Examination of Witnesses (Questions 220
- 235)
WEDNESDAY 9 MARCH 2005
MR PAUL
DAVISON, MR
ROGER HARDING,
MR PETER
HENDY, MR
PAT ARMSTRONG
AND MR
NEIL SCALES
Q220 Chairman: Could you give us
a note on that?
Mr Hendy: We will give you a note;
that is the easiest way.
Q221 Clive Efford: This is not a
question for you, Mr Hendy, it is a question for everybody else.
The powers that you have to achieve integration in transport outside
of London, if you are introducing a light rail or tram link, in
order to adjust the existing bus network, for instance, is that
a problem?
Mr Armstrong: We certainly do
not have any direct powers to adjust the bus network outside London.
Nottingham is fortunate in that the city council has retained
part ownership of the largest bus operator and we have had a very
stable bus market in Nottingham even after deregulation, and we
have worked very hard to do it through partnership, and even the
other large bus company in the conurbation has reduced its services
into the centre of Nottingham and now runs services to feed into
the tram at Hucknall. So it can work with partnership, competition
and commercial decisions rather than by directives in the public
centre. We do not have the powers but we have used every method
we can to persuade and encourage that sort of integration and
it has been successful. We are meeting our patronage expectations,
although admittedly it is still early days.
Mr Scales: On our rail network
we control the rail network, we are compelled to integrate with
the tram network when it is built, so the heavy rail side is okay.
Our ferry network we control directly so that we can integrate
the ferries with the trams on the Pier Head. On the bus network
there are over 30 bus operators on Merseyside and we have no control
over any of them. The only saving grace is that we tender 20%
of our network through Merseytravel and therefore we can weld
in those services at appropriate points. What we cannot do because
of the 1985 Transport Act is to replicate or duplicate any commercial
service. Therefore, if the commercial bus operators wish to compete
against us or wish not to serve those areas then there is nothing
I can do about it. The only saving grace is that end to end there
is no bus service in our corridor end to end, and this was examined
fully during the public inquiry, and the major bus operator, Arriva,
did not object to the scheme going in. So we will just have to
wait and see.
Q222 Clive Efford: On your scheme
you broke it up into small packages for the contracts. What are
the benefits of that?
Mr Scales: I get better control
basically. We have a contract with the operator and a contract
with the systems integrator and a contract with the civil engineers,
and a separate contract with the vehicle operator. So I have broken
it up so that I have better control. The only difficulty we have
with that is you have to be very careful on the systems integration
side, and that is the only benefit, in my view, of Pier 5 because
the systems have to integrate into Pier 5 or they do not get paid.
So we have something called a RAFA Agreement—a Rectification
and Fault Attribution Agreement—and that is like
an umbrella over the agreements I have, and that means the first
thing they do is fix the problem and the second thing they do
is the lawyers go in a room and slug it out with each other as
to who is actually liable to it.
Q223 Chairman: Another lawyer employment
scheme.
Mr Scales: Yes. We always get
two opinions, Chairman, so they can charge twice! The bottom line
is I have better control. So I have direct control of the vehicle
supply, direct control of the civils, direct control of the integration
and direct control of the operator.
Chairman: I think it is called divide
and conquer actually.
Q224 Clive Efford: Are you working
with the Department of Transport on this and are they sharing
information with you from other schemes that may be taking a similar
approach?
Mr Scales: I have no problems
at all with the Department working with them. I do not know whether
we are sharing that information, but we are happy to share it
with anyone.
Q225 Clive Efford: Has anybody else
experience of using a similar method that Mersey uses?
Mr Davison: Not in the same industry.
In the defence industry it is done in a very similar way, they
call it Weapon System Integration.
Q226 Chairman: I do not think we
necessarily want to follow that example! Nottingham?
Mr Armstrong: Ours is a one-off
contract and we have looked at the possibility of breaking it
down and we feel that that fundamental problem of integration,
if integration does not work and the public sector takes that
risk, is that frankly we do not have the appetite for that and
feel that we have been successful with Line 1 in having that risk
with the consortium, and they have been reasonably content with
taking it.
Q227 Clive Efford: Do you have the
ability within your contract to be able to beat down prices in
the way that the smaller contracts can by increasing competition?
Mr Armstrong: With the contract
we already have, no, it is a done deal; but certainly with the
way we are looking to do it in the future is to have a similar
way possibly to the Edinburgh system to get someone in, to get
a concessionaire or part of the concessionaire in very early and
beat down the prices by reducing the risks and ensuring that the
ultimate contractors have a lot more knowledge about what those
risks are and how to manage them.
Mr Hendy: I have to envy my colleague
from Merseyside for his boundless optimism because the nearest
thing I can think of to any relationship in London similar to
that he described are the dreaded PPP contracts, which employ
innumerable lawyers. I think that actually there is an elegance
in having the smallest possible number of people involved in service
delivery. One of the things we do like about the present agreement
with Croydon is that it is one concession company which is totally
responsible for delivering the output of the tram system, and
that actually does have a relevant consequence which is that we,
as the representative of the public, can expect total performance
from the contractors. Whilst we would probably choose now to divide
up the future contract in a different way it would certainly worry
me to have more parties in there than we needed.
Q228 Mr Stringer: Mr Scales, you
talked about problems that there might be from bus competition
in the deregulated system. The Department in its evidence says
that competition from buses can reduce the progress of light rail
but only if it is meeting some customers' needs better. Do you
think that is a fair comment by the Department?
Mr Scales: I think, Mr Stringer,
it is a comment by the Department. I feel the National Audit Office
report recommendations on that about getting a single operator
in that corridor is something I am working towards, because if
we can get all modes of transport to integrate on tram corridors
what will happen is that the whole transport market will grow
and everyone will benefit, rather than having wasteful competition.
On our particular corridor, the Merseytram Line 1, there is no
single bus operator operating end-to-end and there are no services
end-to-end—bus operators come in and go out. So whether
it is a fair comment or not, it is a generalisation, but it is
probably a good generalisation but does not work on Merseytram
Line 1.
Q229 Mr Stringer: Are vehicle costs
for trams in the UK much higher than they are on the Continent?
Mr Davison: The cost of purchasing
vehicles?
Q230 Mr Stringer: Yes.
Mr Davison: Certainly in the case
of our vehicles they probably were, but then the vehicle build-up
was part of the consortium that actually promoted and others financed
the scheme. Therefore, they get some of their profit through charging
top-notch prices on their vehicles. We have talked about the odd
vehicle we might get from Mersey, but if we also went to Cologne
as Cologne are buying 69 vehicles and said: "Could we get
the 70th of the same vehicle that they are buying", of course
we would get it at the same price as was offered to Cologne; there
should be no difference in the price because there is, effectively,
no difference in the specification, apart from one or two minor
tweaks you need to make to the disabled access provisions special
to the UK, but it is very, very small beer.
Mr Scales: I think it is a function
of small batch sizes. As an ex-manufacturer, if I was building
five buses or 100 buses the effort in designing the bus is the
same. It is a fact that the UK has got a very small batch size
and on the Continent they have got very big batch sizes. I think
my colleague on my right is correct, it is because the manufacturers
have got a very small market, very small batch sizes and so prices
do go up inevitably.
Mr Armstrong: Certainly with our
system, we were buying a relatively new tram that had only been
used in one other place in Europe. The manufacturers did have
some problems with things like the Disability Discrimination Act
requirements and the special requirements of the Railways Inspectorate
of the UK—although I am not sure that made a huge difference
in the price. I think, now the market is more established in the
UK, those problems should reduce.
Q231 Mr Stringer: There are no extra
costs to building to heavy rail standards, or do you expect extra
costs because of the new specifications the Health and Safety
Executive are considering bringing in?
Mr Scales: The buffing loads on
the end of a tram are at their higher end; these buffing loads
are at the lower end for those on heavy rail, so I do not think
buffing loads are a problem. I think the issues tend to be more
in terms of the Disability Discrimination Act requirements or
whatever HMRI want. It is more to do with those than anything
else.
Q232 Mr Stringer: Can you be more
specific about the last point?
Mr Scales: On HMRI, for example,
in another life I have bought the trams for Metrolink Line One,
and we did a lot of work on those trams. The HMRI wanted to make
them more distinctive for the streets of Manchester and made us
put this huge headlight at the front of the vehicle. We could
not understand it because a tram that is 30 metres long and 2.5
metres wide and 3 metres high is pretty distinctive as far as
I am concerned, but we ended up putting these huge headlights
at the front just to satisfy the HMRI, for example.
Mr Hendy: I think, if I may add,
that is now reasonably well understood. I think the important
point for the Committee remains the difference in batch size.
Continental and European operators are buying trams in dozens
at a time; that is the real and fundamental difference.
Q233 Chairman: So economies of scale.
I just want to ask one final thing: you are supposed to be easy
on the utilities; you have not been negotiating the proper deals
when the utilities need to be diverted. Are you in a position
to challenge the estimates of what needs to be done? Mr Hendy,
you seem to me to be a man capable of screwing people down.
Mr Hendy: One of the excessive
costs of all these schemes is the amount of money it costs in
utility diversions. I would be surprised if you could find anybody
who has been involved in delivering one of these schemes in the
last 25 years who did not find themselves in a position of believing
that they paid for a lot of additional utilities work that in
normal circumstances would have represented the maintenance and
the renewal of utilities but, with the tramway scheme, had not
come forward. The proportion of the cost which now has to be borne
in the tramway scheme is now 93%, I think, which is no incentive
for utilities to minimise the amount of utility replacement. I
think one of the things that we are giving some thought to—and,
to give the Department credit, it is likely to support us—is
looking at new track forms which might enable us to get round
the necessity of the utilities wanting to replace complete streets
full of pipes of various sorts when, actually, if you were indulging
in road reconstruction or bus lanes you would never dream of replacing
any of them.
Q234 Chairman: Do you agree with
that, Mr Scales?
Mr Scales: Yes. We have spent
a lot of time on the utilities, a full three-and-a half, four
years, and then we also went and took all C3 and C4 costings.
A C3 costing from a utility is an estimate and a C4 costing you
can rely upon more. So all the costings on Merseytravel are C4
costings. I have seen C3 costings in other places go—for
moving a water main, for example—from £2 million to
over £10 million on the C4 costing. So you have to get the
C4 costings. The point Mr Hendy has made is absolutely correct;
we used to get 12-14% betterment back from the utility (once we
had moved it they would give us a rebate) and now that is only
7%. So that figure actually causes a lot of difficulty on trams,
particularly in Greater Manchester where they are moving millions
and millions of pounds worth of utilities; to reduce the betterment
from 14 to 7% just puts that straight on the project. I think
the utilities do get a good deal out of it because—
Q235 Chairman: I do not think we
were doubting that they got a good deal out of it; we were ensuring
that you, perhaps, were a bit better at negotiating a less good
deal.
Mr Scales: I think you can rely
on me, Chairman, to get the best deal I possibly can.
Chairman: On that joyous note, thank
you very much gentlemen. It is always very helpful; we are very
grateful to you.
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