Major concerns about London Tube rebuild

Transport Committee has 'major concerns' about cost and delivery of London's Tube rebuild.

Despite the intention of the London Underground Public Private Partnership to introduce private sector disciplines into running the capital's underground and sub-surface railways, the House of Commons Transport Committee has expressed major concerns about the management, cost and delivery of this huge infrastructure project.

The committee is strongly supporting LUL initiatives to establish suppliers alternative to the infracos (operating companies), each of which is managing three groups of lines under the PPP contracts settled in early 2003.

With the public private partnership now entering its third full year, the transport committee, led by Labour MP and railway trade union member Gwyneth Dunwoody, remains doubtful about the effectiveness of the set-up.

On the evidence they received, they do not find the improvements in facilities and performance on the Tube railways in proportion to the huge sums of money flowing through the PPP.

As evidence of the scale of funding going into the reconstruction of London's underground and sub-surface railways, the report cites GBP 1,218 million government funding of the PPP in 2003-04, followed by GBP 1,070 million in the current financial year (at cash prices).

The estimate for grant in 2007-08 is reported to be over GBP 1,300 million.

These figures suggest between GBP 5 and GBP 6 billion government funding over the five years 2003-08, which at current prices would cover the entire capital cost of a new railway like the Jubilee Line extension (1995-2000).

If a similar level of grant aid was sustained, Crossrail could be built free of debt.

"In addition to this extra public funding", says the report, "the PPP produces about GBP 5 billion of long term private finance, through the infracos".

"But they are handsomely paid for their work through the infrastructure service charge paid by London Underground." The committee added: "It remains to be seen whether the PPP has given the private sector incentives to upgrade the Tube more efficiently and effectively than would have been possible through the public sector, but at this stage we believe its major achievement has been to ensure that the Government commits itself to providing sustained funding for London Underground; a commitment which, given the political will, could have been made without any PPP." Work deferred by affordability constraints The National Audit Office said that the question of whether the PPPs would deliver real benefits to passengers and appropriate returns on investment would be determined over the 30 year life of the contracts.

On this aspect of the deal, the committee commented that affordability constraints imposed by the Government mean that many of the major improvements sought from the PPP have been deferred until after the first 7.5 year contract period, when pricing and terms will need to be renegotiated.

Moreover, there is a real prospect that this kind of delay will recur at future reviews.

It must not happen, says the Parliamentary committee, told of the Underground management's concern that such deferments would put at risk future funding from the Government.

"Ensuring that the Tube gets the major upgrades it needs is not the same as paying any price that the private sector demands", it said.

"There is potentially a problem in securing a fair price for upgrades; many of the major infrastructure companies which could undertake them are currently involved in the PPPs".

"There has already been some experience of this circular relationship".

"Under the current contract, London Underground has the right to specify extra works, which can be undertaken either by the relevant infraco, at a price negotiated between the parties, or by a third party.

Transport for London has published a report on the first year of the PPP which makes it clear that there have been delays in securing additional services and works through the infracos, and that some of the costs have been considered excessive by London Underground." The high cost of the Wembley Park station rebuild on the Metropolitan/Jubilee Lines is partly explained by the need to complete the work in time for the opening of the new National Stadium".

"But the Underground's managing director Tim O'Toole found himself effectively in the position of having only one supplier to bid for the job, and he doesn't want to be in that position again".

"To prevent this, London Underground is putting in place framework agreements with alternative suppliers".

"Cost information for fair pricing Supporting these initiatives, the committee said that not only would they help to reduce the cost of additional works in the short term, but they should help the PPP arbiter determine a fair price for the PPP if there is disagreement during the future reviews".

"The report acknowledges that a great deal of work is being undertaken by the companies involved and significant investment is being made".

"Nonetheless, Transport for London's report on the first year of the partnership suggested that not all was progressing smoothly".

"This had been indicated by London Underground's rejection as inadequate of Tube Lines' plans for station enhancements, and the lack of information from Metronet BCV on the Victoria Line Phase I upgrade and the Central Line upgrade".

"Mr O'Toole was at that stage troubled by his lack of power to insist that the infracos should invest in new equipment enabling them to work more efficiently".

"In evidence, he described his role as one of 'constant cajoling and negotiation'".

"On the issue of availability of assets and lost hours of service, Transport for London records showed that only the District Line had consistently produced performance that met the benchmark".

"On most other lines, London Underground had considered that performance had frequently fallen below benchmark and for several periods had been at the level considered 'unacceptable'.

"Availability is the most important factor for Tube travellers", says the committee.

"All the infracos needed to do to meet their availability benchmarks was to perform only a little worse than in the past.

On most lines, they did not even manage that.

We hope they will be able to meet the more demanding targets for availability expected in future; we have no confidence that will be the case.

Terry Morgan, the Tube Lines managing director, told the committee that although the penalty payments were small in relation to the total service charges, they flowed right the way to be bottom line and this did affect managers' judgments.

In response, the committee said that since the funding for the Underground ultimately comes from the public purse, there should be absolute clarity about the degree to which the infracos are meeting their targets.

One of the reasons for the PPP, they pointed out, was to introduce private sector disciplines".

"We need to be able to judge whether this has successfully improved performance.Transport for London should continue to give a detailed report on the performance of the PPP each year", an observation from which Mr O'Toole may take a measure of encouragement.

Back to top