Just before Christmas London Underground PPP Arbiter Chris Bolt published his draft ruling on how much contractor Tube Lines could charge for maintaining and upgrading the Jubilee, Northern and Piccadilly Lines between 2010 and 2017.
Bolt’s decision was to cap the cost of work at £4.4bn. This was £400M more than London Underground (LUL) said it would cost but, critically, £1.35bn less than Tube Lines calculated.
Tube Lines chief executive Dean Finch says the decision could well kick start seven years of open contractual warfare between the private contractor and its client Transport for London (TfL).
“What he [Bolt] is saying is that £4.4bn is the baseline from which Tube Lines would have to derive other sources of income,” explains Finch, pointing out with some surprise and dismay that Bolt is urging him to make up cost differences through claims against LUL for inefficient procurement
“Tube Lines has already secured £100M of claims against LUL’s inefficiency and we have another £500M on the table,” he says. “The arbiter is now encouraging us to pursue even more claims, which of course we will do. But I question whether that is a sensible way forward in what is supposed to be a partnership.”
Finch can perhaps afford to be bold given that in December he accepted the role as chief executive of National Express.
That said, he will remain in post until next April, when it is hoped his successor will have been found. This should give him time to complete the process of negotiating the PPP’s second seven and a half year control period which he started when he joined in the summer.
Tube Lines had originally asked to spend £6.6bn between 2010 and 2017, but this figure was revised to £5.75bn after a major de-scoping process. LUL argued that this work should cost just £4bn.
Bolt’s ruling says: “A company operating in an overall efficient and economic manner could deliver its obligations at a substantially lower cost than projected by Tube Lines, though not as cheaply as suggested by LUL.”
Bolt made it clear that a better partnership between Tube Lines and LUL would deliver more efficient results. He gave a very strong signal to Tube Lines that it must prove it is being hindered in its efforts to work efficiently.
But while Finch says that he is prepared to continue making claims he feels that Bolt has “ducked the issue” and potentially “poisoned” the LUL/Tube Lines relationship.
“The arbiter is now encouraging us to pursue even more claims, which of course we will do. But I question whether that is a sensible way forward in what is supposed to be a partnership.”
Dean Finch, Tube Lines
He promises to fight hard against the draft ruling over the next four weeks to try to get Bolt to recognise that, as he puts it, LUL “is not a perfect client”.
“What the arbiter has given Tube Lines is a very challenging settlement and one where there is not much reward for my shareholders,” he says. “If the government wants to encourage private sector involvement then it has to recognise that making a profit is not a bad thing − it is what incentivises businesses and encourages investment.
“I’m not saying that this will happen but if my shareholders decide that there is not enough of a return in it for them, then it [Tube Lines] will fold,” he adds.
An empty threat perhaps given that, since the London Underground PPP kicked off in 2003, Tube Lines’ shareholders Amey and Bechtel have been returning pretty decent profits from the deal.
But as Finch points out, it is the deal which covers the contentious second review period that counts now.
This is of course hugely political, not least because the Metronet consortium − which was upgrading the two thirds of the Underground not looked after by Tube Lines − collapsed two years ago.
Metronet’s failure cost the taxpayer huge sums and left LUL in charge of a still inefficient organisation.
For many reasons, mainly political, a huge polarity exists between London’s political leaders and administrators and Tube Lines. London mayor Boris Johnson and TfL have openly declared their dislike for the privately financed PPP deal.
Deadlines pushed back
Finch accepts that much of this stems from the ongoing problems that Tube Lines has suffered in delivering the Jubilee Line signalling upgrade which should have been complete on 31 December 2009. This work is now not expected to be finished before May, five months late. LUL will then still have to spend the summer commissioning the upgraded line.
“OK we are late on the Jubilee upgrade and we are sorry that we are late. We will suffer financial penalties for that,” he says.
“But that is a convenient stick with which to beat us. In the first seven years of Tube Lines’ life it has delivered on all of its commitments − it has cut delays in half, it’s 20 times safer and a third cheaper than LUL.”
Clearly TfL does not share this view − in fact, it believes completely the opposite.
Take Paragraph 3.5 of December’s TfL Board report which states quite clearly: “Tube Lines alleges that LUL’s approach to track closures is impeding delivery. LUL categorically rejects this. LUL has at all times complied with contractual arrangement for access and indeed has granted closures outside the strict PPP contract.”
“I disagree with that,” says Finch. “I understand that [LUL] has to juggle needs but it was clear to me within weeks of joining that something had to be done [to pull the Jubilee Line resignalling programme back on course]. I raised it in July − why has it taken until December to get a credible programme. That is lost time.”
The relationship problems have, he says, certainly got in the way of the current Jubilee Line signalling project and he maintains that an Easter completion would have been possible, had LUL granted the necessary line closures.
Breaking the bank
The delay will cost Tube Lines in the order of £40M and clearly in light of the current culture, it will be seeking redress for this through claims.
“I don’t pretend that Tube Lines is faultless − it has made mistakes and that has cost time. But it hasn’t got there alone,” he explains. “It is a huge leap in technology but critically Tube Lines was not given the access that it needed in the order and duration that it required.”
“I don’t pretend that Tube Lines is faultless − it has made mistakes and that has cost time.”
It is clearly a difficult area. For example, Finch claims that having asked for a 52 hour closure it might be granted two 27 hour closures instead. This, he says, may seem the same but in terms of productivity, the two halves do not make a whole due to the time it takes to gain possession of the track.
However, Finch says he is pleased that the Jubilee Line resignalling project programme and line closure schedule is now agreed with LUL. This allows Tube Lines to get on with work and enables him to start negotiations over the complex closure programme necessary for the upgrade on the Northern Line.
However, no date for the Northern Line project’s completion is available and Finch is aware that TfL is ready to blame him.
“We have been asking for access since June and we want to start. Tube Lines has made an assessment of what access it needs for the Northern Line and [the closures] have not been granted,” he explains.
“So we are still discussing a programme of closures − until we clarify that I cannot say when we will finish. It’s the same old thing.”
So the next few weeks will see yet more politicking and positioning as Tube Lines and TfL try to influence the arbiter to angle his final decision towards their point of view.
And also over who pays. The arbiter recommends that LUL raises the difference between the £4bn it believes it must spend and the £4.4bn he says it should spend. If it can’t − and given the state of TfL’s finances it probably can’t − then LUL will have to start talking about what can be left out of its plan.
Finch’s view is that changes in scope will not be a problem for his successor. But making sure that Tube Lines is paid for everything that it does within that scope may well be.
“Tube Lines is going to have to make sure that it documents everything every step of the way,” he says.
“Going forward my successor needs to make sure that Tube Lines is absolutely diligent in only doing the work that it is paid to do.”