Mayor's 'cheap' sponsorship deal for London cycle hire

London Mayor Boris Johnson has been accused of giving Barclays the sponsorship of his cycle hire scheme "on the cheap" in a deal that was not put out to competition.

It comes as he announced on the first anniversary of the scheme that the bank would continue backing it for a further three years, up to 2018.

BBC London has learned that before Barclays' bid last year, substantial extra benefits were offered to the bank by the mayor's transport officials.

Yet the improved sponsorship package was not presented to other potential sponsors in an open competitive process. One leading lawyer said the deal could have been open to legal challenge.

The mayor has defended the deal, saying no-one could have predicted that it would be such a success.

Barclays is paying up to £5m a year for five years to sponsor the bikes.

Three advertising consultants contacted by BBC London said the commercial value of what the bank was getting, in advertising alone, was between £9m and £15m a year.

'Real apprehension'

The bank's total contribution represents about 10% of the £230m to £240m cost of setting up and running the bike hire scheme until 2016.

The mayor said: "If you look back at what was happening and the uncertainty surrounding the cycle hire scheme to begin with - people didn't know what the accident rate was going to be, they didn't know what it was going to do to their brand, they were worried that there would be pictures of mangled bicycles with their brand all over the streets.

"There was real apprehension about it. They were worried that the bikes would be stolen in huge numbers.

"On the contrary. We've had an incredible success."

Transport for London (TfL) first advertised for a sponsor in March 2009. Energy company EDF and phone giant Nokia submitted bids, but neither was accepted.

Mr Johnson then made a personal approach to Barclays chairman Marcus Agius, offering him "an exciting opportunity - Barclays bikes".

BBC London contacted all the other high street banks and was told that none had been approached.

Verity Evans, brand strategist at Venture Three, said: "That's astonishing. Because you want to create a competitive environment to elicit the best price.

"If you think financial institutions would want to improve their image, which they clearly need to right now, why not approach every single high street bank and every single investment bank?"

The mayor has not said whether he had contacted any other banks.

In late 2009 there were negotiations between senior TfL officials and Barclays, who asked for the scope of the sponsorship to be expanded.

Barclays was told it could also be named as the sponsor of the capital's 12 new cycle superhighways.

It was also given assurance that no rival bank would be able to sponsor any future mayoral cycling initiatives, and that it could have access to personal data of people registering to use the bikes.

Huge exposure

The bank was also told that its sponsorship would cover a second phase to the scheme, meaning considerably more advertising value from an extra 2,000 bikes and scores of extra docking stations.

At the time of the Barclays bid, it was almost certain the second phase would go close to its UK headquarters in Canary Wharf and to the Olympic Park, ensuring huge exposure for its brand during next year's games.

But this enhanced package was not put out to other potential bidders in a new competitive process, and there was no fresh notice in the Official Journal of the European Union.

Instead in March 2010, EDF - which had been rejected before - was invited to submit a new bid against Barclays.

David Wolfe, a barrister with Matrix Chambers, said the mayor and TfL could have been open to legal challenge for staging a "private" second round of bidding for a more attractive deal which may not have ensured best value for the taxpayer.

There was a legal principle of "legitimate expectation" that TfL should have held a new second tender process - open and advertised - in the same way it had done the first, he said.

He said: "There may have been companies who would have been interested second time around if they had known about it.

"That might mean that the mayor, TfL, and therefore Londoners didn't get the best deal.

"We can never know, but all we can say is that it raises an eyebrow about whether the process delivered the best outcome, and that in turn raises an argument about whether it was legally proper."

'Fairly conducted'

A spokesperson for TfL said: "Barclays offered more money than any other company. Other bidders were offered the chance to match it and no one came close."

The mayor said the public procurement process was "completely fairly conducted".

He said: "There was a proper procurement process that TfL went through and all sorts of people were approached. I'm afraid that no-one came anywhere near the money that was being offered by Barclays.

"I can't help it that they didn't go in on the original scheme. It was very well advertised.

"Barclays were the people who came in with the significantly biggest bid and I'm grateful to them for it."

The cycle hire scheme is expected to be expanded to east London in time for the Olympics

BBC London has learned that before Barclays submitted its financial bid in March 2010, there were already strong indications that the bike scheme would be expanded eastwards.

Sources said that in Spring 2010 Tower Hamlets Council was being told to "work up" plans for the second phase.

The decision made in November to expand close to the Olympic Park in time for next year's game will give huge international exposure to Barclays.

Brand consultant Michael Johnson said: "Barclays are trying to do what we might call a 'Nike'. Every time there's a World Cup, Nike try to appear like the main sponsor even though they're not.

"Barclays will try to surround the park with bikes.

"It's remarkably good business for Barclays because they are paying a tiny percentage of the overall cost of the bike scheme.

"£5m is less than (Barclays' chief excutive) Bob Diamond's bonus last year."

Losing money

A Barclays spokesperson said: "We think £50 million is a significant investment in the scheme. We were aware of phase two in the initial £25 million agreement. We knew it would go east but not the exact location."

Labour Assembly member John Biggs called for an investigation, saying Barclays are "laughing all the way to their own bank".

He added: "If the evidence suggests there was some sort of sweetheart deal which makes it even more valuable to them, that needs to be scrutinised by the Assembly.

"We need to understand how that bidding took place, how transparent it was, whether there were deals on the side to encourage them and whether we as taxpayers got proper value out of that."

Boris Johnson pledged in his 2008 election manifesto that the bike scheme would not cost the taxpayer a penny.

Yet according to a recent London Assembly report, it is set to lose around £10m in its first year and there are no signs of it breaking even for many years to come.

On Thursday he announced it was to be extended westwards. But with other boroughs calling for the scheme to be extended to them, the mayor will need new sources of finance.