Summary of PPP Performance Regime
The PPP performance regime taken as a whole
is staggering in its complexity. And deploying itplacing
the very future of the Underground and indeed London's lifeblood
and economy at its mercyis a risky endeavour and a dangerous
Consider the historic models of how other aging
metro systems have been turned around. Putting it simply, problem
areas were identified by management, various capital works and
maintenance solutions were identified and prioritised by management,
and were then implemented, often by private contractors. The contractors
would be paid as they delivered desired products, and would be
responsible if the products did not work as promised (warranty
and reliability requirements). Given stable funding, the record
is clear. These programmes work.
Under PPP, the Infracos will be paid by LUL
for maintaining the trains, stations, track and signals under
contract for 30 years. LUL will continue to staff the stations
and operate the trains.
However, the PPP contract does not provide for
payment to the Infracos based on concrete deliverables such as
a new fleet of trains or carrying out specific and routine track
Instead, LUL is forced to pay the Infracos on
the basis of how the Underground is performing, and whether the
Infracos are responsible for the improvement or deterioration
of that performance. How the Infracos attempt to deliver the performance
specified in the contracts is almost entirely up to the Infraco.
Because there is no agreed checklist of work
that the Infracos have to deliver, LUL has had to develop a "performance
regime" to judge how well or badly the Infracos are doing
their job. This regime attempts to measure thousands of minute
aspects of the Underground's operation that affect journey times
and ambience and other elements that comprise the "Underground
Experience". Once the data is collected and agreement is
reached on who is responsible for what "incidents" arising
on the Underground, the relevant data is plugged into numerous
complex formulae to determine whether the Infraco's performance
meets a set of benchmarks laid out in the contract documentation.
This regime will determine the payments (both penalties and bonuses)
that LUL makes to the Infracos.
This, in order to quantify the Infracos' performance,
LUL has had to create and incorporate into the contracts:
A very complex mathematical model
of the entire Underground system;
and a system for attributing responsibility
for "incidents" on the system.
The complexity of creating a mathematical model
of the entire Underground system and all its parts has led to
the creation of an equally complex and unwieldly system of gauging
the performance of the Underground based on that model.
"The idea of incentivising Underground improvements
almost purley through operation of a mathematical model that captures
thousands and thousands of minute elements of Underground performance
is fascinating to think aboutin the abstract. However,
it is reckless to experiment with implementing such an untested
ideaand to bind yourself to the experiment for thirty years."
The explanation of the performance regime, and
how it is to be implemented and administered is not kept in one
volume, and is to be found variously in:
the 200+ page Performance Measurement
the Service Output Schedules;
Line Specific Performance Measurements
Nominally Accumulated Customer Hours
(NACH) Tables; [which TfL has not seen]
Capability Model; [which TfL
has not seen]
Performance Payment Mechanism Schedules.
Determining key elements of the performance
regime also requires extensive cross-referencing to other lengthy
and equally complex documents.
The mathematical model LUL intends to use is
far from simple, and "Very complex" is an understatement".
For example, the formula to determine the `Ambience'
or the state of the Underground environment is
There appear to be a large number of these formulae,
with a vast array of inputs needed to perform the calculations
ranging from litter to lighting to quality of staff facilities.
On top of this "there will be thousands
and thousands of incidents to evaluate every month, just
to execute one facet of the multi-faceted performance regime."
These range from an out of service escalator to whether the Infraco
is responsible if a staff toilet becomes blocked due to inappropriate
materials being flushed!
PPP has even attempted to quantify and qualify
the state of litter and cleanliness on the Underground in the
minutest detail. There are even instances where litter is not
litter. If it's less than the width of a Tube ticket is does not
count. The amount of chewing gum on station walls must be measured.
Then the relative importance of the dirt given its location and
its degree is measured by weighting formulae.
"Is there a document that explains in plain
English the relative weightings of ambience factors? For example,
how will "very clean train seats with only minor areas of
dirt or `dull appearance' affect payments to the Infracos relative
to `some areas of dust, dirt or staining, eg, dirt build up in
corners and crevices' in the station ticket hall? What is the
relative weight of graffiti in the ticket hall to non-scratched
graffiti in the trains?"
The PPP contracts, it is claimed, are designed
to incentivise the Infraco to be rewarded for good performance
and be penalised for poor performance. However, "the performance
regime is also rife with opportunities for the Infraco to play
The system of attribution "provides a disagreeable
Infraco ample opportunity to challenge and/or delay being held
accountable for any incident"a potentially lengthy
ten step process, eventually ending up in a Court of Law,
is laid out in the contracts"and, as we read in the
contracts, the incident doesn't even go into the hopper for payment
purposes until any dispute over responsibility for the incident
is settled. Very realistically, this could be years."
LUL's own presentation documents on the performance
code admit that there "will be [a] degree of `horse trading'
during attribution"meaning it is acknowledged that
an Infraco can try to mitigate its financial responsibility for
individual incidents on the Undergroundtherefore breaking
the very link that meant an Infraco would be penalised financially
for poor performance.
Contrary to statements from DTLR this October
in their document "Your Tube: Publicly Run, Privately Built",
the Infracos will not be charged for each train delay or
escalator failureinstead the specific performance of an
Infraco is averaged out over a period of three (or for
speed restrictions six) months. Even if there has been a significant
failure attributable to the Infracos, they may escape penalty
if their average performance over the time meets the specified
benchmark for overall performance.
"Only if the three month average exceeds
the benchmark level of permitted customer delays will the Infraco
begin to pay anything for this type of problem in perfomance.
Indeed, if they are above `benchmark' (which we understand will
be 5 per cent below current performance), they will get
a bonus. Imagine that. Service reliability deteriorates below
what it is today and a bonus is paid?"
"The Infracos will control much of the information
that is necessary to evaluate the cause of incidents that are
to be input in to the various formulae."
For example "the most recent draft of the
documents provided that the Infraco identifies a pool of
trains from which test trains may be selected. Fully 40 per cent
of the trains in a fleet can be kept out of the poolallowing
the Infraco to have only its better trains count for this critical
measure driving their own compensation."
"Infracos have far too much control over
the test process. They design the test programme, and they can
retreat to the lengthy dispute resolution procedure if they are
unhappy with any LUL objections to that test programme."
The performance regime is replete with contract
terms that are generous to the Infracos, some of which appeared
in the documents only recently, after the Best and Final
Offers and selection of preferred bidders. In earlier correspondence
Mr Kiley warned that the loss of leverage by naming bidders prematurely
could lead to precisely these types of outcomes.
For example, originally LUL provided that it
would have the right to choose the trains that would undergo testing
as part of journey time capability measurement. The selection
of trains can have an enormous influence on test results. Now
the contracts allow the Infracos to exclude up to 40 per cent
of the trains from the testsproviding an opportunity to
avoid testing the weakest performing lot.
In another section of the contract, we found
a change to the formula for adding up Service Points for fault
rectification delays that appears to give each Infraco a sizable
allowance of Service Points for such delays (which the Infracos
accrue for poor performance)over 40,000 per four week period
in the case of one Infraco and approximately 30,000 per four week
period for each of the other Infracos. This appears to add up
to a waiver of well over £2 million per month for one Infraco
alone, and over £1.5 million for each of the other Infracos.
It also appears that instead of only docking Infracos for poor
service, the Infracos are now allowed to build up credits against
service failures if they manage to rectify other faults ahead
of contractually specified deadlines.
In yet another section, the Infracos appear
to have won relief on many targets for overall condition of assets.
At the time of BAFO 50 per cent of
open section rail on one line was permitted to be in "D or
worse condition" at the 7½ year mark. Only E is worse.
Now fully 100 per cent of open section rail on that same line
is permitted to be in "D or worse condition" at the
7½ year mark.
BAFO requirement: 46 per cent of
"sleepers and base concrete" in tube sections on one
line could be in D or worse condition at 7½ years. Preferred
Bidder revised requirement: 92.5 per cent.
BAFO requirement: 0 per cent of viaducts
on one line could be in E or worse condition at 7½ years.
Preferred Bidder revised requirement: 7 per cent.
What persuaded LUL to adopt these and other
reductions in Infraco obligations so late in the game? Will the
ongoing negotiations result in additional degradation?
Is this any way to run a railway? How
effective can a system like the performance measurement regime
be, when the process for imposing penalties for shoddy Infraco
performance is so convoluted and so attenuated from day to day
"If PPP is concluded and TfL inherits
the Tube, I will be explaining to delayed Tube passengers that
their experience was or was not attributable to the recently privatised
Infracos based on the application of these formulae!"
"Words simply cannot begin to accurately
convey to complexity of this mathematical modelling of the Underground,
and the inherent risks it represents. I am deeply disturbed by
the prospect that the riding public in London, indeed the very
economy of London, will be held hostage to this model and the
inevitability continuous battles that must be fought as the private
sector attempts to eke advantage from it."