2 Major works
5. As the National Audit Office says, "Whether
the PPPs will deliver real benefits to passengers, and provide
appropriate returns on investment, will be determined over the
30 year life of the contracts".[4]
Affordability constraints mean that many of the major improvements
sought from the PPP have been deferred until after the first 7½
year contract period, when pricing and terms will need to be renegotiated.
[5] Mr O'Toole told
us that this delay meant there was a risk that future funding
from Government would be withheld.
What I do not want to happen is for people to
get to the seven and a half year period and say, just when we
are about to get all this rehabilitated kit delivered, "You
know, it actually did not get that much better. Why would we want
to put more money into that?" I want to make sure people
are bought into the schedule that we have all agreed to.
[6]
6. The Government set an affordability threshold
for the London Underground PPP which meant that work had to be
delayed until after the first seven and a half year contract period.
The Transport, Local Government and the Regions Committee warned
that there was a real prospect that this would recur at future
reviews: it must not happen.
7. Ensuring that the Tube gets the major upgrades
it needs is not the same as paying any price that the private
sector demands. There is potentially a problem in securing a fair
price for upgrades: many of the major infrastructure companies
which could undertake them are currently involved in the PPPs.
There has already been some experience of this circular relationship.
Under the current contract, London Underground has the right to
specify extra works, which can be undertaken either by the relevant
infraco, at a price negotiated between the parties, or by a third
party. Transport for London has published a Report on the first
year of the PPP which makes it clear that there have been delays
in securing additional services and works through the infracos,
and that some of the costs have been considered excessive by London
Underground.[7]
8. We discussed the contract for improvements to
Wembley Park Station which had been carried out by Tube Lines.
Although the high cost of this project was caused in part by the
need to complete the work in time for the opening of the National
Stadium,[8] Mr O'Toole
was clear that he had effectively had a choice of one supplier
and that he did not wish to be in that position again.[9]
To prevent it, London Underground is putting in place framework
agreements with alternative suppliers, to ensure competition in
future.[10]
9. A further complexity is that there was too little
knowledge about the state of some of the Underground's assets
to price their maintenance. Although this is a risk for the private
sector, the periodic reviews provide a mechanism for the contract
to be adjusted as more becomes known about the risks involved.[11]
The PPP contract provides for an Arbiter to set a price for the
work specified in a particular review period if the two parties
to the contract cannot agree. The Committee on the Environment,
Transport and Regional Affairs noted:
We are concerned that the incumbent infrastructure
companies will be in a strong negotiating position to press for
more favourable terms when performance requirements are reviewed
at 7½ year intervals. The operating company and the arbiter
must be given sufficient powers to prevent the infrastructure
companies from exploiting their positions and to ensure that their
charges are fair and reasonable.[12]
The National Audit Office has also commented that
"the lack of competition in the Tube PPPs - two companies
running three Infracos - may reduce the Arbiter's ability to collect
comparative data."[13]
We strongly support London Underground Ltd's initiatives to establish
alternative suppliers to the infracos for infrastructure improvements.
Not only will this help to reduce the cost of additional works
in the short term, it should help the PPP Arbiter determine a
fair price for the PPP if there is disagreement during the future
reviews.
4 National Audit Office; London Underground: Are the
Public Private Partnerships likely to work successfully?, HC (2003-04)
644, 17 June 2004, p 8 Back
5
HC(2003-04) 645, paras 2.14-18 Back
6
Q 108 Back
7
London Underground and the PPP: The first Year 2003/4, TfL, June
2004, p21 Back
8
Q 75, Q109, Ev 58 Back
9
Q77 Back
10
Qq 71, 77 Back
11
HC(2003-04)645, para s 2.26-2.27, para 4.11 Back
12
Fourteenth Report of Session 1999-2000, Funding of London Underground,
HC 411 para 46 Back
13
HC 644, p 55 Back
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