London Underground’s managing director Richard Parry has rejected the PPP Arbiter’s decision to award Tube Lines £4.5bn to upgrade the Piccadilly, Northern and Jubilee lines over the coming 7.5 years, but said he would not be taking legal action at this time.
Parry disputes figures quoted by PPP Arbiter Chris Bolt that suggest costs for the Victoria Line upgrade have spiralled from £2.3M to £4.25M for upgrade km.
The figure is important because it feeds into his calculations for how much a ‘Notional Infraco’ would spend. This ‘Notional Infraco’ then guides how much Tube Lines should be paid over the coming 7.5 years. Bolt said Tube Lines could spend £4.46bn in the coming 7.5 years - £460M more than London Underground claims it can afford.
Speaking to NCE, Parry said legal action would not be taken at this time. “The cost determination is settled and we will not challenge it. The determination is higher than it should be, but it is determined. We do not intend to challenge,” he said.
Parry was critical of the way the PPP contracts now force London Underground to find extra finance, however. “The PPP was always set-up for private finance. If determinations were too expensive, then Tube Lines should approach the private finance market. Instead, costs are pushed to us.”
Parry admitted that this could affect the upgrade of Piccadilly Line rolling stock. “It is hard to see what we could do to reduce [track and signalling upgrade] costs going forward - cutting that is not the course to take.”
He said it was now up to Tube Lines to demonstrate that they can deliver the upgrades they say at the price the PPP Arbiter has determined. Parry said penalties incurred by Tube Lines on upgrades to the Jubilee Line would be significant.
“This is £700M less than they would be able to spend on the upgrade. We want it demonstrated that they can perform,” he said.
A London Underground source was scathing of Tube Lines, saying: “Tube Lines must be the most economic and efficient company never to have delivered a line upgrade.”
According to Parry’s analysis, the £4.25M per upgrade km for the Victoria Line is: “Absolutely not what it cost on the Victoria Line.”
Parry says Bolt had given too much credence to two contracts left over from the collapse of Metronet in 2007.
“We both had to work-out which parts of these contracts still applied for Tube Lines,” he said.
The first contract dates back to 2003, and was worth £150M and related to signalling. Parry said London Underground believed £95M was relevant. Bolt disagreed, and said the relevant costs should be £130M.
The second contract was for management by Metronet shareholder Bombardier, and was originally for £90M. Bolt decided to split the difference and allow £45M to be relevant. Parry said this was also incorrect as Tube Lines had equivalent contracts with its shareholder Bechtel.
Parry said Bolt’s decisions on these two contracts pushed up the apparent price per km for upgrading the Victoria Line, and was responsible for the bulk of the £460M in funds over and above the £4bn London Underground had argued for.
He said costs for Metronet upgrades had come down significantly since London Underground has taken over upgrades for the non-Tube Lines lines.
“We are confident we can come in under. Costs havn’t soared,” he said, adding: “Costs on the [Tube Lines managed] Jubilee Line have soared - these costs have been going up and up.”
Parry was also adamant that the scope for the Victoria Line upgrade remained the same as was when Metronet collapsed. Some have speculated that either the costs, scope or both had been altered. “The costs have not changed - these allegations are wrong,” he said.
However, Parry fell short of criticising the Arbiter. “He is reliant on outside technical expertise, and it is a big challenge.”
On the former Metronet lines, Parry said work was progressing well, and he was on the cusp of securing: “A signalling contract for the sub-surface lines [District, Circle, Hammersmith and City and Metropolitan] is in and we are confident of a good price,” he said.