2 METRONET'S TIED SUPPLY CHAIN
13. A significant part of Metronet's obligations
under its PPP Agreements was intended to be delivered through
contracts with its shareholders with some 60% of its projected
capital expenditure in the first 7½ year period to be awarded
to its parent companies—Atkins,
Balfour Beatty, Bombardier, EDF Energy, and Thames Water. Other
than for rolling stock work, which was managed by Bombardier,
this was organised through another company, Trans4m, which was
in turn owned by the remaining four of the Metronet shareholders.
This structure has been widely recognised as having contributed
to the inefficiencies of Metronet, a conclusion which the Arbiter
reached in 2006.[18]
Metronet's former Chairman, Graham Pimlott, conceded that
I think that there is little doubt that in the
case of stations the contractual arrangements with the shareholders
was a very negative factor from Metronet's point of view. Metronet
had a contract with Trans4m, which was a contract that gave Metronet
very little in the way of leverage over Trans4m. It had to pay
money when bills were presented and it did not have the ability
to withhold it, for example for performance failure.
14. Outside the stations modernisation programme,
the problem also appears to have plagued Metronet's track replacement
work, which was contracted solely to Balfour Beatty, and the Arbiter
assumed during the Extraordinary Review that a notional Infraco
operating in an efficient and economic manner would not have had
Metronet's tied supply contract for track replacement.[19]
The contract was in the process of being renegotiated by Metronet
prior to administration. Conversely, Metronet's contract with
Bombardier for rolling stock upgrades appears to have been working
better. Mr Pimlott suggested this might have been because it was
more "output-based", whereas the stations contract was
more like a building contract.[20]
In fact, the Arbiter was satisfied that it was, on the whole and
following inefficiencies during the first two years of the PPP
Agreement, being operated efficiently and economically, and that
price increases were as a result of omissions from the bid.[21]
15. Metronet responded to concerns about the tied
supply chain by beginning to award contracts for station upgrades
outside the chain using competitive tendering.[22]
However, in September 2007 the Arbiter reported that Metronet's
issues with its supply chain had not been fully addressed prior
to the Extraordinary Review and Metronet's subsequent administration.[23]
He told us that "a well-managed company would have resolved
those issues well before Metronet started addressing them."[24]
Mr Pimlott agreed that
the problem was known […] The Arbiter and
London Underground and Metronet and the shareholders were over
a period of time trying to do something about it but they did
not get it done fast enough.[25]
16. However, his subsequent claim that he was threatened
with litigation when he tried to reduce the amount of work going
to the shareholding companies casts serious doubt on the suggestion
that the shareholders were committed to doing anything about the
problems caused by the tied supply chain.[26]
We are not persuaded that Metronet's shareholders had any inclination
to address the problem of the tied supply chain nor, as the intended
beneficiaries of the system, did they have very much incentive
to do so.
17. The Arbiter insists that it is possible to operate
a successful tied supply chain, although he stressed the importance
of a clear distinction between the roles of shareholder and supplier.[27]
However, he was also of the opinion that some of the problems
with the supply chain could have been anticipated.[28]
18. When the bids for the PPP contracts were being
assessed, it should have been possible for the Government and
London Underground, then under national control through London
Regional Transport, to foresee that Metronet's proposed tied supply
chain model, which guaranteed the lion's share of work to its
parent companies, did not include the necessary safeguards. The
fact that such a management structure was judged to be capable
of efficient and economic delivery seems extraordinary now that
Metronet has collapsed but the ultimate recipients of the money
which was paid to the company have walked away with limited losses.
The Government must not allow this blurring between the roles
of shareholder and supplier in future bids to carry out work by
the private sector. Bids where competitive tendering for sub-contracts
is proposed are likely to ensure that the best price is obtained.
18 Office of the PPP Arbiter, Annual Metronet Report
2006,16 November 2006 Back
19
PPP Arbiter, Initial Thoughts, 21 September 2007 Back
20
Q 179 Back
21
PPP Arbiter, Initial Thoughts, 21 September 2007 Back
22
"Metronet awards first six station projects outside of its
supply chain: further initiatives to accelerate programme",
Metronet press release, 23 February 2007 Back
23
PPP Arbiter, Initial Thoughts, 21 September 2007 Back
24
Q 9 Back
25
Q 199 Back
26
Q 227 Back
27
Q 42 Back
28
Q 57 Back
|
