Tube PPP not equal to money being paid

London Underground report finds performance on Tube PPP not equal to money being paid

Just two years into the 30-year public private partnership to rebuild London's underground railways, Transport for London says that progress is being made but many of the major renewal projects are behind schedule, particularly those being managed by the Metronet consortium.

"This means", says TfL, "that the infracos and their shareholders, who in some cases are contracted to do the work, are earning significant sums of money through the PPP which are not consistent with the improvements being delivered." In the section of the report headed Financial Outcomes, the London Underground managing director, Tim O'Toole, sets out the financial data which underlies this comment.

As readers of CIOB International will know, the task of rebuilding London's Tube and sub-surface lines under the public private partnership is in the hands of three infracos under the contractual arrangements completed in 2003.

Tube Lines is responsible for the maintenance and renewal of the Jubilee, Northern and Piccadilly Lines, Metronet SLL similarly for the sub-surface lines - the Circle, District, Metropolitan, Hammersmith and City and East London; Metronet BCV for the Bakerloo, Central and Victoria Lines, plus the Waterloo and City Line.

TfL agrees that the Tube is slowly getting better as a direct result of more rigorous train maintenance, combined with a strong performance from London Underground staff but, due to continued signalling failures, the full benefit of improved rolling stock availability is not being seen.

In the aftermath of the recent bombing incidents on the Tube, however, Mr O'Toole gives credit to Metronet and Tube Lines for the part they played in restoring services through the affected sites.

Both he said had performed well in the planning and support they gave to London Underground.

Shortfall compared with expectations In the previous year's report (2003-04), covering the first year of the PPP, the London Underground management took the view that it was too early to judge its performance.

"At the end of the second year, we can begin to make judgements".

"This report shows improvements in many asset categories, but this could hardly be otherwise given the sums of money involved".

"There has been some progress in the first two years, but there are also some worrying trends and overall there is a shortfall compared with the expectations created by the private sector infrastructure companies' bids.

In short, performance is not good enough and is less than what was promised".

""In some areas the infrastructure companies (infracos) have delivered improvements in asset reliability, but this is neither consistent across all asset types, nor is it the level of improvement that was promised for all asset types".

"There has been some progress in the delivery of renewals but again this is inconsistent and significant parts of the capital programme are late, particularly for Metronet".

"Asset condition and programme information is finally being provided, but the quality of this information is inconsistent".

It is here that Mr O'Toole makes the point that while the infracos and their shareholders are earning significant sums through the PPP, the volume of real work out on the railway is not consistent with the payments being made.

Where renewal work is being delivered, the report continues, much of it is currently late.

Metronet's District Line rolling stock refurbishment is delayed by at least one year; its station renewal programme is late and its track renewal and reconditioning programme is behind schedule".

"Although Metronet has met early milestones in its Victoria Line upgrade project, it strains credulity to credit progress on such a complex project when, currently, much simpler renewal work is consistently late".

"Tube Lines has been more successful in delivering projects, with track renewal work closer to the original plan and seven of its first nine station projects delivered on time.".

In the light of this year's experience, Mr O'Toole believes that the concerns expressed last year about the infracos' planning and project management abilities were well founded".

"According to the latest report, overruns of engineering work have increased by 35 per cent on the first year and now average greater than one a week; many of these, it alleges, were caused by poor project planning and execution.

"With an increasing work rate ahead of us it is essential that these issues are tackled now.

The incentives in the PPP contract have proved insufficient to reduce engineering overruns, which have incited more negative reaction to PPP performance than any other incidents".

"The intention of the PPP was that the infracos would develop techniques for economic and efficient asset management".

"Without proper programme and asset condition information we cannot be assured that the infracos are doing this".

"Without proper cost information we cannot be assured that the financial flows reflect actual investment being made".

"The base cost of PPP increases by 18 per cent in year three [2005-06] whether or not any improvement is seen".

"As a result, London Underground will appear less efficient in the coming year before it has turned a wheel".

Contracts largely output specified As background to the PPP contracts, Transport for London explains that they are largely output specified, defining levels of performance with the expectation that the private sector infracos would optimise against cost and risk to deliver the maintenance and investment necessary to achieve and exceed performance targets".

"The performance specification provides financial incentives to maintain, renew and enhance the infrastructure while leaving the technical solution to the infracos".

"The four weekly payments to the infracos are adjusted according to the level of performance in comparison with these financial incentives, with bonuses awarded or abatements applied.

"This applies particularly in terms of taking a whole-life approach to asset management not possible under London Underground's previous financial arrangements.

Consequently the contracts are of 30 years duration, with periodic review periods every 7.5 years".

"The Government put the three PPP contracts out to competitive tender with the expectation that the bidders would demonstrate a capability to deliver and exceed the contract benchmarks and deliver significant benefits to LU's customers".

The responses of both Metronet and Tube Lines to the report were brief.

The Metronet chairman Keith Clarke claimed that because of the PPP the Tube has, for the first time in its history, a secure financing stream to enable both medium and long-term planning and investment".

""For its part, Metronet has already secured investment of GBP7 billion in the first 7.5 years alone".

"We all agree there is still much to do - our focus first is on getting the job done, to find ways in which we can accelerate our programme under the PPP and continue to concentrate on delivering a world-class Tube for London's travellers." Tube Lines expressed appreciation of the indications in the report that progress had been made in a number of areas in the last year, marked improvements on the Jubilee Line and especially on the Piccadilly Line where it spoke of Tube Lines' 'notable accomplishment'".

"We are pleased that on many performance measures the progress made by Tube Lines and our contribution to the picture of improving performance is acknowledged.".

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