Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 209 - 219)

WEDNESDAY 21 NOVEMBER 2001

MR TONY MUSTARD AND MR JEROME FORMAN

Chairman

  209. Gentlemen, thank you. I do apologise for keeping you waiting. I am afraid life is full of exigencies. Would you be kind enough to identify yourselves, for the record?
  (Mr Mustard) My name is Tony Mustard. I am the Director of Parsons Brinckerhoff's Rail Group for the European, Africa and Middle East Region. I bring experience of working on private-financed systems from overseas, in Bangkok, Kuala Lumpur, I have also worked on the PFI schemes in Birmingham, on the Midland Metro, on Manchester MetroLink, and our company has had long involvement in the power PFI for London Underground. My colleague, Jerry, can introduce himself.
  (Mr Forman) My name is Jerome Forman. I am a Vice President of Parsons Brinckerhoff in New York. I am currently working on a major rail project there, to bring the Long Island Railway into Grand Central Terminal. I am here primarily because between 1986 and 1996 I was a Senior Vice President of the New York City Transit Authority, and managed the capital programme that did a great deal to revitalise that system, repair it and bring it towards the state of repair that it is in today.

  210. I am sure that will be very helpful to us, Mr Forman. Can you tell us in what way the existing engineering standards are inappropriate and inadequate to enable London Underground to manage the PPP?
  (Mr Mustard) I can explain our situation, Madam Chairman. The current standards, as Mr Strzelecki outlined before us, are fairly comprehensive, they have been developed by London Underground to run the public sector railway, and they are constantly under review. The concerns that we had were that when the Public Private Partnership goes ahead it is a performance-based contract and the standards are very prescriptive; the contractors are there to do things more effectively, more modern, differently from the way things are done, which will allow them to make the profit that they are looking for. Our belief is that the standards currently do not suit the working methods that the contractors are likely to undertake.

  211. So do you want to give us an estimate of the cost of updating the LUL standards?
  (Mr Mustard) We gave a recommendation, as part of our work, we were also sub-consultants to Ove Arup, as the technical adviser, so we have been working with London Underground for three years now to put the documents together. Two years ago, we submitted, as the technical adviser, a report outlining our concerns about the standards and the need to rewrite them quickly, before the best and final offer; that gave a two-year period. Our subsequent report, in June/July this year accelerated that to 18 months. As for cost, I think you are talking about a team of probably ten people, maybe 20 people, and very qualified people, working for a period of 18 months to two years, probably talking about £5 million or £10 million.
  (Mr Forman) If I may add. We have a concern about the quality of the contract in a state of standards that need to be revised; in other words, the standards are referred to in the contract, they are referred to in meetings, and yet it is accepted that they need to be updated and revised. Well, the question is, as that is done, does it lead to change orders to the contract, additional expenses, and how does that factor into the date that you—the day you award the contract, you must define the standards that are in effect the day of award, recognising that they may change, they may reduce the cost of the contract, but they also might increase the cost of the contract.

  212. And that assessment is based on your practical experience as engineers in charge of large projects, including the one that you mentioned that you yourself had been involved with?
  (Mr Forman) Yes. Standards change all the time, they change because of technology, they change because of Government regulations, they change because the engineering societies upgrade the codes and they become law; so it is an ongoing process. And it is important that what is in effect the day the contract is awarded is defined, so that there is a measurement process to proceed beyond that.

  213. So your views are not influenced in any way by Transport for London, you are doing this on the basis of your practical knowledge of managing projects of this size, and so on?
  (Mr Forman) Yes.
  (Mr Mustard) That is correct.

  Chairman: Thank you very much.

Chris Grayling

  214. I wonder if I could seek your professional guidance on the flow of investment through the course of the contracts, as outlined; you have obviously looked quite closely at what is proposed. Do you have a sense, based on your knowledge, that the project is being spread out over a longer period than it needs to be; would it be possible to do the work on a working underground network more quickly than it is being otherwise done, and, if so, how much more quickly?
  (Mr Forman) I do not think we actually specifically studied that. I will say that, in comparing New York to London, which I frequently am forced to do, London has engineering hours, when the system shuts down. Our Mayor proudly states New York never sleeps; its transit system does not either, it runs 24 hours a day, seven days a week, which makes it more difficult. London is more forgiving in accepting large influxes of capital and work, but whether it can take, as was discussed earlier, the amount of work that you may want to force into it really needs to be totally scheduled out. And London Underground, the operating agency, needs to be in control of that, not the Infracos.

  215. How long did it take you, in New York, to do the work that you did, do you have a sense? If you compare your knowledge of the New York project and what you have seen of the London project, in terms of the time-frame being taken to do things, how does that compare?
  (Mr Forman) New York sort of began rebuilding itself in the mid eighties; it is still going on, these are not short-term programmes. We invented an acronym, called SOGR, state of good repair, and every year we would advance projects, complete them and sort of check off what we had accomplished. The key increments that were attacked first were those that dealt with service delivery, the track, there were hundreds of red-tag areas, the contractors were brought in, the track was brought into a state of good repair; today, I think there are about 3,500 employees of the Transit Authority that maintain it in a state of good repair, continuously replacing track and keeping it there. The signal system, the train control system, that was brought in, power and the vehicles; there was a massive programme in the mid eighties to rehabilitate vehicles, to refurbish them, and they had a 15-year life. Today, they are being replaced by new vehicles we are showing off. There is a 1,000-car procurement that is starting to bring new cars into the system, and the rehabilitated, rebuilt ones are going to disappear. The stations programme came later. The message was that a beautiful station to which I cannot bring a train we do not need. So the first thing is to improve the delivery system of service. And those were the things that were attacked first, and it worked; but it takes years and years, and it was a difficult thing to start, there were fits and starts, there were mistakes, there were budgeting problems, but today it really works as a well-oiled machine, and it has to go on for ever. We estimated that it takes a billion dollars a year to stand still.

Chairman

  216. So, you are saying, a billion plus, because it must be continually maintained and improved?
  (Mr Forman) Yes.

Chris Grayling

  217. One of the things that has been said to me about people who work within the underground is that what the private sector has the ability to do is to tackle individual engineering problems in a systematic way, in a way that the public sector cannot. And I was quoted the example of an individual valve, which if you replaced a large number of them across the network you could make a significant improvement in performance; but, because the public sector culture of management of the infrastructure is not really geared up to taking strategic decisions like that, it never really happened. Do you have a sense that the approach brought by the private sector organisations to the engineering of the underground will enable them to take strategic, short-term engineering decisions that simply a public sector culture cannot?
  (Mr Forman) I cannot comment on the LUL people, I really do not know them. I do know that one of the things that was done, a lot of private sector people, which I was once, I worked for consultants for 20 years before joining the public sector, were brought into the organisation, and the culture was changed. So that things of this nature absolutely were attacked, and many, many things were done very differently from the way they had been done before.

  218. A final point is just about the question of risk. We heard earlier from the gentleman from PricewaterhouseCoopers about the fact that the first seven and a half years is on a-fixed-price basis, beyond seven and a half years is not. Based on your assessment of London Underground's ability to audit what is happening, to know the full scope and extent of what is needed, do you have confidence that it is possible at this stage to make fairly clearly-defined forecasts about costs and requirements in the last 22½ years of a 30-year period?
  (Mr Forman) Based on my experience, the first seven and a half years will be a learning curve?

Mr Donohoe

  219. On the basis of your expertise, what would you suggest would be the effect of what you are saying on the potential for investors to come in?
  (Mr Forman) I could not comment on that. I spent the money, I was not involved in the financial aspects of it, the programme. I was not involved in how the funds were raised. I could not comment on that.


 
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