22 May 2010

PPP: Perverse Pricey Profligate

So. Farewell then, London's Public-Private Partnership (PPP), which was consigned to the history books as one of the biggest wastes of public money in living memory - even by London's standards. The final nail in the coffin was struck by Mayor of London Boris Johnson on 7 May, days after the general election result made it clear that Labour would not command a majority government.

The PPP was the brain child of then Chancellor of the Exchequer, Gordon Brown, who saw it as 'the third way' to renew the London Underground (LU) network in a manner akin to privatisation by the back door, though convoluted enough to keep his party's back-benchers on side. Rather than sell-off LU to the highest bidder - and in 1998, hot-on-the-heels of rail privatisation, many would have surely passed to bus companies - Labour's plan was to ostensibly lease LU stations, tracks and signalling equipment to private companies, who would be specialists in this area and so provide a more efficient service all round.

London Transport as was (and many would say its present-day reincarnation, Transport for London - TfL) was a cumbersome beast who devoured more public money than any transport system in the UK. LT's costs were rocketing, similar to how Network Rail's are today, and in effect they priced themselves out of the market. Secrecy and bureaucracy were two nouns New Labour were keen to banish, following years of Tory rule and the associated corruption. Clip LT's wings though in a manner that won't send your back benchers in a spin and you've got the 'third way'.

It's a little ironic though that it was a Labour government that effectively privatised LU's infrastructure with the PPP's introduction in December 2002 and it was a Conservative coalition that effectively liberated it into nationalisation 8.5 years later. London's first Mayor, Ken Livingstone, even went to court in 2001 to stop the PPP's introduction, but failed.

The first of two private companies was awarded a 30-year agreement - Tube Lines, whose two shareholders Bechtel and Amey (calling themselves Ferrovial), were given the right to renew the Jubilee, Northern and Piccadilly lines from December 2002. A total of £4.4 billion was to be spent during the first 7.5 years. In April 2003, the second and final private company was awarded a contract to renew the infrastructure along the remaining nine LU lines in a deal lasting 30 years, Metronet.

However, by July 2007, Metronet's finances were not in good shape and the company responsible for the lion's share of LU's upgrade work went into administration. This alone cost the taxpayer £410 million as TfL was forced to purchased the company. While this was ongoing, the two lines on which Metronet was working, were taken back into TfL's fold. During this period, Tube Lines continued apace with its renewal of three lines, but strife was just around the corner when it got into a dispute with TfL over the costs required for the second 7.5-year period, which was due to start from July 2010.

Tube Lines wanted £5.75 billion and TfL claimed it could do the work for £4 billion. The PPP arbiter Chris Bolt was duly called and determined a figure of £4.4 billion should be paid. TfL said that this was £4m more than was necessary and Tube Lines claimed they would be £1.35 billion short. Chris Bolt amended his figure to £4.46 billion which had no effect in calming either side down. He suggested last month that TfL should either provide the level of funding he stated or to reduce the amount of work it wanted Tube Lines to undertake in order to reduce the amount that way.

The last six months has seen both London Underground and Tube Lines fall out, as demonstrated by the missing 'n' here

On 7 May, though, with Labour firmly in opposition, Boris Johnson announced that TfL had purchased Tube Lines for £310 million and that they would procure the work themselves. Even with the purchase, they'd be many millions of pounds in the black. Said Mayor Boris: "Freed from the perverse Byzantine PPP structure, I am confident that LU and private contractors are more than capable of delivering the improvements to London's transport network that we need, on time and on budget."

The deal is expected to complete on 30 June - one day before Tube Lines' second 7.5 year period. The only immediate problem TfL will have is that they'll now be unable to blame Tube Lines for delays to the Jubilee or Northern lines!

1 comment:

Lucy said...

The final winding up of London Underground’s PPP maintenance agreements signals the end of perhaps the biggest and disappointingly underreported transport fiasco of our time. Its demise on the 7 May was certainly a good day to bury bad news from both Labour and Conservative perspectives.

More thoughts here: http://colinbuchanan.wordpress.com/2010/05/14/the-failure-of-london-underground-ppp/