Tube PPP mess

As has been mooted for several months, London's tube upgrade faces spiralling costs and could run out of money. The PPP was meant to take these sorts of risks away from the public purse, but as we have seen with the collapse of Metronet, if the private contractors can't make money out of a project, the risk ends up in public hands.

In my first post-university job I screened PFI bids. PFI bids were normally deemed "better value" than direct public investment because of the transfer of risk to the private sector. The risk of delay and spiralling costs was with the private, not public sector.

The Guardian quotes tube boss Tim O'Toole as stating that without full funding for the PPP, "The infrastructure is so old and unreliable that we are going to see a contraction in capacity," - London cannot cope and needs more capacity, not less.

Boris Johnson has stated he will go to the Department for Transport to seek additional funding. This represents a test of how the Labour government will work with a Tory mayor - or not. For London's sake I hope that Transport Secretary Ruth Kelly opts in the best interests of Londoners and pays up. I worried political point scoring might win and our tube may crumble.

Read more:

• Dave Hill (Guardian blog)
  
• Mayorwatch
• Investor.co.uk

TfL take over Metronet

As the new Mayor takes over the failed Metronet PPP contract for the tube upgrade I do wonder what happened to the private sector taking on the "risk." If only all that extra money wasted on lawyers had been spent directly on upgrades...

Indeed, the Parliamentary Transport Select Committee reported in 2002 that "it is however apparent that the position on risk has moved dramatically in favour of the private sector companies" - this is obviously what happened.

Tubelines not keen on Metronet contracts

Reading about Tubeline's apprehension in taking on Metronet's failed Tube PPP contracts one thing seemed remarkable to me. It appears that much of th eprescribed work laid out in the PPP contracts omitted some crucial details. Terry Morgan of Tubelines cites the upgrading of Arsenal station, my nearest station:

"He cites an upgrade at Arsenal station as an example of the complexity of deciding the scope of work. Tube Lines undertook to put "a new cover on the station", but found it could not build on the existing roof. "So we had to strip the existing roof," he said - at Tube Lines' own cost."

It is remarkable that despite £500m of public money spent on drawing up these contracts that 'unforseen' situations like this could occur.

Metronet to become next Network Rail?

I read the headline "London mayor's transport team in talks to take charge of failed tube contractor" and so into the article where it was mooted that Metronet's contract will be taken over by TfL. However, half way through one notes that this story was driven by (my own) trade union Unite's statement that the Mayor had proposed to "limit the period that Metronet remains in administration and instead bring the operation under the control of TfL." This was withdrawn after Livingstone said it didn't reflect reality. I can't see Prime Minister Brown yielding to this either after the PPP was pushed through at his behest.

Metronet: Atkins and Balfour Beatty keen to keep on

Reading statements from Metronet partners Atkins and Balfour Beatty recently suggesting that they take part in a new PPP contract surprised me somewhat. Especially the quote from the BB spokesperson that "we have all the staff, equipment and know-how there already." Is this the same know-how that led to £2bn of cost over runs and repeatedly missed deadlines for engineering work blighting Monday morning commutes?

Metronet: taypayer pays again

The taxpayer paid £500m for Metronet and Tubelines respective PPP contracts to be set up. Now Metronet are unable to manage their finances properly, the taxpayers pay again. It appears to me that this stems from Metronet's greed in attempting to award all contracts to their constituent companies thereby keeping all money within the cycle. However they couldn't even make this work when they were running it all themselves. So we'll probably have Tubelines running the whole PPP.

Metronet going bust

Yesterday's post about the Tube PPP Arbiter's decision not to cave in to Metronet's demands for more Government hand outs attracted attention to this blog from both PPP contractors, Metronet themselves and Tubelines. It is of course interesting to note that Tubelines hasn't faced the same problems as Metronet.

Metronet failed to competitively tender work, preferring to offer it to it's member companies, including Balfour Beatty, WS Atkins and Bombardier. They obviously saw this as a way to make more money at the public expense from themselves by running a closed shop. Tubelines have offered contracts competitively.

More seriously though the public purse looks likely to pick up th ebill from Metronet's chronic failure to deliver. The transfer of risk from public to private sector was one of the strongest arguments made at the time the PPP was being proposed. At the time I thought the cost of drawing up the PPP high. The vast sums, around £500m, spent on lawyers and management consultants to draw up these contracts failed to envisage this. This money could have been invested in the system directly. However, I was happy to see the PPP go through if it was going to deliver real investment into the network at effectively a fixed price to the public purse.

Now it is likely that Transport for London will have to arrange a re-financing package. This isn't how it was meant to work. Something was clearly lost between the Government's argument at the time and what was put into place. I'm sorry to my Dad as I remember saying to him at the time that the PPP was nothing to worry about when clearly this is proving a big waste of time and money.

The National Audit Office's 2003 report into the PPP "London Underground PPP: Were they good deals?" will make for more interesting reading now.

Metronet

So Metronet look like going bust. The only people who seem to have benefited from the PPP on London Underground are management consultants and lawyers who drew up the preoposterous idea in the first place. The whole point of the PPP was to transfer the financial risk away from the public sector. Yet when things go wrong, Metronet simply hold out a begging bowl to the public purse. Asking TfL for £551m to cover extra costs wasn't on and I'm pleased that Chris Bolt, the PPP Arbiter, only offered them £121m.

I'm not sure what this means for the future upgrading of the tube but what it says about poor decisions made in the past is stark. Transferring risk to the private sctor doesn't always work - just look at the rest of the railways. Metronet have shown little regard for the public purse and I'm pleased that they are being stood up to. London Underground's MD, Tim O-Toole, said “I’m determined to make the case that the public should not be forced to pay a penny for Metronet’s inefficiencies.”