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Is the price right?

With costs higher than expected, are the Tube PPPs value for money?

POTENTIAL FOR major cost hikes on the vast programme of Tube upgrade works was anticipated by the Office of Government Commerce (OGC) in 2004 in one of several reviews of the PPP deals.

'There is only limited assurance that the price that would be paid to the private sector is reasonable [£15.7bn over 30 years; £9.7bn of which would be paid in the first seven and a half years].

'Periodic review at the sevenand-a-half-year breakpoints leaves some uncertainty about what the price eventually will be, ' says the OCG 2004 report, 'London Underground [LU] PPP: Were they good deals?'.

Originally the PPP deals were brokered to introduce long-term funding to Tube maintenance.

The network had been lurching along between stop-gap repairs under variable annual budgets for decades. 'Compared with LU's pre-1997 investment regime, the PPP deals offer an improved prospect, but not the certainty, that the infrastructure upgrade will be delivered, ' the OGC report explains.

But, the OGC warned, there was 'limited knowledge of the condition of the less accessible infrastructure'.

Private consortium Metronet's communications director Paul Emberley says that the firm acquired 15,000 civils assets - such as bridges, underpasses and drainage systems - about which it knew little or nothing when it took on its contracts.

LU simply had not had the resources to log the condition of its infrastructure.

Inevitably there were going to be surprises when proper investigations were carried out.

Inevitably there would be some flux in the way work was tackled and costs incurred.

Imperial College London professor of transport and infrastructure Stephen Glaister agrees that whoever carried out improvements to the Underground, costs would have fluctuated.

'There was a formal test of value for money during the PPP negotiation process - the public sector comparator - that looked at whether London Transport would be able to do the work as cheaply and efficiently as private sector contractors if it had access to the same level of investment. It was a controversial process and the judgment [in favour of the private sector] was fi ely balanced, ' recalls Glaister.

He notes that the test failed to take account of the considerable cost of administrating the PPP contracts. 'The government assumed that the contracts would be managed for nothing - they actually cost rather a lot to administrate.' Glaister also says that LU would not necessarily need private sector contractors to show it how to run maintenance and upgrade operations efficiently.

Maintenance and upgrade of London Transport's bus fleet was an unsung success story through the 1990s. In the mid1990s the idea was floated that methods could be transferred to London Underground, but scrapped when Labour was elected to government in 1997.

'We now have the arbiter's judgment that Metronet hasn't been entirely effi cient and economic.

If you went back and did the test again with the benefit of hindsight, it's just possible that the answer to the question 'is the private sector better', might be 'no'.'

Where Metronet has invested £4.7bn

Victoria Line upgrade:

enabling works and train design mostly complete l first train running during engineering hours after Easter l signalling equipment rooms built; equipment being installed l 75% of 550km of tunnel cable in place l new service control centre built at Northumberland Park Depot Sub-surface lines upgrade:

seventh carriage train build starts in summer 2007 l dvanced signalling design underway and cables installed l 630V to 750V power upgrade; control centre design in progress Waterloo & City Line: enhancement complete l railway rebuilt; 2.4km track replacement l wo station refurbishments and train refurbishment District Line refurbishment l £1M investment per train; over half 75 train fleet refurbished Track:

investment in new track renewal l 73km of track renewed programme is ahead of plan Stations:

32 station projects complete against a plan of 43 complete by end March 2007 l On site at 27 stations, with 48 in design l Six stations awarded outside the Supply Chain following competitive tender Where Tube Lines has invested £1.4bn Jubilee Line upgrade l seventh train car added, five stations refurbished, 15km track replaced Northern Line upgrade l 42km track replaced nine station upgrades.

Piccadilly Line upgrade l 23.9km track replaced, 16 station upgrades.

Stations and other:

30 station refurbishments l major overhauls of 36 escalators l £30M new technology, £10M training centre

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