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Funding fears as Tube PPP hits the buffers

London transport schemes will face a tough battle for cash in the wake of Tube Lines’ sale to Transport for London (TfL), industry experts warned this week.

Tube Lines’ shareholders Amey and Bechtel agreed a £310M buyout deal with TfL on Friday, bringing to an end months of rows over the £4bn-plus cost of upgrading the Piccadilly, Northern and Jubilee lines over the next seven and a half years.

Senior transport figures told NCE that this money had effectively been ring-fenced by Tube Lines’ public private partnership (PPP) agreement but would now be up for grabs.

They said that pressure on funds could see money for the Tube moved to or from other London projects such as the £15.9bn Crossrail scheme and £5.5bn Thameslink programme. TfL subsidiary London Underground (LU) will now take on the Tube upgrade work, but TfL’s income is heavily reliant upon a grant from the Department for Transport (DfT) to fund its programme of works

This year it is due to receive £3.3bn in a direct grant from the DfT, as set out in the 2007 Comprehensive Spending Review which covered spending up to March 2011.

But experts said funding was now deeply uncertain because of the effect of pressure on spending, the General Election and the sale of the PPP.

“The mayor has some considerable funding difficulties”

Stephen Glaister

“We’re going to see enormous cuts,” said a senior rail industry source, adding that despite its flaws, PPP had offered some benefit. “At least it took the expenditure out of the sticky hands of government.”

A TfL source admitted to NCE that those close to the deal felt it could have left the organisation’s budget vulnerable to attack from the DfT.

Industry heads agreed that there were major funding pressures ahead. “It is inevitable there will be some reduction in public spending on rail,” said Turner & Townsend UK managing director Steve McGuckin.

“Successive governments promise to tackle excess bureaucracy, costs and inefficiencies in public service provision but it is too difficult a nut to crack and in a recession the last thing governments want is large scale strikes to remind everyone of the problems in the economy.”

“It would be a crying shame if we didn’t get continued investment.”

Baroness Jo Valentine

Campaign for Better Transport executive director Stephen Joseph said the future of transport schemes was “up in the air” and that there was “all to play for” as the schemes compete for attention.

“Transport spending will be massively under pressure,” he said. “The Treasury has been gunning for London’s spending on transport because of pressure to equalise it with that of other major cities.”

London mayor Boris Johnson this week publicly called for continuing financial support to the capital ‘s transport programme.

“Without Crossrail and the Tube upgrades, without the continued lifeblood of vital investment in all parts of the transport network, our city cannot go on developing and attracting the business and wealth that can lead the country out of recession,” he said.

Johnson was speaking as he launched the capital’s new 20 year transport vision on Monday. However, transport experts warned Johnson to brace himself for making difficult choices over transport spending.

Tube Lines partnership director and Imperial College London emeritus professor of transport and infrastructure Stephen Glaister said the Tube work was likely to be at the centre of funding questions.

“The mayor has some considerable funding difficulties,” he said. “Had the sale not happened, it was pretty clear LU would have to de-scope what it wanted to do.”

Tube workers

Tube workers

Last week PPP Arbiter Chris Bolt told LU to find more money to deliver its required programme or de-scope the work (News last week).

“It [LU] simply hasn’t got the money to do the work. That must still be true now the sale is happening.” Joseph said there would be tough choices ahead.

“I don’t think the mayor [Johnson] wants to be in the position of having to delay massive-cost schemes: Crossrail’s a toss-up, although TfL could delay the Tube upgrade a bit to go full steam ahead on Crossrail,” he said.

Most industry sources that spoke to NCE acknowledged that while the sale could leave funding questions unanswered, it would create more flexibility.

“[The sale] gives LU the freedom to descope. Tube upgrades could slide in programme but will go ahead - signalling on the Piccadilly Line has to be replaced, for example, but new trains could slip,” said Joseph.

Transport for London sources admitted that allowing the programme to creep could be a way of delivering the same outputs but for less cost. London business leaders warned against cuts.

“It would be a crying shame if we didn’t get continued investment,” said business group London First chief executive Baroness Jo Valentine.

“But the onus is now squarely and firmly on the mayor’s shoulders. How much prioritisation will he give the Tube in his budget and how will LU deliver Tube work much better than Tube Lines? It’s going to be tough.”

Facing pressures

Joseph added that the pressure would trickle down to industry, which would also now face pressure
to show it could find better ways to deliver more cost effective projects.

“There will be pressure from whatever government to come up with structures for delivering schemes that are better,” he said.

“There are questions over whether schemes like the Cambridgeshire Guided Busway and Edinburgh Tram are delivering value for money.”

LU looks set to take centre stage when it comes to a focus on cost effectiveness. Much of the recent row between it and Tube Lines centred on its assertion that it was now capable of carrying out Tube work cheaper than its contractor.

LU said its Victoria Line work cost £4.5M/km against Tube Lines’ £10M/km costs for upgrading the Jubilee and Northern. Tube Lines claimed the true LU figure was three times higher.

Metronet compared

The failure of Tube contractor Metronet in July 2007 led to an estimated direct loss to the taxpayer of between £170M and £410M.

However, the circumstances of Tube Lines’ exit from the Tube PPP are somewhat different. Metronet went into administration predominantly because its poor corporate governance and leadership meant that it could not manage its shareholder-dominated supply chain.

Metronet was awarded the contract to upgrade and maintain infrastructure, trains and stations on the Bakerloo, Central, Victoria, Waterloo and City, Circle, District, East London, Hammersmith and City and Metropolitan lines under a public private partnership. Tube Lines was awarded the contract for the Jubilee, Piccadilly and Northern lines.

Unlike Tube Lines, Metronet contracted to use its shareholders and their contractors as suppliers rather than go through the process of competitive tendering. The five shareholders of Metronet were Balfour Beatty, Bombardier, Atkins, EdF and Thames Water.

The executive management of Metronet changed frequently and was unable to manage the work of its supply chain.
As a result it paid its supply chain over £1bn, broadly in line with original budgets, but it did not deliver what it was expected to. The reason: it passed responsibility for planning and quality control to the supply chain.

Leaving this to Trans4m [a joint venture between Metronet’s shareholders Atkins, Balfour Beatty, EDF Energy and Thames Water, with all works subcontracted for design, mechanical, electrical and premises work] without any evident supervision or control showed a lack of project governance, said PPP Arbiter Chris Bolt. After Metronet went into administration, 12 station modernisations were immediately cancelled and 47 postponed.


Work at risk

Key improvements Tube Lines was required to deliver over the course of the second review period included:

● Upgrade around 81km of track
● Renewal/refurbishment of 115 sets of points and crossings
● Refurbishment of 38 stations and maintenance of 62 more
● Completion of the upgrade of the Northern Line to increase capacity by 20% and reduce journey times by 18%
● Completion of the upgrade of the Piccadilly Line to increase capacity by 28% and reduce journey times by 22%
● Provision of a new fleet of trains to the Piccadilly Line
● Maintenance of stations, track, fleet, signals, lift & escalators, civil infrastructure to build on the performance improvements already achieved in the first review period (2003-2010)

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