I've just realised that you were doing the same job as my sister does now (she is at ScottishPower in their Energy Trading department). From what I've read this doesn't look like a decimal point error. It looks like a failure to weight the risk of projected income correctly when working out the total value of a bid. This meant that promises of what would be paid out towards the end of a 15 year deal were treated as being worth as much as early, less risky payments. From what I can see FirstStagecoach put in a bid heavily weighted on future payments - allowing them a top-line figure which was much higher than anyone else's bid. I suspect that they were clever enough to be gaming the model, based on past DoT awards, and their decision not to sue on failure to perform late into contracts (with franchises being allowed to "return the keys" without incurring full contractual penalties. Whether this was a policy decision on their quantative risk analysis, to allow more reliance to be put on future promises than was sensible, or (as I suspect we'll be told) a cock-up in the weighting, we'll probably never know.
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timeasmymeasure
no subject
Date: 2012-10-04 10:18 am (UTC)From what I've read this doesn't look like a decimal point error. It looks like a failure to weight the risk of projected income correctly when working out the total value of a bid. This meant that promises of what would be paid out towards the end of a 15 year deal were treated as being worth as much as early, less risky payments. From what I can see FirstStagecoach put in a bid heavily weighted on future payments - allowing them a top-line figure which was much higher than anyone else's bid. I suspect that they were clever enough to be gaming the model, based on past DoT awards, and their decision not to sue on failure to perform late into contracts (with franchises being allowed to "return the keys" without incurring full contractual penalties.
Whether this was a policy decision on their quantative risk analysis, to allow more reliance to be put on future promises than was sensible, or (as I suspect we'll be told) a cock-up in the weighting, we'll probably never know.