Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)



  Chairman: Good afternoon, gentlemen. Can I welcome you most warmly. Can I, first, perhaps explain to you some of our ground rules. You have microphones in front of you, simply to confuse you, and therefore if you would speak up quite loudly, because they will record your voices but they will not project your voices. If you agree with one another, I would be grateful if you would keep a certain discreet silence, and if you wish to make some other comment I would be grateful if you would let me know. We must, however, begin by a declaration of interest. I am a member of the Rail, Maritime and Transport Union; any other transport unions?

  Mr Stevenson: Transport and General.

  Helen Jackson: Transport and General.

  Mr Donohoe: Transport and General.

  Mrs Ellman: Transport and General.

  Miss McIntosh: I have shares, modest shares, in Railtrack, Eurotunnel and First Group.


  1. Thank you very much. Gentlemen, would you like to identify yourselves, for the record?
  (Mr Smith) Yes, Chairman. Good afternoon. I am Derek Smith. I am a member of the London Regional Transport Board and I am Chairman of London Underground. To my right is Martin Callaghan, who is the PPP Director of London Underground; and to his right is Tony Poulter, who is a partner in PricewaterhouseCoopers. To my left is Mike Strzelecki, who is the Director of Safety for London Underground.

  2. Mr Smith, do you wish to make some preliminary remarks?
  (Mr Smith) I will be very brief, Chairman. It is over 18 months since London Underground was last here to give evidence to this Committee, and in that time we have been seeking to make progress with the PPP. We are near the end; that is, we are at an advanced stage with our negotiations and we are reaching the point of the two critical tests for the Public Private Partnership, that is the test of safety, about which we have heard a great deal, and about value for money. I will leave my statement there, because I have no doubt that these are issues that you want to discuss this afternoon.

  3. That is very perceptive of you, Mr Smith. I think you may very well be correct. Can I just ask you, to begin with, are these Private, I call them, Finance Initiative contracts so complex as to be unworkable?
  (Mr Smith) No, they are not, Chairman. We have in the Underground already several large Private Finance Initiative contracts; these are associated with our new ticketing system and the provision of gates, with the provision of power to the system, which, of course, is critical, with the provision of the information and communication systems that are now being converted within the system so that we can communicate with trains, and so on. We have £1.7 billions worth in capital value of PFI contracts already, which are under way.

  4. Yes; however, Mr Smith, running a particular project like ticketing must, by definition, be rather different from running an entire line, do you not agree?
  (Mr Smith) The PPP is not a PFI, and it certainly is more extensive, because it is—

  5. Then shall we give it its correct title?
  (Mr Smith) The Public Private Partnership—

  6. Thank you.
  (Mr Smith) Is very extensive, a codification of that which we do already, but designed in such a way as to ensure that the Underground will be financed from the private sector over 30 years.

  7. Codification; so is attributing each delay on the network to either London Underground or the private sector company a sensible way of running an underground system?
  (Mr Smith) It is very important, whoever runs an underground system, that there is a clear attribution of fault. If we take the example that the underground were wholly, say, operated in the public sector, as it is today, we need to understand just why the faults have occurred; was it due to an asset, was it due to the fact that one of our passengers has done something, because today, for example, somebody went berserk with a knife on one of our lines, that therefore caused delay, or is it due to the fact that it is something directly within the management's control, which they could, and should, put right.

  8. So you are telling us that this very detailed control has to be exercised, otherwise it will not be possible to run the Public Private Partnership? Now can you therefore tell us, how much money have you set aside in your budget to manage this process?
  (Mr Smith) Can I answer the first part of the question, which is, it is absolutely essential, in running a railway, that these things are understood, and particularly a high-frequency metro; so that people need to know what these faults are and why these faults exist.

  9. We have understood that, Mr Smith, you have made that very clear. How much money have you set aside from your budget to control this process?
  (Mr Smith) To attribute faults?

  10. Yes?
  (Mr Smith) I am afraid, I cannot tell you that, Chairman, at this moment.

  11. But you must have some idea, because, obviously, as you have made very clear to us, it is the detail, and the control detail, that is going to make the essential difference?
  (Mr Smith) Fault attribution has its complexities and involves many parts of the business.

  12. So you must have thought about that, since you have thought about the complexities, since you have sought to find, certainly, definitions, since you intend to manage it right down to this very detailed level, you must have thought how much that will cost you in order to manage?
  (Mr Smith) We have certainly identified the costs in various parts of the business, but they are spread, they are disseminated throughout many parts of it, which is my difficulty in answering you today.

  13. Well, could you not, therefore, give us the general indication of the sort of amount of money; because, presumably, you cannot operate without a heading which is targeted at this one function?
  (Mr Smith) The heading would be in a number of functions. It would be in information technology, in our contract management function itself, in our operations, and it would be spread throughout the various parts.

  14. Do you think it is going to be difficult, or impossible, to quantify value for money?
  (Mr Smith) I think it is a very complicated matter, and if you—

  15. Does that mean yes, you do think, or no, you do not?
  (Mr Smith) I think it is possible to show it.

  16. Good.
  (Mr Smith) And I was going to suggest that my colleague, Mr Poulter, perhaps gave some detail on how we would do it.

  17. Yes; why not, Mr Poulter. Forward, Mr Poulter.
  (Mr Poulter) Thank you, Chairman. There are a number of factors to assess; the financial element of the comparison is to compare the bids against a public sector comparator, which is a projection of what providing the services would cost in the public sector. But there are also a number of wider factors to be considered, such as the effect on operating performance, staff morale, other benefits, so it is a complex comparison but one for which, of course, we have been preparing for a long time.

  18. Yes?
  (Mr Poulter) So I am confident it can be done.

  19. You are confident it can be done; in every single detail, given that some of the—we will come on to the specific formulae in a moment, because they are rather complicated, are they not, Mr Poulter?
  (Mr Poulter) Forgive me, Chairman, which formulae are you talking about?

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