London Transport
Buses
49. London Transport Buses' (LT Buses) gross operating
loss rose from £3m in 1997-98 to an expected £20m in
the current financial year. This rise is explained by LT as being
largely a result of "an adverse movement" in the prices
tendered by contractors to operate routes on LT Buses' behalf.[91]
LT Buses subsequently told us that 40 per cent of the increase
in its losses could be attributed to rises in tender prices, 40
per cent to extra resources being put into service development
and mitigating the effects of congestion, and 20 per cent to increased
revenue protection, marketing and maintenance.[92]
50. Until 1996 LT Buses offered route tenders on
a 'gross cost' basis, under which LT assumed the passenger volume
risk, and hence the revenue risk. Since 1996 it has tendered routes
on a 'net cost' basis, under which revenue risk is transferred
to the operator. It told us that "Net cost tendering should
provide the necessary commercial incentive to the private sector
to deliver good quality services at minimum cost to LT Buses,
and hence the taxpayer." However after two years' experience
of net cost tendering, "there are no indications that service
quality is better on net tendered routes compared with gross cost
contracts", although congestion and a small sample size made
comparisons difficult. As regards tender prices, LT Buses told
us that "there were indications of market hardening at the
end of 1996 and this was confirmed in the first half of 1997.
Prices increased rapidly at around the time contracting switched
from Gross Cost to Net Cost". The main reasons were:
- An element of the revenue risk that was transferred
to operators had been built into tender prices;
- The volume of tendering had quadrupled since
1994, putting pressure on management time within bus operators,
"resulting in less predatory bidding". Operators were
much less likely to bid on a marginal cost basis than before;
- Merger activity had reduced the number of bus
companies bidding for route tenders;
- Increases in operators' costs, for example wages,
against a background of "severe staff recruitment and retention
problems, particularly during 1997"; and
- Uncertainties about fuel prices in 1996-97.[93]
51. The DETR said that the upturn in tendering prices
was in part due to the risk-averse nature of operators in net
cost tendering, and in some instances because of a reduction in
competition. It supplied figures showing that between January
and June 1995 LT Buses had received an average of six bids per
tender, but that since the second half of 1996 this had dropped
to an average of just over two bids per tender.[94]
52. LT Buses said that it:
"has continued to play a proactive role in developing
the market for tendered bus services in London. This is being
done by encouraging operators to compete and also by attracting
new operators to enter the London market. Market testing of different
contract types is also taking place in order to make LTB contracts
more attractive to bidders. These include variations in the length
of contracts and the opportunity to tender both on a Gross and
Net Cost basis".[95]
53. The Department attributed the increased losses
principally to an increase in the cost of staff employed by the
bus operating companies to whom the route tenders are awarded.[96]
It said that the level of subsidy to LT Buses would have to be
addressed.[97] Although
only six major groups operate 92.8 per cent of London bus routes
under tendered contracts, the Department did not have evidence
that the increase in costs was because of anti-competitive practices
by these companies.[98]
However it adduced no evidence of any investigation of this possibility,
telling us merely that no-one had written to the Department to
claim that the companies were acting as a cartel.[99]
54. A six-fold increase in LT Buses' operating
losses, when bus travel in London is increasing, is grounds for
a thorough examination by the Department. The reduction in the
average number of bids for each route tender is also a matter
of concern. The Department should satisfy itself as to the reasons
for the increase and whether the tendering process is genuinely
competitive and ensuring value for money. LT Buses has confirmed
that the move from gross cost tendering (where LT bears all the
revenue risk) to net cost tendering (where operators bear a revenue
risk) has contributed to the increased operating losses without
any increase in service quality. The Department should encourage
LT Buses in its tests of different types of tender contract which
are aimed at achieving better value for public money. In line
with the practice of local authorities outside London, London
Transport should publish the range of tender bids it receives
and the conditions of the bus route contracts it awards.
55. The Government sets a range of quality of service
targets for LT Buses covering matters such as reliability, regularity
and vehicle cleanliness. Only two of the 11 targets are being
met and there has been no overall improvement in service quality
during 1997-98.[100]
The Department pointed out that the achievement of some of the
targets, for example punctuality, was to some extent outside the
control of the operators because of traffic congestion or other
factors.[101] The targets
were demanding and in some cases, such as cleanliness, had only
narrowly been missed.[102]
LT Buses said that "Without more bus priority schemes and,
more importantly, effective enforcement against illegal parking
by car, van and lorry drivers, there is little prospect of LTB
meeting the ever-tightening service delivery targets set by government."[103]
It is not acceptable that the cost to the taxpayer and the
passenger of providing bus services in London should be increasing
significantly while bus services are failing to meet most of their
quality of service targets. The Department must discover whether
this failure is the fault of the operating companies' management,
of London Transport Buses for failing properly to monitor compliance
with the contracts it has let, or of factors such as traffic congestion
that are outside their control. It must then explain how it proposes
to address the problems that exist. We were also disappointed
to learn that the level of bus emissions was not one of the bus
operators' performance targets;[104]
we recommend that it should be.
Consultancy
fees
56. The Government has already said that up to £65m
may be spent by London Underground on professional fees in connection
with its proposals for a public-private partnership. The Department
told us that it would in addition be spending £5m itself
on consultants' fees for the same purpose.[105]
Hundreds of millions of pounds were spent on professional fees
in connection with railway privatisation. This extravagance must
not be repeated. The Department and London Underground will together
be spending more on consultants in connection with the public-private
partnership than the additional money that will be spent on rural
public transport. The Department must publish full details of
which professional firms it and London Underground employ, the
work each firm performs, the fees paid to each, and the reason
why the work could not have been performed in-house.
Marine and
Coastguard Agency
57. The DETR's two marine agencies, the Maritime
Safety Agency and the Coastguard Agency, were merged on 1 April
1998 to form the Maritime and Coastguard Agency (MCA). The MCA
is largely responsible for implementing the Government's policies
for improving marine safety and pollution control. Estimated expenditure
by the MCA (or its predecessors) fell from £50m in 1996-97
to an estimated £44m in 1997-98 and is planned to rise to
£46m in 1998-99.[106]
The Department said that an important reason for merging the two
Agencies had been that it would "open the potential for using
the Coastguard, who have the presence on the coast, to reinforce
and supplement the work of the surveyors, for example, who did
not have that presence".[107]
This would, it was hoped, improve shipping safety: the safety
record of fishing vessels, for instance, was extremely poor and
was worsening.[108]
No decision had yet been taken by Ministers on whether to close
any Coastguard stations, although there had been consultation
on a proposal for the closure of four out of the 21 stations and
for the 'co-location' of two others on the south coast.[109]
It is too early to assess the benefits of combining the two
agencies in the new Marine and Coastguard Agency. We are anxious,
however, that nothing should endanger the maintenance of a constant
watch from all Coastguard stations. The professionalism of coastguards
must not be undermined, and we will take a continuing interest
in the work of the Marine and Coastguard Agency.
61 Annual Report, Chapter 8 and EST 98A. Back
62
Q 392. Back
63
DETR Press Notice 326, 28 April 1998. Back
64
DETR Press Notice 326, 28 April 1998. Back
65
QQ 413 & 423. Back
66
DETR Press Notice 581, 14 July 1998. Back
67
Annual Report, para 9.24. Back
68
Q 338. Back
69
Q 344. Back
70
Q 388. Back
71
Q 382. Back
72
Annual Report, para 9.26. Back
73
DETR Press Notice No. 330, 28 April 1998. Back
74
Q 432. Back
75
Official Report, 3 July 1998, column 285; EST 98F. Back
76
QQ 427-8. Back
77
Official Report, 16 June 1998, column 126. Back
78
Q 461. Back
79
Q 455. Back
80
Q 470. Back
81
Q 473. Back
82
Q 475. Back
83
Q 480. Back
84
Official Report, 15 June 1998, column 47. Back
85
Q 468. Back
86
QQ 464-5. Back
87
Q 490. Back
88
Q 487. Back
89
Q 491. Back
90
A new deal for transport: better for everyone, Cm 3950,
para 4.35. Back
91
London Transport Business Plan 1998-99. Back
92
Memorandum from LT Buses, EST 98E. Back
93
EST 98E. Back
94
EST 98F, paras 28-9 . Back
95 EST
98E. Back
96
QQ 506-7. Back
97
Q 508. Back
98
Q 509. Back
99
Q 514. Back
100
Annual Report, para 13.18, EST 98F para 32 and Q 524. Back
101
Q 523. Back
102
Q 525. Back
103
EST 98E. Back
104
Q 528. Back
105
Q 493. Back
106
Annual Report, paras 15.6 and 15.7 and figure 15.a. Back
107
Q 530. Back
108
Q 538. Back
109
Q 544 and 546. Back
