West Coast Mainline – Does the DfT not know how to apply a Discount Rate?

The Transport Secretary has stated on radio 4 that the cancelled West Coast Main Line Franchise figures did not take into account inflation – something only vaguely hinted at in the press release.

I find this unbelievable – the first thing you do with any investment of PPP is discount to net present value?

Was it that certain elements of risk were not discounted – such as passenger variations or interest rate change risk?

Was there not a proper risk assessment model?  Was it a simple spreadsheet error that was not picked up and checked?

On major projects such as this are not the figures ran over by the chief account and chief economist at each department?  If not perhaps the real blame lies not in the staff suspended by at permanent secretary level for poor quality assurance systems?

2 thoughts on “West Coast Mainline – Does the DfT not know how to apply a Discount Rate?

  1. A prestigious academic economics group I was connected with some years ago offered free, no strings help to Network Rail to audit its risk assessment and contract procedures as part of its “engaging with the real world” remit. This was something that would have cost tens of thousands of pounds if done by managment consultants who would probably have hired the self-same people. Network Rail refused. Scared about what might be uncovered perhaps?

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