Supplementary memorandum from Transport
for London (TfL) (UPP 06a)
I am writing further to the evidence that Richard
Parry and I gave to your Committee on 9 December 2009. In the
light of subsequent events and evidence from other witnesses,
I think it is important to clarify and expand on a number of issues.
1. TUBE LINES'
COSTS
It was suggested by a number of other witnesses
that Tube Lines' costs for maintenance and upgrade work are, and
will continue to be, less than those of London Underground (LU).
However, this is not substantiated by any objective analysis of
the available information.
As Richard Parry pointed out on 9 December,
it is important to make meaningful comparisons, taking into account
amongst other things the position inherited from Metronet and
the nature and condition of the assets. I enclose a paper considered
on 10 December 2009 by the TfL Board which sets out a more detailed
analysis of this issue. You will note the conclusion that, notwithstanding
the legacy of Metronet's inefficiencies, LU has subsequently achieved
significant efficiencies and costs reductions, and that its projected
costs going forward are comparable with or better than Tube Lines.
The latter point is salient. Since your Committee
met, the PPP Arbiter has published his Draft Directions on Tube
Lines' costs for the second contract period. He effectively rejected
Tube Lines' evaluation of the costs; his draft determination is
that the economic and efficient price for improving the Tube over
the seven and a half years from mid-2010 to 2017 should be £4.4
billion, rather than the £6.8 billion originally sought by
Tube Lines, or the £5.75 billion they subsequently reduced
their evaluation to.
The Arbiter's determination is much closer to
LU's evaluation of £4.0 billion.
Clearly LU will be working with the relevant
parties ahead of the Arbiter's confirmation of his directions
in March 2010 in order to address any funding shortfall that remains
at that time. However, I remain of the view that any additional
cost to LU over and above its budgeted costs should be met by
Government, who imposed the PPP structure on London, in order
to ensure the vital improvements in Tube reliability and capacity
promised by the PPP can be delivered in full.
2. JUBILEE LINE
UPGRADE
The TfL Board also considered a PPP Update
paper on 10 December 2009, which among other issues sets out
the latest position on the Jubilee line upgrade. This is enclosed.
You will see that the paper highlights the importance
of Tube Lines setting out, and then adhering to, a credible programme
for completion of the upgrade. We have agreed a further closure
programme up to Easter 2010, which was published on 11 December—the
press release is enclosed. However, Tube Lines require further
closures beyond that, and have recently indicated that they will
not complete the upgrade until October 2010.
Tube Lines originally predicted a requirement
for around 50 weekend closures to deliver the upgrade. To date,
they have required around 120 weekend or part-weekend closures
and have still been unable to complete the work. Repeatedly last
year we were assured that granting a further 12, then a further
six, closures was all that was needed. They have now confirmed
they need 13 more weekends up to and including Easter and that
this will still not be enough.
Tube Lines also need to make clearer what the
impact of the delay will be on the programme for the Northern
line upgrade, which is intrinsically linked to that of the Jubilee
line.
The reasons for the delay to the Jubilee line
upgrade are, I know, not the subject of this inquiry. However,
I would re-iterate the point made by Richard Parry on 9 December,
and echoed by Chris Bolt on 6 January, that the Bechtel secondment
arrangements put in place by Tube Lines to manage delivery of
the upgrade do not appear to have been effective in this instance.
It was suggested by some of the witnesses that
LU's own staff training needs could mean further delays to the
Jubilee line upgrade delivery date and it was also suggested that
LU's staff training programme was not satisfactory. I would like
to place on the record that neither of these allegations has any
substance. Training of staff has always been an integral part
of the upgrade programme and was factored in to the original overall
timetable for delivery. It is not the cause of any delay, nor
is it the principal reason for further closures in 2010. It is
being carried out comprehensively for all staff, in accordance
with industry best practice. LU will ensure that all of its staff
receive appropriate training within Tube Lines' delivery timeframe,
as was always envisaged when the PPP contracts were put in place.
3. LU'S APPROACH
TO THE
CONTRACT
It is false to suggest, as some have, that Tube
Lines' inability to deliver on the Jubilee line upgrade and its
inflated cost demands for the second period have anything to do
with LU's behaviour as a client. The Arbiter made clear in his
evidence to the Committee that he has, in some areas, taken the
nature of the relationship between LU and Tube Lines into account.
Yet the simple fact is that his draft direction has still rejected
Tube Lines' view of what the costs for the second period should
be.
There were some specific allegations about access
and scope made on 9 December. The bottom line on access is that
LU has at all times complied with the access code in the contract,
and indeed has gone beyond it—witness the recent granting
of many weekend closures at short notice. The root of the problem
has been that, despite having had more than double the number
of closures they originally estimated they would need, Tube Lines
is still not anywhere close to delivering on its obligations to
upgrade the Jubilee line.
Dean Finch also noted that the allegation that
LU had sought to unilaterally vary the scope of some projects,
particularly to provide step free access to stations, was not
representative of the current situation. I am grateful for that,
but in fact it is incorrect to state that LU has ever sought to
"not pay" for work done. This is a misrepresentation
of what are simply normal contractual negotiations around the
scope of works, which would happen under any contract between
a responsible public sector client and a private sector contractor.
Taking step-free access as an example, obligations were set out
in the contract and any work beyond that, such as the current
lift construction at Kingsbury and Green Park, is paid for entirely
separately as additional work.
4. THE ROLE
OF THE
PPP ARBITER
It was suggested on 9 December 2009 that we
have rejected a suggestion that the Arbiter should have a stronger
role, and indeed that Tube Lines are seeking this. Neither of
those contentions is correct.
Any contractual change to the Arbiter's remit,
to encompass an annual review of Tube Lines' programme, would
require Tube Lines' consent. It is arguable in any event whether
an annual review would assist in identifying issues at a time
when there is still a chance to rectify them. When the Arbiter
was asked to give his Guidance last year on notional costs for
the second contract period, it might reasonably have been expected
that the information provided by Tube Lines about its costs for
the second period would reveal the current position on the Jubilee
line upgrade. It did not.
On the issue of the Arbiter conducting "Periodic
Reviews" of the BCV and SSR infracos in parallel with that
of the Tube Lines contract, this is not something which either
Tube Lines or the Arbiter has sought during the current process.
In any event, it is not clear what the benefits of such an exercise
would be. LU's costs are (unlike Tube Lines') published in four
weekly reports—see www.tfl.gov.uk/pppreport—and crucially,
subject to the same governance and scrutiny mechanisms that cover
all of TfL's activities. Additionally, I have recently agreed
with the Secretary of State that, going forward, there will be
scrutiny of the whole TfL investment programme by a new panel
of expert independent advisers—see http://www.tfl.gov.uk/assets/downloads/management-of-tfl-investment-programme.pdf
for more details. This will give added assurance to me and to
the Government.
In the light of this, an academic and costly
review process by the Arbiter is neither a necessary nor an efficient
measure.
In effect, the Arbiter already has wide information
powers and preparatory powers that enable him to monitor and examine
both Tube Lines' and LU's programmes—we undertake joint
benchmarking and the Arbiter's reporters will be reviewing LU
and Tube Lines data to assess it for accuracy and consistency.
I hope this information is helpful and I look
forward to reading the Committee's report.
January 2010
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