Value for money
40. Tony Travers of the London School of Economics
estimates that £5-7.5 billion has been spent on the Tube
network in the past five years, which, he says, "is a huge
amount of money to have delivered—at
the very best—a
train service that's overall no different [from] when we began."[58]
41. In order to assess the relative value for money
of the PPP bids, London Underground (then under central Government
control through London Regional Transport) undertook an exercise
to assess what the work might cost if it were undertaken in the
public sector. London Underground acknowledged that its public
sector comparators were always subject to a high degree of inherent
uncertainty and therefore only gave limited assurance about the
reasonableness of the prices quoted by bidders.[59]
Broadly speaking, Tube Lines' and Metronet BCV's bid costs were
within the range of the projected public sector costs; for the
sub-surface lines, the Metronet bid cost was £500-1,000 million
less than the public sector cost for the first 7½ years.[60]
However, both Metronet companies ended up operating with significantly
higher costs than were anticipated in their bid and were projecting
a total overspend of around £2 billion by 2010. Some, but
not all, of those cost increases would have also been borne by
an organisation operating economically and efficiently, for example,
those arising as a consequence of the state of the assets.
42. The Committee of Public Accounts published a
Report on the PPP in March 2005 that was broadly critical of how
the PPP had been put together.[61]
The Report's conclusions included the following:
a) The PPP model might have been used only for
major upgrade work, rather than for both upgrade and maintenance.
b) Departments should not use the Public Sector
Comparator as conclusive evidence of the value for money of the
PPPs.
c) Issuance of a public sector bond should be
considered for financing future infrastructure projects in which
significant risk transfer to the private sector may not be achievable.
43. In our Report of 2005, we reserved judgement
on whether the private sector would upgrade the network more efficiently
and effectively than would have been the case through the public
sector. The major achievement of the PPP, we concluded, had been
"to ensure that the Government [committed] itself to providing
sustained funding for London Underground; a commitment which,
given the political will could have been made without any PPP."[62]
44. The Department says that it introduced the PPP
to utilise "the private sector's capacity […] to overcome
the investment backlog" and in order to "improve the
Underground, safeguard its commitment to the public interest and
guarantee value for money for taxpayers and passengers."[63]
However, given its complexity and associated administrative costs—some
£500 million has been
estimated as the cost of setting the London Underground PPP Agreements—and
the demonstrable uncertainty associated with 'private sector efficiency
gains', the value of paying
the private sector to manage public sector infrastructure projects
is crucially dependent on the level of risk transfer achieved
by the contracts, and it is clear that in the case of the Metronet
PPP Agreements the level of risk transfer achieved was not as
high as had been thought. [64]
45. The Government should not enter into any further
PPP agreements without a comprehensive and accurate assessment
of the level of risk transfer to the private sector and a firm
idea of what would constitute an appropriate price for taking
on such a level of risk. If it is not possible in reality to transfer
a significant proportion of the risk away from the public purse,
a simpler—and potentially cheaper—public sector management
model should seriously be considered.
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