Memorandum by Tube Lines (LU 13)
LONDON UNDERGROUND AND THE PUBLIC PRIVATE
1. The committee is seeking evidence from
all parties into an inquiry relating to London Underground Limited
(LUL) and the "Public-Private Partnership" (PPP). Tube
Lines thanks the committee for considering our submission.
2. Tube Lines is the "preferred bidder"
for the PPP for the Jubilee, Northern and Piccadilly (JNP) Lines
of LUL. Tube Lines will work in partnership with LUL (through
Infraco JNP, a company whose shares will be owned by Tube Lines
and LUL) to provide trains, tracks, signalling, stations and related
infrastructure in relation to the JNP network in order for LUL
to operate and provide the public with a modern and reliable metro
service. In order to achieve these aims, Infraco JNP will contract
with LUL for the provision of the JNP network assets.
3. Tube Lines is committed to LUL's defined
"Key Objectives" for the PPP that include:
stewardship of Infraco JNP to maintain,
renew and enhance trains, tracks, signalling, stations and related
infrastructure to progressively reduce and eliminate the existing
backlog in asset maintenance to deliver an overall improvement
in the asset health, capability and reliability of service of
the JNP network;
certainty and stability of the service
that LUL wishes to operate or provide;
flexibility, as may reasonably be
required by LUL, to alter the characteristics of the trains, tracks,
signalling, stations and related infrastructure that it requires
to meet the needs of the public over time; and,
consistency of the availability and
stewardship of the assets of the JNP Lines and close co-ordination
with the other parts of the Underground network to provide a safe
and reliable metro service.
4. Tube Lines was formed over two years
ago by subsidiaries of Amey plc, Bechtel Enterprises Holdings,
Inc., and Jarvis plc specifically to bid, win and then deliver
LUL's requirements under the PPP. The respective skills and expertise
of three of the most highly regarded operational and project management
organisations in the world are combined through Tube Lines with
Infraco JNP to create an infrastructure management company ideally
placed to deliver its obligations in the PPP.
5. The existing 2,400 employees within Infraco
JNP will be supplemented with a team of up to 100 extremely experienced
leaders, engineers and project managers drawn from our shareholders
and externally. These new additions will lead the change of Infraco
JNP from an organisation that has been deprived of sufficient
resources and operates with limited accountability to a dynamic
organisation with strong financial resources, direct accountability
and incentives to perform in accordance with the obligations of
the PPP and thereby deliver LUL improved performance and reliability.
6. Tube Lines has structured its approach
to respect the independence of Infraco JNP to deliver the PPP
without undue influence from its shareholders. Accordingly, each
package of work will be sourced independently and competitively
without "reserved roles" for the Tube Lines shareholders.
This will allow Infraco JNP to obtain the best technical solutions
for LUL consistent with the requirements of the PPP and take advantage
of advances in all areas, including signalling and trains.
7. The parties involved in the PPP agree
that they need to document and adhere to a set of common standards
so as to secure a safe, reliable and consistent operation of the
LUL services. Accordingly, under Tube Lines ownership, Infraco
JNP will adhere to the standards regime as defined by LUL and
included in the PPP.
8. At all times, Infraco JNP and LUL will
implement the PPP under the safety regimes established by Her
Majesty's Railways Inspectorate (HMRI). These parties will work
together to provide their respective employees, stakeholders and
passengers with a workplace, environment and transport system
where the existing commendable safety record is sustained and
progressively improved over time.
9. Tube Lines will have stewardship over
the JNP network for thirty years. To allow LUL flexibility to
set and adjust broad objectives throughout Tube Lines' stewardship,
the term is divided into four "Review Periods" of seven
and one-half years each.
10. Following years of under-investment,
the Underground network is in urgent need of modernisation. The
existing backlog in asset maintenance and required renewals has
decreased the reliability of LUL's service. At present investment
levels, the Underground network will not be able to sustain the
increase in passenger numbers and demand that is forecast over
the next ten years. In order to meet this demand and run a more
cost-effective Underground network, the train, track, signalling,
station, tunnels all require substantially greater investment
than has been provided over the past several decades.
11. Passengers on the JNP lines can expect
to notice progressive improvement in the standard of LUL's services
as a consequence of the programme of work Infraco JNP will implement
under Tube Lines ownership. Over the first Review Period, Infraco
JNP will invest about £2 billion in the assets of the JNP
networkthis is a threefold increase in the amounts expended
on the JNP lines in recent years. In addition, maintenance expenditure
will be increased by around 20 per cent when compared to recent
12. Our first priority for the JNP lines
will be to deal with the primary causes of the service unreliability
that can be addressed through improvements to the assets of the
JNP lines. This means an immediate and targeted programme to eliminate
signalling "pinch points," to replace track where its
condition requires LUL to impose speed restrictions and to reduce
rolling stock failures. While this early work is underway, Infraco
JNP will commence several longer-term projects designed to facilitate
more frequent train services, reduce delays and improve journey
time capabilities. For example, in the first 15 years, Infraco
JNP will replace all track on the JNP lines (with the exception
of the new track on the newly opened Jubilee Line extension).
In addition, Infraco JNP will progressively introduce new or refurbished
rolling stock as required by LUL under the PPP. These improvements
will result in a system capable of handling expected traffic growth,
while reducing over-crowding over time.
13. The most visible element of Infraco
JNP's work will involve the upgrade of every station during the
first Review Period. The extent of the work to be done at stations
varies greatly. Many older stations require "Modernisation"a
substantial package of works that in many cases is virtually a
rebuild of the station to reduce congestion, improve the environment
and enhance passenger safety. Key elements of Infraco JNP's station
improvements programme will enhance fire protection, extend the
availability of passenger help points, improve passenger information
systems on platforms, extend step-free access and carry out a
major escalator replacement programme.
14. The investment programme is designed
to meet LUL's performance targets as established in the PPP. These
targets set objective criteria that the performance of Infraco
JNP is measured against.
15. Infraco JNP will be a "single-purpose"
company that will be incentivised to ensure that its sole clientLUL,
a public sector body that will be controlled by Transport for
Londonremains satisfied with the performance of the JNP
network. Under the PPP Infraco JNP will not be free to do anything
other than implement the PPP. The PPP requires that, at the end
of the PPP arrangement with Tube Lines, LUL or a successor to
Tube Lines appointed by LUL is able to assume stewardship over
16. Under the provisions of the PPP, Infraco
JNP continues to have responsibility for the maintenance, refurbishment
and replacement of the basic infrastructure of the JNP network.
This includes track, trains, signalling, stations, tunnels, embankments,
drains, earthworks and bridges.
17. The PPP allows LUL to decide what has
to be done, when it has to be done by and the standards under
which the work must be delivered. Infraco JNP will use its best
engineering skills and judgement to implement LUL's specified
needs while maintaining the JNP network in a safe and reliable
18. The PPP aligns the goals of LUL and
Tube Lines in respect of delivery of service to LUL's customers
through a number of contractual means:
First, the payment regime encourages
Infraco JNP to deliver improvements earlier than it is contractually
obliged to and to deliver a higher level of performance in respect
of reliability and customer satisfaction than is currently being
Second, the payment regime provides
for substantial financial penalties if Infraco JNP delivers any
improvement later than its contractual obligations, lower performance
than required results from such improvements or Infraco JNP fails
to achieve the overall level of performance required;
Third, LUL can direct Infraco JNP
to take specific actions through a number of methods including
"corrective action notices" in the event a failure of
undertaking has occurredInfraco JNP's failure to rectify
the situation may lead to the termination of the contract for
Finally, London Underground reserves
the right to intervene in Infraco JNP's activities should there
be any breach in agreed safety standards or sustained deterioration
in safety performance.
19. It should be noted that, in each year
of Tube Lines' stewardship, as a safeguard to technical disagreements,
LUL retains a right to direct Infraco JNP to undertake a level
of work that it believes is critical to safety of the JNP network
or the public.
20. In the public debate over the PPP, some
commentators have suggested that it will recreate the separation
of responsibilities that exist on the national railways. This
LULthe single train operating
companyremains a public sector body and sets the standards
for the Underground network that the infrastructure companies
must comply with.
In contrast, the national railways
operate under the control of two regulatory bodies, three financial
companies provide rolling stock to 28 passenger or freight train
operating companies that provide service over the infrastructure
of Railtrack and 14 maintenance companies maintain such infrastructure.
Perhaps one of the key misconceptions
about the PPP has been that it splits responsibility for the track/train
or "wheel/rail" interface as occurs on the national
railways. Rather than do this, the architects of the PPP ensured
that, under the PPP approach, the three infrastructure companiesincluding
Infraco JNP under the stewardship of Tube Linesare responsible
for providing and maintaining all of the infrastructureincluding
both track and trains. The PPP establishes only three infrastructure
companies who provide and maintain rolling stock and infrastructure
for a single train operating companyLUL.
In summary, the multiple levels of responsibility
and interface that exist on the national railways simply do not
exist in the PPP where there is one client and only three service
21. Under the PPP, LUL retains overall responsibility
for the safe operation of the Underground network with powers
to ensure that Infraco JNP comply with all standards and the HMRI
approved Safety Case. LUL decide if and when the assets are safe
for use. Infraco JNP's Safety Case under its contract with LUL
will require Infraco JNP to apply mandatory standards to the maintenance
and inspection of assets, so that they are maintained to a defined
standard and that checks and balances are put into place to ensure
that they are handed over to LUL in a safe condition. If LUL decide
any parts of the JNP network, including trains, are unsafe for
use, the offending assets must be taken out of operation. Infraco
JNP is penalised for any failure to meet the LUL performance specifications
as a result of such events and is required to undertake immediate
repairs to put the asset into service again.
22. LUL, and Infraco JNP, operate under
an HMRI approved Safety Case. Infraco JNP must comply with the
Safety Case and with any Standards (including those relating to
safety) imposed by LUL. While Infraco JNP may request changes
to its processes, organisation, methods of working or to implement
new technology on the JNP Network, any such changes must be assessed
to ensure that risks continue to be managed to levels that are
as low as reasonably practical. Any such changes which would potentially
affect safety must be approved by LUL, HMRI or Railway Safety
Ltd as appropriate.
23. Unlike the practice on the national
railways, under the PPP, LUL, the public sector client for Infraco
JNP, formally accepts the JNP Network assets into service. This
applies both to the completion of maintenance work on existing
assets and to the introduction of new assets. We fully anticipate
that LUL will only do this when Infraco JNP has demonstrated that
it is safe to put the assets into service and that such assets
comply with HMRI's requirements under the Safety Cases. This also
includes assurance and requires that the management teams in both
LUL and Infraco JNP can prove through rigorous assessment the
competencies necessary to discharge their individual and collective
responsibilities for safety.
24. The PPP has been structured so as to
provide a good balance between financial risk transfer and value
for money. It allocates certain risks to partiesLUL and
Tube Linesdepending on who is best able to manage them.
As such, not all risks are transferred to the private sector.
Rather, some are retained in the public sector and some are shared.
25. In essence, the PPP transfers to Tube
Lines the risk associated with maintaining, renewing and enhancing
the trains, tracks, signalling, stations and related infrastructure
of the JNP network and providing LUL with a base capability and
reliability level for such network. Tube Lines has conducted over
one million man-hours of work to evaluate the condition of the
JNP network assets and assess the risks associated with providing
LUL's required level of service. Tube Lines is investing substantial
financial and human resources to deliver on Infraco JNP's commitments
that it is taking on under the PPP and risks losing all of its
investment in the event that Infraco JNP is unable to perform
against the requirements of the PPP.
26. The PPP provides substantial risk transfer
when compared with schemes where the public sector retains sole
responsibility for the delivery and maintenance of large, complex
projects and maintenance programs.
27. According to the National Audit Office,
the average cost over-run on the last 242 projects managed by
LUL (excluding the substantially greater percentage cost over-run
on the Jubilee Line Extension) has been 20 per cent. The investment
programme for the JNP network under the PPP over the first seven
and a half years is about £2 billion. On a programme of this
scale, a 20 per cent over-run would amount to £400 million
in additional costs. To put this into the context of overall LUL
finances, this equals around half of total fare box revenue of
the Underground Network.
28. Often the challenges that beset a public
sector entity are not simply related to execution but to establishing
the priorities and requirements clearly enough at the outset so
that progress and performance on large schemes can be objectively
set and measured. However, the delivery of large-scale investment
and maintenance programmes such as the Jubilee Line Extension
or the substantial programme envisaged under the PPP remains a
specialist task. This analysis led to the Government's decision
to develop the PPP, transfer substantial risk to the private sector
in a transparent contract and draw in private sector financing
and investment and the management attention that flow with such
capital. LUL has appropriately established a clear set of objectives,
priorities and requirements that provide Tube Lines and LUL a
clear benchmark through which to measure performance. As stated
above, the programme envisaged under the PPP remains a specialist
task, requiring the systems, techniques and management depth that
Tube Lines will bring to Infraco JNP.
29. The PPP provides a number of mechanisms
to allow LUL flexibility to adjust its requirements after Infraco
JNP is under the stewardship of Tube Lines.
LUL has an allowance of £30
million in each seven and one-half year Review Period from which
they can direct or instruct a minor change to the JNP network.
This would cover all incidental requests relating to the day-to-day
operation of the LUL service. The figure has been based upon historic
expenditure of this nature.
Over each Review Period, LUL can
instruct Infraco JNP to implement any change to the JNP network
or the contract between the parties to a value of £10 million
per year. LUL will pay this cost directly.
LUL has a number of "specified
rights", where the parties have agreed in advance that LUL
can direct Infraco JNP to undertake certain specified works (such
as those necessary for the interchange for the East London Line
and Canada Water redevelopment).
LUL can also request that Infraco
JNP undertake "Major Enhancements" to the JNP network,
where the current state of planning, approvals or understanding
of the future requirements of LUL necessitate that such enhancements
be introduced through co-operation between the parties at a later
stage to negotiate, finance and implement such enhancements and
the performance, cost and other consequences arising from them.
Examples of this would be the rebuilding of the JNP assets around
the new Wembley Park, should this be required.
30. Overriding all of these contractual
features, LUL has the ability to reset its objectives, priorities
and requirements at beginning of each of the seven and one-half
year Review Periods.
31. In order to ensure proper oversight
of Infraco JNP's activities, LUL will be provided highly detailed
performance and asset condition information and have extensive
rights to audit all information developed by Infraco JNP, save
for that which is agreed to be either commercially confidential
or a breach of the Data Protection Act (such as an individual's
32. Assurance will be a key feature in the
context of safety, with LUL auditing Infraco JNP's adherence to
its contractual safety case. As part of this process LUL will
be looking at the assurance/surveillance activities that are applied
to Infraco JNP and its contractors.
33. Additionally, LUL will nominate a "partnership
director" to sit on the Board of Directors of Infraco JNP.
Such partnership director will be afforded access to information
and contribute to all material decisions taken by Infraco JNP
in the execution of its obligations to provide the trains, tracks,
signalling, stations and related infrastructure of the JNP network
to LUL in a safe and reliable state.
34. The existing employees of Infraco JNP
have years of expertise and experience with the JNP network assets.
They will provide the continuity to allow successful delivery
of LUL's Key Objectives for the PPP and thereby a progressive
improvement in the asset health, capability and reliability of
service of the JNP network.
35. All the parties involved in Tube Lines
(Amey, Bechtel and Jarvis) and Infraco JNP are intimately familiar
with working with trade unions in the UK rail environment. Tube
Lines have met and discussed our proposals for managing Infraco
JNP with trade union representatives and look forward to working
closely with the trade unions to deliver LUL's requirements for
36. Our programme involves keeping Infraco
JNP together as one organisation, and we have no plans to reassign
or outsource parts of the workforce in any form of secondary transfer.
37. We have committed to meeting the assurances
the Deputy Prime Minister gave to Parliament relating to the right
of Infraco JNP employees to remain inside the LUL pension scheme
and to providing the same rights that non-transferring staff enjoy
in respect of the free travel benefits.
38. The future of the London Underground
Network as a revitalised public service, meeting the needs of
its passengers and contributing to the national and local economies,
has been clearly articulated by LUL. It has defined its objectives,
specified improvements and enhancements it requires to meet customers'
expectations and had the vision to look beyond its own organisational
boundaries to find ways and means to deliver. Through the mechanism
of PPP, the existing skills and expertise of its Infraco subsidiary
will be complemented by specific management experience in implementing
complex, large-scale infrastructure enhancement and maintenance
programmes. From securing funding, to implementing enhancements
on and maintaining the JNP network, to underpinning LUL's service
reliability, Tube Lines believes it will add value to the vital
public service provided by LUL by delivering on time and to budget,
to the mutual benefit of the transport authority and the travelling