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.
Setting out today’s ruling Bolt said: “I have listened carefully to the representations made by both Tube Lines and London Underground, and made a number of changes to my draft directions. Overall, this leads to a small increase in the costs allowed for the next Review Period.”
Bolt’s final ruling on costs marks a defeat for both Tube Lines, which originally costed the works in the region go £6.8bn, and TfL which had budgeted for only £4.0bn.
Mayor of London Boris Johnson, who also chairs the TfL board, said the funding gap facing London was evidence that PPP is “not delivering for Londoners and taxpayers”.
Johnson has previously called on central Government to make good any funding gap in recognition of the decision to force PPP on London despite the wishes of Londoners.
In a statement issued this morning the Mayor said “Londoners will be outraged that the Tube upgrades promised to them are now threatened. Simply put, we are being asked to write a blank cheque in order to prop up an ailing and failing Tube Lines, and to guarantee massive and secretive payments of £400 million to its shareholders, Ferrovial and Bechtel. In other countries this would be called looting, here it is called the PPP.”
“It is a system that no Londoner voted for and which is letting us down, while the Government seeks to wash its hands of the mess it created. We will fight this to the last and are seeking urgent advice on the Arbiter’s idea to pass Tube Lines’ obligations to raise finance on to London’s fare and taxpayers.”
Johnson warned that he and TfL were “examining all our options, including legal remedies”.
Tubes Lines said the Arbiter’s final determination was recognition that public borrowing is the cheapest way to raise additional funds for vital upgrade. However it cautioned that the final decision “only partially reflected” representations it had made and warned that “substantial changes in the way the contract is operated and managed” would be needed.
Tube Lines Acting Chief Executive, Andrew Cleaves, said: “We note the Arbiter’s decision on the second Review Period costs. We consider that this decision could present Tube Lines with a significant challenge in its efforts to deliver the investment in the Tube that the system continues to require.
“We have worked hard with London Underground to make this partnership work. During the last seven years, Tube Lines has achieved significant improvements in reliability, cost and safety. With the support of London Underground, we can do even better in the next few years.
“The Tube requires sustained, high levels of long term investment. It is important therefore that there is general support for this massive improvement in the Tube in order to deliver the London Underground’s vision of a world-class railway for London.
“The Arbiter has previously agreed that we have already shown a real commitment to drive down costs and increase performance outputs for the benefit of passengers. Our costs for doing the same work as London Underground are a third cheaper and, according to the Arbiter’s own data, will continue to be less expensive in the future.
“It is clear that the Arbiter has relied on international benchmarking to help drive down public spending and is expecting both us and London Underground to become more efficient still by adopting some of the delivery methods used by other, more modern Metro systems around the world. This will require a step change in the way that Tube Lines and London Underground work together. We will wholeheartedly welcome working more closely with LU to simplify and modernise working practices on the Underground and give Tube passengers more, for less.”
Liberal Democrat London Assembly Transport Spokesperson Caroline Pidgeon said today’s announcement “signals the need for a complete review of how the tube is upgraded” and warned ”passengers and local traders ultimately will suffer if London Underground and Tube Lines don’t get their heads together and ensure our tube is modernised as quickly and painlessly as possible.”
A spokesperson for passenger watchdog London TravelWatch said it was ” vital for passengers that a resolution between Tube Lines and London Underground is found, and that we do not return to ‘stop-start’ funding on the underground. It is equally vital that the upgrade work is not reduced or cancelled.”
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.
