The Failure of London Underground PPP

Posted on May 14, 2010 by colin buchanan 

The final winding up of London Underground’s PPP maintenance agreements signals the end of perhaps the biggest and disappointingly underreported transport fiasco of our time. Its demise on the 7 May was certainly a good day to bury bad news from both Labour and Conservative perspectives.

Transport for London (TfL) was established in 2000 but control over the London Underground was not transferred to it until 2003. In the interim £455m (according to the NAO) was spent on setting up a 30-year PPP contract whereby three infrastructure companies (infracos) were to take over responsibility for the maintenance and renewal of London Underground’s rolling stock, stations, tracks, tunnels and signals. This was the brainchild of The Treasury and Gordon Brown, the then Chancellor, who foisted the unwanted contract on TfL and the then Mayor Ken Livingstone despite legal challenges.

Under the contract the Metronet consortium won two of the concessions and Tube Lines the third. It was not long before Metronet went into Administration, in July 2007, as costs spiralled out of control. The cost to the taxpayer of its demise is estimated at £2bn. There then followed heated debates on the cost of works to be undertaken between Tube Lines and London Underground which appeals to the independent arbitrator failed to fully resolve. Eventually to bring the unhappy saga to an end TfL bought Tube Lines for £310m and at last it is free of a contract that few understood.

PPP was a Conservative invention which the Labour Government continued with great enthusiasm. It was a classic case of taking an inherently simple idea and applying it to more and more complex situations without fully understanding its limitations. The NAO, in a 2004 report on the London Underground deal was unable to say whether it offered value for money because it was just too complex. The idea that risk can be fully transferred from the public to the private sector is fundamentally flawed. The private sector is able to limit its liabilities and walk away from a loss making contract. The taxpayer is unable to do so.

                                                                                                         

PPP saw a Labour Government privatise the maintenance of the Underground and a Conservative Mayor finally renationalise it. The taxpayer has been saddled with almost £3bn worth of costs with nothing to show for it. Well that’s not true we got slightly cleaner stations and a bit of paint splashed around as those were the quick wins that gave the infracos the best return for the smallest outlay. The biggest scandal is that no politician has been held to account for the disaster and as usual the only winners are the lawyers.

London Underground and PPP

In 1998 the Government announced its plans to modernise the Tube Network using Public-Private Partnership (PPP) agreements. Between December 2002 and April 2003 three separate PPP were made.

1.Tube Lines were given responsibility for the maintenance and renewal of the Jubilee, Piccadilly and Northern Lines.

2.Metronet Rail BCV were given responsibility for the maintenance and renewal of the Bakerloo, Central, Victoria and Waterloo and City Lines;

3.And Metronet Rail SSL, where responsible for the maintenance and renewal of the “sub-surface lines”: the Circle, District, Hammersmith & City, Metropolitan and East London Lines.

The PPP agreements cover a 30 year period in which the infrastructure companies (Infracos) are expected to maintain, renew and upgrade distinct parts of the London Underground infrastructure. The running of the services has remained in public hands and is the responsibility of London Underground.

The Collapse of Metronet

In July 2007 Metronet went in to administration.

The collapse of Metronet had enormous implications for the London Underground system. Contracts that were supposed to deliver upgrades to 35 stations over three years in fact only delivered 14, this is just 40%. Stations that were supposed to cost Metronet £2 million in fact cost £7.5 million, 375% of the original stated price. By November 2006, only 65% of scheduled track renewal had been achieved.

Metronet’s demise only cost its five parent companies (Atkins, Balfour Beatty, Bombardier, EDF Energy, and Thames Water) £70 million each. It cost the tax payer £1.7 billion. This means each parent company has lost just 4.1% in comparison to the public purse.

The Transport Committee’s Report into Metronet

The Transport Select Committee report into the London Underground and the Public–Private Partnership Agreements was highly critical of the structure of the PPP agreements. Whilst they recognised that there were many flaws in Metronet’s management of the agreement they also concluded, “If the Government is again tempted by a seemingly good deal from the private sector, it should recall Metronet’s pathetic under-delivery and the deficiencies in the contracts that allowed it to happen.”

The committee were inclined to the view that the model off PPP itself is flawed and probably inferior to traditional public-sector management. ”In comparison, whatever the potential inefficiencies of the public sector, proper public scrutiny and the opportunity of meaningful control is likely to provide superior value for money.”

The Future of London Underground

Since the collapse of Metronet, it looks likely that Transport for London will take over Metronet’s remit, although a formal decision on this will be taken later this summer.

Meanwhile Minister for transport Rosie Winterton has suggested that contrary to the compelling and detailed evidence of the Transport Committee, the debacle was down to Metronet and did not show any deficiencies in the PPP structure.

2 stories below about the

"biggest transport fiasco of our time"

PPP

public - private partnerships