Examination of Witnesses (Questions 1
WEDNESDAY 21 NOVEMBER 2001
Chairman: Good afternoon, gentlemen. Can I welcome
you most warmly. Can I, first, perhaps explain to you some of
our ground rules. You have microphones in front of you, simply
to confuse you, and therefore if you would speak up quite loudly,
because they will record your voices but they will not project
your voices. If you agree with one another, I would be grateful
if you would keep a certain discreet silence, and if you wish
to make some other comment I would be grateful if you would let
me know. We must, however, begin by a declaration of interest.
I am a member of the Rail, Maritime and Transport Union; any other
Mr Stevenson: Transport and General.
Helen Jackson: Transport and General.
Mr Donohoe: Transport and General.
Mrs Ellman: Transport and General.
Miss McIntosh: I have shares, modest shares,
in Railtrack, Eurotunnel and First Group.
1. Thank you very much. Gentlemen, would you
like to identify yourselves, for the record?
(Mr Smith) Yes, Chairman. Good afternoon. I am Derek
Smith. I am a member of the London Regional Transport Board and
I am Chairman of London Underground. To my right is Martin Callaghan,
who is the PPP Director of London Underground; and to his right
is Tony Poulter, who is a partner in PricewaterhouseCoopers. To
my left is Mike Strzelecki, who is the Director of Safety for
2. Mr Smith, do you wish to make some preliminary
(Mr Smith) I will be very brief, Chairman. It is over
18 months since London Underground was last here to give evidence
to this Committee, and in that time we have been seeking to make
progress with the PPP. We are near the end; that is, we are at
an advanced stage with our negotiations and we are reaching the
point of the two critical tests for the Public Private Partnership,
that is the test of safety, about which we have heard a great
deal, and about value for money. I will leave my statement there,
because I have no doubt that these are issues that you want to
discuss this afternoon.
3. That is very perceptive of you, Mr Smith.
I think you may very well be correct. Can I just ask you, to begin
with, are these Private, I call them, Finance Initiative contracts
so complex as to be unworkable?
(Mr Smith) No, they are not, Chairman. We have in
the Underground already several large Private Finance Initiative
contracts; these are associated with our new ticketing system
and the provision of gates, with the provision of power to the
system, which, of course, is critical, with the provision of the
information and communication systems that are now being converted
within the system so that we can communicate with trains, and
so on. We have £1.7 billions worth in capital value of PFI
contracts already, which are under way.
4. Yes; however, Mr Smith, running a particular
project like ticketing must, by definition, be rather different
from running an entire line, do you not agree?
(Mr Smith) The PPP is not a PFI, and it certainly
is more extensive, because it is
5. Then shall we give it its correct title?
(Mr Smith) The Public Private Partnership
6. Thank you.
(Mr Smith) Is very extensive, a codification of that
which we do already, but designed in such a way as to ensure that
the Underground will be financed from the private sector over
7. Codification; so is attributing each delay
on the network to either London Underground or the private sector
company a sensible way of running an underground system?
(Mr Smith) It is very important, whoever runs an underground
system, that there is a clear attribution of fault. If we take
the example that the underground were wholly, say, operated in
the public sector, as it is today, we need to understand just
why the faults have occurred; was it due to an asset, was it due
to the fact that one of our passengers has done something, because
today, for example, somebody went berserk with a knife on one
of our lines, that therefore caused delay, or is it due to the
fact that it is something directly within the management's control,
which they could, and should, put right.
8. So you are telling us that this very detailed
control has to be exercised, otherwise it will not be possible
to run the Public Private Partnership? Now can you therefore tell
us, how much money have you set aside in your budget to manage
(Mr Smith) Can I answer the first part of the question,
which is, it is absolutely essential, in running a railway, that
these things are understood, and particularly a high-frequency
metro; so that people need to know what these faults are and why
these faults exist.
9. We have understood that, Mr Smith, you have
made that very clear. How much money have you set aside from your
budget to control this process?
(Mr Smith) To attribute faults?
(Mr Smith) I am afraid, I cannot tell you that, Chairman,
at this moment.
11. But you must have some idea, because, obviously,
as you have made very clear to us, it is the detail, and the control
detail, that is going to make the essential difference?
(Mr Smith) Fault attribution has its complexities
and involves many parts of the business.
12. So you must have thought about that, since
you have thought about the complexities, since you have sought
to find, certainly, definitions, since you intend to manage it
right down to this very detailed level, you must have thought
how much that will cost you in order to manage?
(Mr Smith) We have certainly identified the costs
in various parts of the business, but they are spread, they are
disseminated throughout many parts of it, which is my difficulty
in answering you today.
13. Well, could you not, therefore, give us
the general indication of the sort of amount of money; because,
presumably, you cannot operate without a heading which is targeted
at this one function?
(Mr Smith) The heading would be in a number of functions.
It would be in information technology, in our contract management
function itself, in our operations, and it would be spread throughout
the various parts.
14. Do you think it is going to be difficult,
or impossible, to quantify value for money?
(Mr Smith) I think it is a very complicated matter,
and if you
15. Does that mean yes, you do think, or no,
you do not?
(Mr Smith) I think it is possible to show it.
(Mr Smith) And I was going to suggest that my colleague,
Mr Poulter, perhaps gave some detail on how we would do it.
17. Yes; why not, Mr Poulter. Forward, Mr Poulter.
(Mr Poulter) Thank you, Chairman. There are a number
of factors to assess; the financial element of the comparison
is to compare the bids against a public sector comparator, which
is a projection of what providing the services would cost in the
public sector. But there are also a number of wider factors to
be considered, such as the effect on operating performance, staff
morale, other benefits, so it is a complex comparison but one
for which, of course, we have been preparing for a long time.
(Mr Poulter) So I am confident it can be done.
19. You are confident it can be done; in every
single detail, given that some of thewe will come on to
the specific formulae in a moment, because they are rather complicated,
are they not, Mr Poulter?
(Mr Poulter) Forgive me, Chairman, which formulae
are you talking about?