CHIEF EXECUTIVE Mike Casebourne turned a searchlight on risk management during last week's visit with President Roger Sainsbury to the design build finance and operate Croydon Tramlink scheme.
Casebourne, who lives in Croydon, was eager to know where liability for the scheme ultimately lay - with the concessionaire or client.
The £185M light rail project is being carried out for London Transport by Amey-Robert McAlpine, part of joint venture Tramtrack Croydon Ltd. It received lump sum funding from the Treasury estimated at about 55% of the total cost.
Ultimately, if the concession company is unable to meet operating costs, the scheme would revert to LT, said TCL contracts manager Brian Johns.
Tramlink consists of three branches connecting central Croydon with Wimbledon, Beckenham Junction and New Addington. Up to 100,000 passengers/day are forecast to use the network. Services are scheduled to start running in November.
LT has tied the network into its fare structure and is to remove competition from buses along the route.
However, under questioning from Casebourne, LT project manager for Croydon Tramlink Clive Bradberry conceded revenue streams could not be predicted with certainty. Earning potential would only be proved once the scheme was up and running.
'We expect demand to be very different to what we originally anticipated,' he said. 'Nuances are things we can't predict.'
Casebourne pointed out risk on light rail schemes was a relatively unknown quantity in the UK. There had also been relatively little time to gain experience of working under the Private Finance Initiative.
'You have to applaud the ability of the company and banks to take on this kind of risk,' he said.
Croydon Tramlink has also to win round locals after three years of construction- related disruption that has caused city centre chaos. Many residents have changed their shopping loyalties and drive to new out of town developments.
The latest blow to the tram's popularity surrounds the substitution of H-section power cable support poles in place of tubular poles specified when the scheme was first put forward. The poles have sparked protest from some local people; TCL declined to comment.
Amey-McAlpine had to build-in large contingencies against re-routing utilities pipes and cables found across the line of the route. Even so, the extent and complexity of negotiating utilities is said by TCL sources to have exceeded expectation.
Bradberry said the 99 year concession awarded by LT to TCL had been a condition set out in the 1994 Croydon Tramlink Act to reassure bidders and their shareholders there would be sufficient pay-back period.
Risk associated with acquisition of land had been eliminated by the client, the Borough of Croydon, which put up the cost of delivering the proposed site to TCL. Design and construction risks had been analysed and limited, he said.
Risk had been diversified throughout TCL to minimise the individual burden if there were cost overruns, or initial revenue shortfalls, Johns stated. 'No single part of TCL could take on the whole risk.'
TCL is made up of lenders Royal Bank of Scotland and 3i, contractors Amey and McAlpine, rolling stock supplier Bombardier and operator Centrewest.
Both Mowlem and Wimpey, then Sainsbury's and Casebourne's respective companies, had held back from bidding for Croydon Tramlink when the PFI scheme was put out to tender. Casebourne said 'you have to admire' TCL for its appreciation of the challenges involved in PFI projects and for 'gathering of the right range of skills at the beginning of the process'.
He added that schemes like Croydon Tramlink 'will place the small number of firms learning on the job at the moment in the frame for further PFI public transport projects. Firms not doing PFI now will find it very tough and very risky to compete.'
Meanwhile, Croydon Tramlink had demonstrated that, increasingly, running PFI projects could be undertaken by financial consultants or project managers. Casebourne emphasised that civil engineers would need to address complex issues associated with PFI projects if they wanted an active role on them in future.