluded from the process, after submitting “non-compliant bids” in relation to the pension schemes, which are thought to have a deficit of £5-£6bn.

Stagecoach, which was shortlisted for East Midlands Rail, South Eastern Rail and the West Coach Partnership, said that its bid was “consistent” with industry guidance, however the DfT said the group had made “significant changes” to the commercial terms of the bidding.

Stagecoach Group chief executive, Martin Griffiths, said: “We are extremely concerned at both the DfT's decision and its timing. The department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.

"We bid consistent with industry guidance issued by the Rail Delivery Group and shared with the DfT.”

Griffiths added that their proposals would have delivered an additional £500m to £600m to the scheme, providing “better stability and security for members and much better value for taxpayers”.

“We are shocked that the government has rejected this for a higher risk approach. We would urge that a full independent value for money review is undertaken into this issue without delay.”

Stagecoach, which owns 49 per cent of Virgin Rail Group, said that it “strongly” believes that the private sector should not be expected to “accept material risks it cannot control” and that its bid was “consistent” with industry guidance.

Despite this, the DfT insists that it was just Stagecoach which had changed the terms of the franchise competition, leading to a bid “which proposed a significantly different deal to the ones on offer”.

A DfT spokesperson said: “Stagecoach is an experienced bidder and fully aware of the rules of franchise competitions. It is regrettable that they submitted non-compliant bids for all current competitions which breached established rules and, in doing so, they are responsible for their own disqualification.

“Stagecoach have played an important role in our railways and we hope they will continue to do so post the conclusions of the Rail Review. However, it is entirely for Stagecoach and their bidding partners to explain why they decided to repeatedly ignore established rules by rejecting the commercial terms on offer.”

The government added that unlike the winning bidder of the East Midlands franchise, Abellio, Stagecoach did not accept the risk-sharing mechanism set by the government, “which reduces the risk that operators are exposed to.

It said that in the event the deficit recovery contributions change at the next valuation, the government would share some of the upside/downrisk of the changes with the operator.

As a result of the decision, Stagecoach said that it is evidence that the franchising model is “not fit for purpose” which “further damages that already fragile investor confidence in the UK rail market”.

When asked about the effect this will have on the RPS, a TRP spokesperson said: "We are working closely with the scheme trustees, Rail Delivery Group and the DfT to ensure the best possible outcome for pension scheme members.

“Part of this work is to ensure the scheme is adequately funded so that members receive the benefits they expect. We are not able to comment further."

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