Select Committee on Transport, Local Government and the Regions Second Report


Managing the PPP contracts

65. The PPP contracts comprise 135 separate contract documents, more than 2,800 pages of contract terms, with 2 million words. Mr Blaiklock described the PPP contracts as "certainly one of the most complex, if not the most complex infrastructure concessions of all time."[153] Transport for London believes that the contracts offer only limited public control over the activities of the Infracos and are unwieldy,[154] and that managing the contracts will be "extraordinarily expensive, very distracting from the business of actually running the trains".[155]

66. London Underground Limited told the Sub-Committee that the PPP contracts are manageable and are a "codification" of the activities that it already undertakes.[156] London Underground Limited has operated under the PPP structure of one operating company and three infrastructure companies, all under public sector control, since 19 September 1999 (known as 'shadow running'). The Secretary of State described the contracts as "thorough but perfectly workable".[157]

67. The "codification" of a system as complex as London Underground is certain to produce a commensurately complex set of contract documents. Careful monitoring of the operations of the Underground will bring some benefits but is likely to be an expensive process. London Underground Limited told us that over £600,000 a year is spent on attributing fault for delays to either the Infraco or the operating company under shadow running.[158] Under the PPP such faults would have a financial penalty attached to them and the cost of monitoring and disputing them would inevitably rise. Similar concerns exist over other aspects of the contracts such as safety monitoring and it is possible that the contract management will be confrontational rather than a partnership.

Working practices

68. Under the PPP the operation and maintenance of the network will cease to be solely managed by a public sector organisation: operations will be managed by the public sector and maintenance by the three private sector Infracos. Whereas under the one public sector organisation, workers co-operate both formally and informally, under the PPP the relationships between operations and maintenance workers will change. The Sub-Committee heard concerns that a contractual barrier might develop that would be detrimental to working relationships.[159] In addition, Parsons Brinckerhoff identified the possibility that different engineering standards might be developed across the three Infrastructure companies, which could make any future re-integration of the network difficult.[160] The trade unions told us that under shadow running, working practices are already diverging and extra layers of operational management have led to blurred management responsibility.[161] Division of responsibility for the operations and infrastructure maintenance would reduce the breadth of training programmes. However, both of the preferred bidders made it clear that partnership and co-operation were important parts of their duties in undertaking to upgrade the network.[162]

69. All of the witnesses acknowledged that there would be a significant increase in maintenance and investment that would require increased engineering and monitoring skills. Concern was expressed that experienced senior management would be lost as a result of the changeover to private sector management. The mainline railway experience has shown that different employment conditions for people who were in the industry prior to privatisation compared with those who joined after privatisation led to a deterioration in working relationships.[163] The railway strikes of January 2002 have highlighted further the real risks generated by diverging pay and conditions.

Failed Bids

70. The Secretary of State told the Sub-Committee that the Government is currently considering alternatives for managing any of the Infraco concessions that fail to meet the value for money test. One option being considered was the transfer of control of such Infracos to the Mayor and Transport for London.[164] The Health and Safety Executive told us that hybrid private and public infrastructure control would require a new Safety Case to be submitted and assessed.[165]

71. Transport for London believed that a hybrid structure of some public and some private sector Infracos would add further to the complexity of managing the PPP,[166] a view shared by the National Audit Office,[167] and would not allow the public sector to deliver the benefits that would come from unified control.[168] Transport for London would have to put in place a management structure to deliver one of the Infraco's responsibilities while still having the burden of establishing monitoring and enforcement teams for the Infracos under the PPP.[169] The private sector Infracos would also have first call on available finances through dedicated contracts, placing pressure on any public sector Infraco in the event of a funding shortfall. Mr Kiley told us that the idea of mixed private and public sector infrastructure companies was "an inane notion" and that "either PPP is solid and works, or it does not".[170]

72. The National Audit Office report into the PPP analysis in December 2000 stated that: "If this [mixture of public and private sector Infracos] is to be given serious consideration, London Underground will need to ensure that sufficient analysis of the impact of this mix has been undertaken and that plans for coping with these outcomes exist."[171] Consideration of a mixture of public and private Infracos appears to have been left until late in the day and it is not clear that sufficient analysis has been undertaken of the impacts of such a mix on the overall value for money of the PPP deal.

153   LU16. Back

154   LU3. Back

155   Q251. Back

156   Q6. Back

157   Q555. Back

158   LU11B. Back

159   Q222. Back

160   LU14A. Parsons Brinckerhoff told theSub-Committee that the engineering standards had not been updated sufficiently prior to the start of the contracts and that this left London Underground Limited exposed to possible cost inflations if the standards changed at their request. Parsons Brinckerhoff estimated the cost of upgrading the standards to be between £5 and £10 million but this had been delayed due to budget constraints. Back

161   LU8. Back

162   LU10, LU13. Back

163   Q415. Back

164   Q562. Back

165   Q471. Back

166   LU3B. Back

167   The financial analysis for the London Underground Public Private Partnerships (2000-01) National Audit Office, HC54. Back

168   LU3B. Back

169   IbidBack

170   Q290. Back

171   The financial analysis for the London Underground Public Private Partnerships (2000-01) National Audit Office, HC54. Back

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Prepared 5 February 2002