Examination of Witnesses (Questions 34-78)
MR DEAN
FINCH
9 DECEMBER 2009
Q34 Chairman: Good afternoon. Would
you like to identify yourself for our records, please?
Mr Finch: I am Dean Finch. I am
chief executive of Tube Lines.
Q35 Chairman: We have just had evidence,
as you may have heard, from Transport for London and the Mayor
and it seems that you are very much at loggerheads with Transport
for London in how you are developing the project, particularly
in relation to the Jubilee Line. Would you say you had an unduly
adversarial relationship?
Mr Finch: First of all, thank
you for inviting me here to give evidence this afternoon. With
regard to the Jubilee Line, can I say that on behalf of Tube Lines
I apologise for it being late. We are sorry it is late and I am
sure we will come on to the reasons why we think it is in a moment.
Our relationship with London Underground ranges from extremely
collaborative to quite adversarial, depending on which part of
the business we are looking at. Fundamentally, I think having
heard some of the evidence today with regard to the contract,
my view is you can make any contract work. It requires effective
partnership from both sides.
Q36 Chairman: Would you say there
is real partnership in the very adversarial aspects of your relationship?
Mr Finch: I think that our relationship
is improving. I can understand the frustration of the Mayor and
of London Underground with Tube Lines for the delay of the Jubilee
Line. Since joining, one of the steps I have taken is I now chair
a weekly meeting between London Underground, ourselves and our
contractor, Thales, where each week we discuss progress on the
Jubilee Line and that has been going on now for some 12 weeks.
I think that has helped improve transparency between us and London
Underground and I think it is beginning to restore London Underground's
confidence that there is a credible programme which we are discussing,
which will see an end date for the Jubilee Line project.
Q37 Chairman: What progress have
you actually made? Can you give us some examples?
Mr Finch: As of this week on Tuesday
for example one of the objects clearly of this weekly programme
has been at weekly meetings to produce a programme which we can
all believe in. Certainly, in terms of the director of line upgrades,
he told me directly on Tuesday that he is happy with the programme
that he is now discussing with London Underground, which will
see the Jubilee Line finished next year.
Q38 Chairman: When next year?
Mr Finch: What we will see is,
by May 2010, Tube Lines will have delivered the contractual obligation
that it was supposed to have delivered by the end of this calendar
year and the Jubilee Line will be into service by the autumn of
2010.
Q39 Mr Hollobone: When did you take
over your current post at Tube Lines?
Mr Finch: I joined Tube Lines
in May and became chief executive in June.
Q40 Mr Hollobone: Will you be getting
a bonus this year?
Mr Finch: I expect not.
Q41 Mr Hollobone: If you were offered
one, would you turn it down?
Mr Finch: Probably in relation
to where Tube Lines performance is, I think overall the company
is not going to be in a position to have earned a bonus this year,
so I just do not think the question of that will arise.
Q42 Chairman: You do not expect to
have the choice?
Mr Finch: I do not expect to have
the choice. Would I accept a bonus? No.
Q43 Mr Hollobone: Is there any truth
in the press reports that you have been approached to become the
new chief executive of National Express?
Mr Finch: National Express have
approached me, yes.
Q44 Mr Hollobone: That would be quite
a handy lifeboat, would it not, if Tube Lines is going the same
way as Metronet?
Mr Finch: I do not believe Tube
Lines is going the same way as Metronet. In specific relation
to that question, clearly this is not something I have sought.
It clearly is a substantial proposition which I have to discuss
but you will appreciate that is something I have to discuss with
my shareholders.
Q45 Mr Hollobone: The Mayor has kindly
shared with the Committee a copy of his letter to you of 4 December
in which he described the situation on the Jubilee Line as "unacceptable"
and asking you for an urgent report on progress. Have you responded
to that letter yet?
Mr Finch: I have.
Q46 Mr Hollobone: Would you be able
to make a copy of that reply available to the Committee?
Mr Finch: Yes, absolutely.
Q47 Mr Martlew: You were obviously
sitting at the back and you heard the comments both from the chief
executive of London Underground and the Mayor. Is there anything
in those comments that you disagree with?
Mr Finch: Yes, there is a number
of things. In relation to Tube Lines, is it in the interest of
the taxpayer, yes, I fundamentally believe it is. Its record is
that since it took over it is 20 times safer for its employees;
it has cut delays by half and its operating costs with regard
to 2008/9 are a third cheaper than London Underground's. These
are not data that we have invented. They are data that have been
compiled by the arbiter. Indeed, I note in his submission to you
he notes that in 07/8 Tube Lines' costs were cheaper than Metronet's
costs and that in 08/9 Metronet's costs have gone up. In terms
of a direct comparator between the average of the three lines
that Tube Lines is responsible for and the five that were with
the former Metronet companies, we are a third cheaper.
Q48 Mr Martlew: One of the excuses
and reasons that you use for the delay is the fact that London
Underground have not given you access to the line. Can you expand
on that?
Mr Finch: There are a number of
reasons why Tube Lines is late on the Jubilee Line. First and
foremost, I think it is a huge leap in technology. As you may
imagine, I have looked at this in some considerable detail and
we have taken advice from others. Madrid did not attempt what
is being attempted here in one leap. It tried to do it in at least
two. I think Tube Lines and its contractor Thales failed to appreciate
the extent of that leap. It is not as simple as to say that London
Underground has not granted closures. London Underground is quite
right in saying that it has granted a substantial volume of closures
to Tube Lines. However, the important point is: has it granted
those closures in the pattern, both in terms of duration and geography,
that Tube Lines requested? In terms of the match request, they
have only matched Tube Lines' request to the extent of something
just over 50%. The consequence of that is that Tube Lines has
needed more access. If Tube Lines has requested a 52 hour closure
and is granted two 27 hour closures, they do not amount to 52
hours of work because you have to power down and power up the
railway.
Q49 Chairman: How many times has
that happened?
Mr Finch: Just under 50% of match
requests have not been met.
Q50 Mr Martlew: There has been no
reference to the Northern Line which I understand you did work
on. Is that correct? Is it not correct that if I look at London
Underground's website they boast about how well that is working?
Mr Finch: The Northern Line is
one of the best performing metro lines I think probably anywhere
in the world at the moment. I think that is a great example of
where the partnership between London Underground and Tube Lines
has worked very well indeed.
Q51 Mr Leech: You were here for my
question to the Mayor about the involvement of the parent companies
being at least partly responsible for the demise of Metronet and
my suggestion that Bechtel were being too involved with Tube Lines.
Was that a fair point that I made?
Mr Finch: I think Richard answered
the question accurately. Bechtel are not a contractor of Tube
Lines. They supply secondees. Those secondees fit into the management
structure that reports to me and they are fully accountable to
me for their performance.
Q52 Mr Leech: Their involvement does
not have any adverse impacts on Tube Lines at all?
Mr Finch: I see Bechtel's incentive
as perfectly aligned with Tube Lines because fundamentally if
Tube Lines runs out of cash there is a first call on Bechtel.
To say there is no incentive on Tube Lines to deliver the Jubilee
Line I fundamentally disagree with. There is a huge incentive
on tube Lines to deliver the Jubilee Line on time, both in terms
of reputational damage and in terms of financial cost.
Q53 Mr Leech: Changing the subject
slightly, how responsible do you think London Underground are
for the delays in the upgrade of the Jubilee Line in relation
to their change in specification for the signalling system?
Mr Finch: You are asking me to
go back into the dim and distant past which I was not around for,
so I really cannot apportion blame. What I would say is that I
think it is vital that the two parties can work together effectively,
because the important thing is that London gets its upgrade as
soon as possible. I see much better working between London Underground
and Tube Lines than was the case in the summer and I hope we continue
to improve that trend so we can deliver the Jubilee Line as quickly
as possible as well as the Northern Line as quickly as possible.
Q54 Mr Leech: What lessons have Tube
Lines learned about the demise of Metronet and what are you doing
differently to make sure that Tube Lines does not go the same
way?
Mr Finch: Tube Lines has a different
governance structure. Its shareholders are not its contractors.
Everything is competitively tendered on a third party basis and
clearly my responsibility as CEO to the company and to my customers
on London Underground is to make sure that we deliver as efficiently
and as effectively as possible. I believe that is the best way
of ensuring that it will not go bust.
Q55 Mr Leech: After their demise
though, did Tube Lines do anything differently to avoid the possibility
of going down the same route?
Mr Finch: I believe Tube Lines
started with a different operating model and that operating model
has not changed.
Q56 Ms Smith: In the written evidence
submitted there were references to the lessons to be learned by
London Underground. Some of these relate to the initial contracting
process, if you like, the structure of the PPP, the scope of the
work to be carried out and so on and arguments over additional
work required at a later date. A specific example given was work
to improve mobility access at tube stations. Do you believe that
there are lessons to be learned in terms of the contracting process
for public-private partnerships as a result of that experience?
Mr Finch: As I said at the outset,
I suppose my philosophy to some extent is that any contracting
model can be made to work, provided you have effective and sensible
and mature parties on both sides. I am sure there are lessons
to be learned, but the most important lesson to be learned for
me, for Tube Lines, is that if it fundamentally disagrees with
an approach that London Underground is taking it should raise
that urgently with London Underground at the earliest convenience.
Q57 Ms Smith: I have been involved
in PFI and local government and I have been through some of the
traumas of the relationship at that level. It always appears to
me that it is the quality of the initial written and legal agreements
that does to some extent determine the nature of the partnership
that follows.
Mr Finch: I suppose my counter
would be if the contract is flawed both parties should sit in
a room and sort it out.
Q58 Ms Smith: At the bottom line
you often find with private contractors that, when the public
sector provider wants to explore additional capacity or additional
work through a contract, the private partner will always fall
back on the legal agreement and is very unwilling to cooperate.
You are saying that Tube Lines never took that stance?
Mr Finch: I am saying that if
London Underground was not satisfied with some work that Tube
Lines did, it could competitively tender. If there was variation
work outwith the contract, you are quite right; the contract is
set, but if there is variation work that London Underground wants
over and above that contract then it is entitled to go and tender
it as far as I understand it. Indeed, I see that in the case of
ongoing works.
Q59 Ms Smith: You are saying in effect
that there was nothing particularly wrong in the legal agreements
and in fact it was at London Underground's insistence that work
be carried out within the contract that had not been specified?
Mr Finch: I would not represent
for one moment that I think the contract is perfect. If we were
starting again, maybe there would be aspects that would be changed,
but fundamentally I suppose I take the pragmatic view that an
agreement can be reached as to what will be the best way forward.
Q60 Chairman: You do seem to be blaming
London Underground's attitude for a lot of the problems in your
written evidence. You give some pretty striking examples of that.
Mr Finch: I think there have been
lessons learned along the way. Some of those examples are listed
out there but what I really, fundamentally believe is that Tube
Lines and London Underground have just got to sit down and resolve
those things.
Q61 Chairman: One of the examples
you give in your written evidence is that Tube Lines have difficulty
gaining access to a car park and that the station manager only
allowed you to have access if you agreed to put air conditioning
and blinds in his office.
Mr Finch: I think there have been
examples like that in the relationship between Tube Lines and
London Underground over the years. I know of none at the moment.
I believe that the organisations have moved on from that.
Q62 Ms Smith: The work on mobility
is a much more significant example. The one about the air conditioning
unit is frankly worrying on another level but the mobility work
is quite serious. Are you saying that you would have preferred
to have sat down with London Underground and negotiated an additional
price to deliver that work? What you seem to imply in the document
is that London Underground were insisting that they could deliver
within the terms of the contract.
Mr Finch: Tube Lines and London
Underground have got to agree on what the base scope is, because
that is the price that Tube Lines has costed for and did cost
for in its original price.
Q63 Ms Smith: Nobody is blaming you
for that.
Mr Finch: What Tube Lines clearly
has to do is to vigorously defend itself in that respect. I do
not think Metronet did and I think that is one of the reasons
why Metronet collapsed, but if London Underground want a variation
they have a choice. They either can pay for it, choose to do it
another way or not have it.
Q64 Ms Smith: They are saying that
they wanted to have it and not pay for it?
Mr Finch: Yes.
Ms Smith: That is what I wanted to get
out of you.
Q65 Chairman: Is that still the situation?
Mr Finch: I know of no examples
of that.
Q66 Chairman: It has changed now,
has it?
Mr Finch: Yes.
Q67 Chairman: What is the position
now? That they are prepared to pay for what they want?
Mr Finch: I think there is a fair
degree of respect between the two organisations certainly on a
commercial basis in terms of understanding what the base scope
is. That is vigorously discussed and that results in agreement.
Q68 Sir Peter Soulsby: You have argued
that if the PPP's objectives are to be met there need to be clear,
accurate, transparent and relevant reporting procedures. You will
have heard my earlier questions about the role of the PPP arbiter.
How do you respond to the answers that we had earlier from London
Underground and the Mayor on the role of the arbiter? Do you think
that the arbiter has a role in ensuring that reporting procedures
are as you describe them and as they ought to be?
Mr Finch: I fundamentally believe
that the arbiter should have a strong role. We would be perfectly
happy to see him have an extended role across both Tube Lines
and across all Metronet companies.
Q69 Sir Peter Soulsby: Have you given
any thought as to what would be necessary in order to strengthen
that role?
Mr Finch: There is a range of
different models and ultimately one could look at the rail regulator
as a model.
Q70 Chairman: Why do you think that
there is such a big variation on the estimates of the work that
needs to be done in the next period, on what you think and what
London Underground thinks?
Mr Finch: Rather than go into
the detail of that, the arbiter is about to determine where he
thinks the price should be on 17 December. I do not think it serves
any of us to second guess that but from a taxpayer's point of
view his direction will probably drive exactly the kind of behaviour
you would expect from a private sector company providing services
to the public sector.
Q71 Chairman: Is London Underground
more efficient than Metronet?
Mr Finch: I see no evidence of
that.
Q72 Chairman: You see no evidence
of that. You do not see any advantage in London Underground doing
the work rather than Metronet?
Mr Finch: I can only compare Tube
Lines' costs with London Underground's costs. The only data I
have as a reference point are the data that the arbiter has compiled,
which is 08/9 and 07/8. On that basis, Tube Lines is significantly
cheaper than London Underground.
Q73 Graham Stringer: Are London Underground
worse than Metronet?
Mr Finch: Again, I can only rely
on the arbiter's data and his evidence to you. His evidence to
you is that costs went up between 07/8 and 08/9.
Q74 Graham Stringer: From your knowledge
of the industry, you think they are less efficient than Metronet?
Mr Finch: Again, I am not in a
position to judge because I do not have access to the data. I
am relying on the arbiter's data and I was not in the underground
industry at that point in time to understand what changed between
07/8 and 08/9.
Q75 Ms Smith: London Travel Watch
in their evidence to the Committee drew attention to the costs
of consultancy fees and advisory fees generally for this kind
of project. Can you give us a ballpark figure for the consultancy
fees paid out by Tube Lines so far in connection with the overall
management of your part of the Underground network?
Mr Finch: We virtually have no
consultancy fees on an ongoing basis. We do that work ourselves.
Q76 Ms Smith: It is part of your
overall cost, is it not?
Mr Finch: I believe there were
substantial fees when the PPP was first set up, but those costs
are sunk costs and they are not ongoing.
Q77 Ms Smith: Could you give us an
indication of those initial fees, which is what I was talking
about?
Mr Finch: I will happily supply
you with those.
Q78 Ms Smith: Could you give us those
on a written basis?
Mr Finch: Yes.
Chairman: Thank you very much.
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