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Why the Tube PPP collapsed

Tube Lines’ decision to sell up to Transport for London marks the end of the road for the Tube PPP. Alexandra Wynne unpicks the dying days of what was once heralded as a pioneering private finance project.

One week after the explosive news of Tube Lines’ sale to Transport for London (TfL), details have begun to emerge about the events that led to the end of the Tube upgrade public private partnership (PPP).

Last week’s final dramatic turn followed months of fierce rows between TfL and its contractor Tube Lines.

Sources told NCE that shattered trust, a broken working relationship and arguments over money led to the contractor’s shareholders decision to dissolve the arrangement.

“It did seem inevitable seeing as the PPP has never worked. If one of the partners doesn’t want to be in the partnership, there is little to be done,” says business group London First chief executive baroness Jo Valentine. “But it was an extremely unpleasant process getting there.”

One source close to the £310M buyout deal said that the Tube Lines board had wanted to end the partnership with the contractor as much as five months ago − just as the disputes began to increasingly play out in public − but that the shareholders had held back until just a few weeks ago.

NCE understands that minority shareholder Bechtel, which holds one third of the company, had been keen to make the deal and had begun to ramp up pressure on majority shareholde Amey to take the pay-off.

“Tube Lines would have had to make more claims, which is not a terribly comfortable position to be in.”

Stephen Glaister, Imperial College

Tube Lines partnership director and Imperial College London emeritus professor of transport and infrastructure Stephen Glaister says he could see how Bechtel would have been reluctant to continue the fight, as its involvement in the contract was beginning to wind down.

Bechtel’s main interest in the project was in the major projects work, much of which is underway. Soon, the emphasis is shifting to operations and maintenance.

“For Bechtel [the work meant] shifting from big project delivery to operation,” says Glaister. “Added to which, the idea of the partnership was getting very difficult.”

The limited nature of Bechtel’s involvement in the PPP is evident in the continuing arrangements to the upgrade and maintenance programme. Bechtel will stay on only to “ensure a smooth transition of the capital improvement programme into TfL”.

Amey, in contrast, was much more involved. It will continue to provide management and maintenance over the next seven and a half years, as it would have under the existing contract.

Its agreement to sell was more a response to pressure from its Spanish parent Ferrovial to back away from the fight for fear of reputational damage with other major UK clients.

Stephen Glaister

Stephen Glaister

Amey and Bechtel were more than aware that profit would increasingly have had to come via messy legal rows.
“As the PPP Arbiter’s adjudication shows, there was not as much profit in the ownership of the company as the shareholders first thought,” says Glaister.

“The way things were going Tube Lines would have had to make more claims, which is not a terribly comfortable position to be in,” he adds.

In an interview with NCE last December, Tube Lines’ then chief executive Dean Finch warned that the Arbiter’s draft ruling capping earnings between now and 2017 at £4.4bn meant his firm would be forced to make more claims.

“Tube Lines has already secured £100M of claims against LU’s inefficiency and we have another £500M on the table,”

Finch said at the time. It has since added fuel to the fire by accusing TfL of obstructing its work by unfairly hampering time it wanted for track possessions, causing it to double its requests for closures (NCE 4 February).

NCE understands that conditions of the £310M settlement include all claims against LU being dropped as well as the cancellation of any charges to Tube Lines for cost of overruns on its upgrade of the Jubilee Line, thought to be around £40M.

“Conflicts”

Glaister adds that conflicts had trickled through to how the work was carried out. “Along with the dispute over closures, there is a great deal of mistrust and disinformation between the two.”

Tube Lines has responsibility for upgrading and maintaining the Jubilee, Northern and Piccadilly lines. Under the contract it had the right to use its own technology for signalling work. However, Glaister says LU was no longer happy with its choice.

Instead LU began to believe it was better to use an overlay system − where new signals are installed over old so that it is possible to test the new with the old still in operation − as has been used on Madrid’s metro. “But there is a dispute among technical experts,” says Glaister.

“What you’re replacing is much older [than the Madrid system]. You can destroy the existing system just by opening the box.”

If all goes to plan, the recriminations will have an end point when the sale is complete on 30 June.

However, it remains to be seen whether LU can deliver the upgrades and maintenance in a more cost effective way than Tube Lines.

LU had told the Arbiter it expected the work to only cost £4bn and has argued that it has now evolved into a more efficient organisation than it was pre-PPP.

However, the Arbiter fired a warning shot to LU over its lack of transparency this week. This raises questions about how its performance will be measured in future.

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