VI. IMPLEMENTATION ISSUES
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
Ibid. Back
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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