The cost of works on the Jubilee, Northern and Piccadilly lines over the 7½ years from 1 July 2010 should be set at £4.4bn according to Chris Bolt, the independent Tube PPP Arbiter.
Bolt said: “I have reviewed carefully the submissions from Tube Lines and London Underground, and taken expert advice. On the basis of my analysis, I consider that a company operating in an overall efficient and economic manner and in accordance with Good Industry Practice – the test in the PPP Agreement – could deliver its obligations at a substantially lower cost than projected by Tube Lines, though not as cheaply as suggested by London Underground.”
In September London Underground called in the Arbiter after it was unable to agree costs for improvement works with PPP contractor Tube Lines. The company made a formal submission to LU costing the works at £6.8 billion although it also identified possible savings which could reduce costs to just over £5 billion. In turn LU priced the works at no more than £4bn.
A statement issued by the Arbiter’s office says he “has taken the view that Tube Lines, operating in effective partnership with London Underground, could have delivered the Jubilee Line upgrade on time and to budget, and could now be progressing well with the Northern Line upgrade.
“However, the Arbiter recognises that Tube Lines has made significant contractual claims against London Underground, including in respect of the Jubilee Line upgrade, reflecting its view of the impact of London Underground’s approach to the contract. If these claims are successful, the Arbiter would expect Tube Lines to make further claims relating to the upgrade projects which would add to its future income.”
Bolt added: “Before I make draft directions on charges, I am seeking an assurance from London Underground that it is able to afford the cost figure I propose to direct. If it cannot give that assurance, it will need to review the scope of its requirements for the next 71⁄2 years. I am also seeking its views on whether it would offer better value for money for any additional financing to be raised by Tube Lines or by Transport for London. TfL has already agreed to provide finance for the purchase of new Piccadilly Line trains because this provides better value.”
LU’s decision to call in the Arbiter prompted Tube Lines to express disappointment, insisting the firm had made “a very good offer that will bring the cost of work down to a level that they can afford whilst still being able to deliver the performance and upgrades that the underground needs.”
Following the referral Bolt issued a statement confirming “significant progress” had been made between LU and Tube Lines but confirmed “there is still a big gap” between the two parties.
Responding to today’s draft determination Mayor of London, Boris Johnson said: “I welcome the Arbiter’s rejection of Tube Lines view of costs, and his recognition that they should be much closer to London Underground’s. However, I am determined that any additional costs must not fall on London’s fare payers and taxpayers.”
“I also urge Tube Lines to work with London Underground to focus on the job in hand – to complete the delayed Jubilee line upgrade as soon as possible. Only by ensuring these upgrades are delivered can the Capital continue to function as the heartbeat of the national economy.”
In a statement Tube Lines said it “disagrees” with Bolt’s conclusions, adding that the proposed figure of £4.4bn “is very demanding for the work that has to be undertaken by us.”
Commenting on the draft direction, Dean Finch, Tube Lines chief executive, said: “A settlement at this level is not conducive to private sector involvement in the Underground, nor does it reflect the reality of the Underground working environment. The Arbiter recognises that LU is a difficult client, but rather than including a costed assessment of that impact, he expects Tube Lines to cover its costs by making claims against LU now and more in the future.
“The Arbiter has acknowledged even at this level that LU has a stark choice to make – either to do less work or raise additional finance. However, this document is a draft and we have a further six weeks to make representations which we will do robustly.”
On Wednesday it was announced Finch is to join National Express as its Chief Executive, but will remain at Tube Lines “until such time that a suitable successor can be found and an appropriate transition period worked through.”
Both London Underground and Tube Lines are able to make representations on the draft decision ahead of the Arbiter’s final determination which is expected to be published in March 2010.
Commenting on the gap between TfL’s budget provision of £4bn and the Arbiter’s £4.4bn determination Liberal Democrat London Assembly Transport Spokesperson, Caroline Pidgeon said: “With the Mayor and Transport for London having no contingency for funding this gap it is hard to see what options the Mayor has other than raising fares further or cutting back on the Tube upgrades.”
In May 2008 Transport for London took control of failed tube contractor Metronet which collapsed the previous year after shareholders, including WS Atkins and Balfour Beatty, withdrew support from the company. Despite earlier refusals, the Government confirmed in February 2008 it would make available a £1.7bn “grant” to pay off Metronet’s creditors.
The Mayor and Transport for London are this morning facing calls to bring the Tube Lines contract in house. Green Party AM Jenny Jones said: “The PPP has cost Londoners a lot more money than it was meant to and I don’t see why we should go on putting good money after bad whilst suffering weekend delays and broken deadlines for work to be completed. Transport for London should take all the work in house and the PPP disaster must be wound up”.
Jones added: “Tube Lines staggered on after Metronet collapsed, but it is now clearly seen as part of the problem and not the solution. The PPP was a flawed idea imposed on London by a Government that refused to listen to common sense.”
Jones’s call has been echoed by RMT General Secretary Bob Crow who warned “the one and half billion pound back hole on the Tube Lines contract could lead to the collapse of the company within a matter of weeks. The Piccadilly, Northern and Jubilee Lines could literally grind to a halt as the cash runs out plunging London into total chaos.”
Crow added: “Rather than sitting back waiting for a spectacular Metronet-style failure, the government and TfL should act now to seize back the keys from Tube Lines and bring their operations back under direct public control as a matter of urgency.”
London’s passenger watchdog TravelWatch has also responded to today’s announcement. Communications Officer Jo deBank said: “It is too early to tell how this will affect passengers directly. However, we do not want to see fares rising to plug any funding gap, and they should not suffer any worsening of services.”
About the PPP Arbiter
The remit of the PPP Arbiter is set out in the Greater London Authority Act and is supplemented by contractual provisions included within the PPP Agreements.
Under the terms of the GLA Act, the Arbiter may give directions on matters specified in the PPP Agreements or guidance on any matter relating to a PPP Agreement, when requested to do so by a PPP Party. Directions given by the Arbiter modify the contract unless both Parties agree to set the direction aside.
VIew a short video or Tubes Lines staff working at Euston
Earlier this year MayorWatch accompanied Tube Lines staff who were carrying out overnight maintenance and replacing track buffers in the Euston area, the following short video shows the working conditions staff operate in: