4 Contract management
19. The deals are now in operation, but performance
outcomes can only be assessed definitively much later. It will
be 2015 before most of the capability upgrades are delivered,
and the Infracos are not required to get the assets to optimum
state and eliminate all the maintenance backlog until the end
of the third review in 2026, 22 years into the deals.[23]
The evidence about how the PPP contracts are being managed to
date shows that active contract management is essential to achieve
these goals effectively.
Management information
20. Improved knowledge of the system's assets is
needed to help the parties better manage the risk of problems
arising and bring greater cost certainty. Full asset knowledge
will be developed as the Infracos do remedial work on various
lines. Some of the long life assets, such as tunnel walls or embankments,
are very difficult to get at and all of them will need maintenance
and renewal at some stage. As their actual state is unknown it
is difficult to quantify the cost of that work. For example, the
sub-surface lines can be walked every night for inspection and
analysis, but engineers will only know if the tracks are stable
and safe once the lines are taken apart. There is an urgent need
for a thorough asset register to indicate which assets ought to
be repaired or replaced first. London Underground is pressing
the Infracos to develop full asset registers as early as possible.
21. London Underground said it needs more transparent
cost information from the Infracos, for example on the cost of
major capital projects. It said that initial information to date
from the Infracos was inconsistent and, in some cases, inadequate
compared to the greater level of detail that was available during
the bidding stages of the deals. For example, London
Underground does not yet know the extent to which the
Infracos are using their contingency allowances. These allowances
were included in the bid prices to cover potential but unspecified
risks. Rather than keeping these sums separate, as they were during
bid evaluation, they have been aggregated into Infraco general
budgets making it difficult to track the drawdown of such risk
funds. Tube Lines has expressed willingness to provide the arbiter
with a breakdown of how its general budgets are spent.[24]
Managing scope changes
22. London Underground has little or no leverage
to secure cost-effective changes to the scope of the contracts.
The Infracos have the benefits of being the sole suppliers of
infrastructure services to London Underground. They have already
invested in equipment and expertise and to bring in other contractors
would be very expensive. At 7½ year review, if London Underground
and the three infrastructure companies cannot agree a price for
the restated scope of works that London Underground wants in the
following period, then the matter can be referred to the arbiter.
The lenders are not obliged to provide new money for new requirements
and the suppliers would have to find a new source of finance in
those circumstances.[25]
23 Qq 3-4, 106; C&AG's Report (HC 644), paras A1.3,
Figure 2 Back
24
Qq 36-44, 75-76, 108-116; Ev 28-30; C&G's Report (HC 644),
Executive Summary, paras 11-12, para B3.1 Back
25
Qq 6-11, 107 Back
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