Memorandum by The Chartered Institute
of Logistics and Transport (UK) (LR 96)
INTEGRATED TRANSPORT: THE FUTURE OF LIGHT
RAIL AND MODERN TRAMS IN BRITAIN
1. THE COSTS
& BENEFITS OF
LIGHT RAIL
1.1 Costs
1.1.1 Costs of light rail schemes have,
quite rightly, come in for a lot of criticism recently. To determine
why costs have risen so much it is necessary to identify the principal
cost heads, which are: Promotional Costs, Bidding Costs, Construction
Costs, Operating and Maintenance Costs, Funding and Fee Costs.
Under a number of these headings there is also the pricing in
of risk, technical, legal or financial. Contingency allowances
and risk are brought in at each stage and thus compound any basic
cost increases. In part, this is due to the inappropriate allocation
of risk by or to the parties involved. In part, it is due to the
methods by which British LRT schemes are procured.
1.1.2 Promotional Costs are those incurred
by the Promoter and include all the pre-planning necessary to
determine the route of the scheme, location of stops and depot.
It includes details of vertical and horizontal alignment, preparation
of Book of Reference and an Environmental Impact Statement, ie
all the work necessary to obtain an Order under the Transport
& Works Act 1992. Thereafter is likely to follow a Public
Inquiry. It also includes appraisal work in order to obtain government
funding approval in principle/PFI credits. This is an excessively
long and complex process which should be simplified. This would
reduce both cost and timescale.
1.1.3 Bidding Costs are those incurred by
the Consortia bidding to design, build, finance, operate and maintain
the LRT scheme for the concession period. (Alternative arrangements
are considered in Section 5.) Functional system specifications
will have been prepared by the Promoter and it is then for each
Consortia to prepare designs in sufficient detail for cost-estimates
to be prepared. Time is of the essence because of the competitive
nature of the process. Accurate costing, based on sufficient information,
may be difficult to achieve and therefore be covered by contingency
or risk allowances.
1.1.4 Construction Costs include all the
infrastructure works and vehicles to operate the LRT system. Such
systems are complex and, particularly where street-running is
involved, have many interfaces, eg tram priorities and traffic
management. This requires extensive consultations and variations
to work done at earlier stages. Costs can easily escalate and
construction plans become extended. There are many interfaces
and good project management is essential. It is of note that each
LRT scheme in Britain has been built by a different Consortium,
suggesting that experienced Consortia may have priced-in their
experience and thus priced themselves out of the bidding.
1.1.5 Operating Costs come under two headings:
Pre-operational Costs involved in setting up the operational arrangements;
recruiting and training staff; testing and commissioning the system
and trial running. The second heading is the steady-state costs
of operating and maintaining the system, which are principally
a function of the Promoter's operating specification. Consortia
have some freedom to determine fare levels which influence passenger
usage and income. LRT and tram schemes outside Greater London
operate in a competitive environment. It is very difficult to
assess, with any degree of reliability, the effect of bus competition.
Debt financiers will not take risk on revenue forecasts and this
has required more equity at higher margins. Conversely, the Promoter
will have gone for optimistic passenger forecasts to justify the
scheme. Promoters also have regard to the social benefits such
a scheme would be expected to generate, but these social benefits
do not normally produce a financial benefit for the Consortia.
1.1.6 Funding and Fee Costs. Funding costs
tend to be higher than for public sector borrowing, although capital
costs in traditional PFI/PPP are lower than in classic public
sector procurements. Fee Costs are a considerable element in all
UK LRT schemes because they are undertaken by private sector Consortia
who are expected to carry considerable risk. Furthermore, the
contractual arrangements between the various members of each consortia
and their sub-contractors, require very extensive and complex
contractual documentation, all with their own termination and
penalty clauses. This is an area where there is potential for
simplification and cost reduction.
1.2 Benefits
1.2.1 LRT and modern tram schemes offer:
— safe, fast, reliable, frequent services
— overall, environmental benefits
— accessible stops and vehicles for
easy use by all
— improved public transport "offer",
at reduced cost compared to any heavy rail service they may replace
— ability to attract motorists out
of their cars
— assistance in the regeneration of
run-down areas
— comprehensive passenger information
system
— efficient use of road space.
1.2.2 An LRT "package" would normally
include a high level of segregation from other transport by having
its own dedicated right-of-way. It would also have priority over
other traffic when running on-street. A comprehensive passenger
information system also comes as part of the package. Many of
these features are "add-ons" to bus systems.
2. WHAT LIGHT
RAIL SYSTEMS
NEED TO
BE SUCCESSFUL
2.1 To be successful LRT/modern tram systems
need to:
— be fully integrated with other public
transport
— have adequate park and ride provision
— be well related to existing and future
land-use developments
— have a high degree of segregation
— offer quick journey times
— have reasonable passenger flows upwards
of 3,000 pphpd.
3. HOW EFFECTIVELY
IS LIGHT
RAIL USED
AS PART
OF AN
INTEGRATED TRANSPORT
SYSTEM?
3.1 Outside Greater London Britain pursues
a unique public transport policy amongst developed nations, particularly
our Continental competitors. In these cases (in London, abroad
and elsewhere in Britain until about 1985), LRT provides the backbone
to an integrated public transport where bus plays a complementary
role, rather than a competitive one. This is how Tyne and Wear
Metro was conceived and operated very successfully until the 1985
Transport Act deregulated provincial public transport. Dockland
Light Railway (DLR), apart from being fully segregated, was fully
integrated into—indeed was the catalyst—for the redevelopment
of Docklands. It has gone from success to success. Similar comments
apply to Croydon Tramlink, although its financial performance
has been disappointing to its Concessionaire, where bus services
were unsatisfactorily restructured around the new system.
3.2 Conversely, all other schemes—Manchester
Metrolink, Sheffield Supertram, Midland Metro and Nottingham Express
Transit—operate in a very competitive environment, which
was not the wish of their Promoters. The Competition Act and its
interpretation by the Competition Commission and the OFT, also
adversely affects the integration of public transport. These issues
need to be addressed. Furthermore, there is no formal link between
LRT Promoters (usually PTAs/PTEs), land use planning and highway
authorities, further hindering the development of LRT schemes.
4. BARRIERS TO
THE DEVELOPMENT
OF LIGHT
RAIL
4.1 The barriers to LRT development have
been touched upon in Sections 2 and 3 but are summarised here
for convenience:
— lack of integration with the rest
of public transport network
— lack of integration with land-use
planning
— insufficient priority when running
on-street
— inadequate car parking provision
— the Competition Act and its application
— cost and timescale of implementation
(x-ref Section 1)
— the procurement methods adopted more
recently (refer to Section 5).
Most of these were well-identified in the NAO
Report (23 April 2004).
5. THE EFFECT
OF DIFFERENT
FINANCING ARRANGEMENTS
(PUBLIC/ PRIVATE)
ON OVERALL
COST OF
LIGHT RAIL
SCHEMES
5.1 It is generally accepted that the cheapest
way of procuring any major investment in public transport is for
it to be procured by a public authority and built and operated
by the private sector following competitive tender. Public authorities
have cheaper access to money and are more able to take some of
the risks. Such an approach, of course, has implications on the
PSBR and in recent times has been unacceptable to HM Treasury
and successive governments. So whilst Tyne and Wear Metro and
DLR were publicly procured—the former under "classic"
arrangements and the latter by way of a turnkey DBOM contract,
and remain in public ownership—Metrolink and subsequent
LRT schemes have until now been procured by some PPP/PFI formula.
The actual contractual arrangements have varied from: DBOM (Design,
Build, Operate & Maintain) to DB:OM; DB Finance DM, DB Transfer
Operate. These are highly complex arrangements, difficult and
costly to establish, and requiring skilful project management.
5.2 LRT & modern tram systems are, inevitably,
complex projects, calling on many design and building skills.
The operational requirements must be input from the start of the
process and continually borne in mind. There are many interfaces,
all of which must be skilfully managed, if the scheme is to be
delivered on-time, on-budget and "fit-for purpose".
The British have found this very difficult to achieve, hence the
current attitudes to LRT. Furthermore, this approach precludes
any degree of standardisation or commonality of equipment or componency—adding
further to cost and unreliability. There is no element of transfer-of-knowledge
from one scheme to another, although the proposed UKTram umbrella
organisation should improve this. This is in marked contrast with
Continental developments, particularly in France where 10 schemes
have been built, compared to five in Britain—in the same
timescale.
6. THE PRACTICALITY
OF ALTERNATIVES
TO LIGHT
RAIL, SUCH
AS INCREASED
INVESTMENT IN
BUSES
6.1 The bus has a lot of good features and
is often maligned. Buses range from minibuses to megabuses, with
midis, single and double-deckers and artics in between. They can
be diesel or electrically powered, or hybrid. However, all
buses suffer from the same problem. They share their road
space with other traffic. Whilst some local authorities have shown
a willingness to provide bus priorities, many have been very slow.
Continuous lengths of bus lane or busways are virtually non-existent
in Britain. The policing of bus lanes is also poor, with regards
to keeping them free flowing. Buses are rarely given priority
over other traffic at traffic signals. Until these issues are
addressed seriously buses will never offer the quality and reliability
of service and absence of bunching, which is the accepted norm
of LRT or modern tramway operation.
6.2 By its very nature LRT is a system offering,
in one package, the benefits shown in paragraph 1.2.1. Even with
bus-only lanes or busways, guided or otherwise, all the basic
features of LRT come as extras to bus-based systems. However,
well-developed buses can never offer either the commercial or
social benefits that can be delivered by LRT. Promoters of LRT
systems will have already undertaken comparative studies before
even embarking upon their LRT scheme. DfT will have been involved
at every stage. There is no point in asking them to "to go
back to the drawing board" to revisit a bus-based scheme
when they have already carried out the comparative evaluation.
If the affordability to public funds is the issue, then in addition
to focusing on the causes of cost increases referred to in Q1
and achieving reductions, consideration should be given to rephasing
the scheme.
March 2004
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