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


Memorandum by Tube Lines (LU 13)

LONDON UNDERGROUND AND THE PUBLIC PRIVATE PARTNERSHIP

INTRODUCTION

  1.  The committee is seeking evidence from all parties into an inquiry relating to London Underground Limited (LUL) and the "Public-Private Partnership" (PPP). Tube Lines thanks the committee for considering our submission.

  2.  Tube Lines is the "preferred bidder" for the PPP for the Jubilee, Northern and Piccadilly (JNP) Lines of LUL. Tube Lines will work in partnership with LUL (through Infraco JNP, a company whose shares will be owned by Tube Lines and LUL) to provide trains, tracks, signalling, stations and related infrastructure in relation to the JNP network in order for LUL to operate and provide the public with a modern and reliable metro service. In order to achieve these aims, Infraco JNP will contract with LUL for the provision of the JNP network assets.

  3.  Tube Lines is committed to LUL's defined "Key Objectives" for the PPP that include:

    —  stewardship of Infraco JNP to maintain, renew and enhance trains, tracks, signalling, stations and related infrastructure to progressively reduce and eliminate the existing backlog in asset maintenance to deliver an overall improvement in the asset health, capability and reliability of service of the JNP network;

    —  certainty and stability of the service that LUL wishes to operate or provide;

    —  flexibility, as may reasonably be required by LUL, to alter the characteristics of the trains, tracks, signalling, stations and related infrastructure that it requires to meet the needs of the public over time; and,

    —  consistency of the availability and stewardship of the assets of the JNP Lines and close co-ordination with the other parts of the Underground network to provide a safe and reliable metro service.

  4.  Tube Lines was formed over two years ago by subsidiaries of Amey plc, Bechtel Enterprises Holdings, Inc., and Jarvis plc specifically to bid, win and then deliver LUL's requirements under the PPP. The respective skills and expertise of three of the most highly regarded operational and project management organisations in the world are combined through Tube Lines with Infraco JNP to create an infrastructure management company ideally placed to deliver its obligations in the PPP.

  5.  The existing 2,400 employees within Infraco JNP will be supplemented with a team of up to 100 extremely experienced leaders, engineers and project managers drawn from our shareholders and externally. These new additions will lead the change of Infraco JNP from an organisation that has been deprived of sufficient resources and operates with limited accountability to a dynamic organisation with strong financial resources, direct accountability and incentives to perform in accordance with the obligations of the PPP and thereby deliver LUL improved performance and reliability.

  6.  Tube Lines has structured its approach to respect the independence of Infraco JNP to deliver the PPP without undue influence from its shareholders. Accordingly, each package of work will be sourced independently and competitively without "reserved roles" for the Tube Lines shareholders. This will allow Infraco JNP to obtain the best technical solutions for LUL consistent with the requirements of the PPP and take advantage of advances in all areas, including signalling and trains.

  7.  The parties involved in the PPP agree that they need to document and adhere to a set of common standards so as to secure a safe, reliable and consistent operation of the LUL services. Accordingly, under Tube Lines ownership, Infraco JNP will adhere to the standards regime as defined by LUL and included in the PPP.

  8.  At all times, Infraco JNP and LUL will implement the PPP under the safety regimes established by Her Majesty's Railways Inspectorate (HMRI). These parties will work together to provide their respective employees, stakeholders and passengers with a workplace, environment and transport system where the existing commendable safety record is sustained and progressively improved over time.

REGENERATING AND TRANSFORMING THE UNDERGROUND NETWORK

  9.  Tube Lines will have stewardship over the JNP network for thirty years. To allow LUL flexibility to set and adjust broad objectives throughout Tube Lines' stewardship, the term is divided into four "Review Periods" of seven and one-half years each.

  10.  Following years of under-investment, the Underground network is in urgent need of modernisation. The existing backlog in asset maintenance and required renewals has decreased the reliability of LUL's service. At present investment levels, the Underground network will not be able to sustain the increase in passenger numbers and demand that is forecast over the next ten years. In order to meet this demand and run a more cost-effective Underground network, the train, track, signalling, station, tunnels all require substantially greater investment than has been provided over the past several decades.

  11.  Passengers on the JNP lines can expect to notice progressive improvement in the standard of LUL's services as a consequence of the programme of work Infraco JNP will implement under Tube Lines ownership. Over the first Review Period, Infraco JNP will invest about £2 billion in the assets of the JNP network—this is a threefold increase in the amounts expended on the JNP lines in recent years. In addition, maintenance expenditure will be increased by around 20 per cent when compared to recent levels.

  12.  Our first priority for the JNP lines will be to deal with the primary causes of the service unreliability that can be addressed through improvements to the assets of the JNP lines. This means an immediate and targeted programme to eliminate signalling "pinch points," to replace track where its condition requires LUL to impose speed restrictions and to reduce rolling stock failures. While this early work is underway, Infraco JNP will commence several longer-term projects designed to facilitate more frequent train services, reduce delays and improve journey time capabilities. For example, in the first 15 years, Infraco JNP will replace all track on the JNP lines (with the exception of the new track on the newly opened Jubilee Line extension). In addition, Infraco JNP will progressively introduce new or refurbished rolling stock as required by LUL under the PPP. These improvements will result in a system capable of handling expected traffic growth, while reducing over-crowding over time.

  13.  The most visible element of Infraco JNP's work will involve the upgrade of every station during the first Review Period. The extent of the work to be done at stations varies greatly. Many older stations require "Modernisation"—a substantial package of works that in many cases is virtually a rebuild of the station to reduce congestion, improve the environment and enhance passenger safety. Key elements of Infraco JNP's station improvements programme will enhance fire protection, extend the availability of passenger help points, improve passenger information systems on platforms, extend step-free access and carry out a major escalator replacement programme.

  14.  The investment programme is designed to meet LUL's performance targets as established in the PPP. These targets set objective criteria that the performance of Infraco JNP is measured against.

THE RELATIONSHIP BETWEEN TUBE LINES AND LONDON UNDERGROUND

  15.  Infraco JNP will be a "single-purpose" company that will be incentivised to ensure that its sole client—LUL, a public sector body that will be controlled by Transport for London—remains satisfied with the performance of the JNP network. Under the PPP Infraco JNP will not be free to do anything other than implement the PPP. The PPP requires that, at the end of the PPP arrangement with Tube Lines, LUL or a successor to Tube Lines appointed by LUL is able to assume stewardship over Infraco JNP.

  16.  Under the provisions of the PPP, Infraco JNP continues to have responsibility for the maintenance, refurbishment and replacement of the basic infrastructure of the JNP network. This includes track, trains, signalling, stations, tunnels, embankments, drains, earthworks and bridges.

  17.  The PPP allows LUL to decide what has to be done, when it has to be done by and the standards under which the work must be delivered. Infraco JNP will use its best engineering skills and judgement to implement LUL's specified needs while maintaining the JNP network in a safe and reliable state.

  18.  The PPP aligns the goals of LUL and Tube Lines in respect of delivery of service to LUL's customers through a number of contractual means:

    —  First, the payment regime encourages Infraco JNP to deliver improvements earlier than it is contractually obliged to and to deliver a higher level of performance in respect of reliability and customer satisfaction than is currently being achieved;

    —  Second, the payment regime provides for substantial financial penalties if Infraco JNP delivers any improvement later than its contractual obligations, lower performance than required results from such improvements or Infraco JNP fails to achieve the overall level of performance required;

    —  Third, LUL can direct Infraco JNP to take specific actions through a number of methods including "corrective action notices" in the event a failure of undertaking has occurred—Infraco JNP's failure to rectify the situation may lead to the termination of the contract for default;

    —  Finally, London Underground reserves the right to intervene in Infraco JNP's activities should there be any breach in agreed safety standards or sustained deterioration in safety performance.

  19.  It should be noted that, in each year of Tube Lines' stewardship, as a safeguard to technical disagreements, LUL retains a right to direct Infraco JNP to undertake a level of work that it believes is critical to safety of the JNP network or the public.

  20.  In the public debate over the PPP, some commentators have suggested that it will recreate the separation of responsibilities that exist on the national railways. This is incorrect.

    —  LUL—the single train operating company—remains a public sector body and sets the standards for the Underground network that the infrastructure companies must comply with.

    —  In contrast, the national railways operate under the control of two regulatory bodies, three financial companies provide rolling stock to 28 passenger or freight train operating companies that provide service over the infrastructure of Railtrack and 14 maintenance companies maintain such infrastructure.

    —  Perhaps one of the key misconceptions about the PPP has been that it splits responsibility for the track/train or "wheel/rail" interface as occurs on the national railways. Rather than do this, the architects of the PPP ensured that, under the PPP approach, the three infrastructure companies—including Infraco JNP under the stewardship of Tube Lines—are responsible for providing and maintaining all of the infrastructure—including both track and trains. The PPP establishes only three infrastructure companies who provide and maintain rolling stock and infrastructure for a single train operating company—LUL.

  In summary, the multiple levels of responsibility and interface that exist on the national railways simply do not exist in the PPP where there is one client and only three service providers.

MANAGING SAFETY

  21.  Under the PPP, LUL retains overall responsibility for the safe operation of the Underground network with powers to ensure that Infraco JNP comply with all standards and the HMRI approved Safety Case. LUL decide if and when the assets are safe for use. Infraco JNP's Safety Case under its contract with LUL will require Infraco JNP to apply mandatory standards to the maintenance and inspection of assets, so that they are maintained to a defined standard and that checks and balances are put into place to ensure that they are handed over to LUL in a safe condition. If LUL decide any parts of the JNP network, including trains, are unsafe for use, the offending assets must be taken out of operation. Infraco JNP is penalised for any failure to meet the LUL performance specifications as a result of such events and is required to undertake immediate repairs to put the asset into service again.

  22.  LUL, and Infraco JNP, operate under an HMRI approved Safety Case. Infraco JNP must comply with the Safety Case and with any Standards (including those relating to safety) imposed by LUL. While Infraco JNP may request changes to its processes, organisation, methods of working or to implement new technology on the JNP Network, any such changes must be assessed to ensure that risks continue to be managed to levels that are as low as reasonably practical. Any such changes which would potentially affect safety must be approved by LUL, HMRI or Railway Safety Ltd as appropriate.

  23.  Unlike the practice on the national railways, under the PPP, LUL, the public sector client for Infraco JNP, formally accepts the JNP Network assets into service. This applies both to the completion of maintenance work on existing assets and to the introduction of new assets. We fully anticipate that LUL will only do this when Infraco JNP has demonstrated that it is safe to put the assets into service and that such assets comply with HMRI's requirements under the Safety Cases. This also includes assurance and requires that the management teams in both LUL and Infraco JNP can prove through rigorous assessment the competencies necessary to discharge their individual and collective responsibilities for safety.

TRANSFERRING RISK

  24.  The PPP has been structured so as to provide a good balance between financial risk transfer and value for money. It allocates certain risks to parties—LUL and Tube Lines—depending on who is best able to manage them. As such, not all risks are transferred to the private sector. Rather, some are retained in the public sector and some are shared.

  25.  In essence, the PPP transfers to Tube Lines the risk associated with maintaining, renewing and enhancing the trains, tracks, signalling, stations and related infrastructure of the JNP network and providing LUL with a base capability and reliability level for such network. Tube Lines has conducted over one million man-hours of work to evaluate the condition of the JNP network assets and assess the risks associated with providing LUL's required level of service. Tube Lines is investing substantial financial and human resources to deliver on Infraco JNP's commitments that it is taking on under the PPP and risks losing all of its investment in the event that Infraco JNP is unable to perform against the requirements of the PPP.

  26.  The PPP provides substantial risk transfer when compared with schemes where the public sector retains sole responsibility for the delivery and maintenance of large, complex projects and maintenance programs.

  27.  According to the National Audit Office, the average cost over-run on the last 242 projects managed by LUL (excluding the substantially greater percentage cost over-run on the Jubilee Line Extension) has been 20 per cent. The investment programme for the JNP network under the PPP over the first seven and a half years is about £2 billion. On a programme of this scale, a 20 per cent over-run would amount to £400 million in additional costs. To put this into the context of overall LUL finances, this equals around half of total fare box revenue of the Underground Network.

  28.  Often the challenges that beset a public sector entity are not simply related to execution but to establishing the priorities and requirements clearly enough at the outset so that progress and performance on large schemes can be objectively set and measured. However, the delivery of large-scale investment and maintenance programmes such as the Jubilee Line Extension or the substantial programme envisaged under the PPP remains a specialist task. This analysis led to the Government's decision to develop the PPP, transfer substantial risk to the private sector in a transparent contract and draw in private sector financing and investment and the management attention that flow with such capital. LUL has appropriately established a clear set of objectives, priorities and requirements that provide Tube Lines and LUL a clear benchmark through which to measure performance. As stated above, the programme envisaged under the PPP remains a specialist task, requiring the systems, techniques and management depth that Tube Lines will bring to Infraco JNP.

FLEXIBILITY UNDER THE PPP

  29.  The PPP provides a number of mechanisms to allow LUL flexibility to adjust its requirements after Infraco JNP is under the stewardship of Tube Lines.

    —  LUL has an allowance of £30 million in each seven and one-half year Review Period from which they can direct or instruct a minor change to the JNP network. This would cover all incidental requests relating to the day-to-day operation of the LUL service. The figure has been based upon historic expenditure of this nature.

    —  Over each Review Period, LUL can instruct Infraco JNP to implement any change to the JNP network or the contract between the parties to a value of £10 million per year. LUL will pay this cost directly.

    —  LUL has a number of "specified rights", where the parties have agreed in advance that LUL can direct Infraco JNP to undertake certain specified works (such as those necessary for the interchange for the East London Line and Canada Water redevelopment).

    —  LUL can also request that Infraco JNP undertake "Major Enhancements" to the JNP network, where the current state of planning, approvals or understanding of the future requirements of LUL necessitate that such enhancements be introduced through co-operation between the parties at a later stage to negotiate, finance and implement such enhancements and the performance, cost and other consequences arising from them. Examples of this would be the rebuilding of the JNP assets around the new Wembley Park, should this be required.

  30.  Overriding all of these contractual features, LUL has the ability to reset its objectives, priorities and requirements at beginning of each of the seven and one-half year Review Periods.

ENSURING ACCOUNTABILITY, VISIBILITY AND AUDITABILITY

  31.  In order to ensure proper oversight of Infraco JNP's activities, LUL will be provided highly detailed performance and asset condition information and have extensive rights to audit all information developed by Infraco JNP, save for that which is agreed to be either commercially confidential or a breach of the Data Protection Act (such as an individual's personal data).

  32.  Assurance will be a key feature in the context of safety, with LUL auditing Infraco JNP's adherence to its contractual safety case. As part of this process LUL will be looking at the assurance/surveillance activities that are applied to Infraco JNP and its contractors.

  33.  Additionally, LUL will nominate a "partnership director" to sit on the Board of Directors of Infraco JNP. Such partnership director will be afforded access to information and contribute to all material decisions taken by Infraco JNP in the execution of its obligations to provide the trains, tracks, signalling, stations and related infrastructure of the JNP network to LUL in a safe and reliable state.

THE RELATIONSHIP WITH EMPLOYEES AND TRADE UNIONS

  34.  The existing employees of Infraco JNP have years of expertise and experience with the JNP network assets. They will provide the continuity to allow successful delivery of LUL's Key Objectives for the PPP and thereby a progressive improvement in the asset health, capability and reliability of service of the JNP network.

  35.  All the parties involved in Tube Lines (Amey, Bechtel and Jarvis) and Infraco JNP are intimately familiar with working with trade unions in the UK rail environment. Tube Lines have met and discussed our proposals for managing Infraco JNP with trade union representatives and look forward to working closely with the trade unions to deliver LUL's requirements for the PPP.

  36.  Our programme involves keeping Infraco JNP together as one organisation, and we have no plans to reassign or outsource parts of the workforce in any form of secondary transfer.

  37.  We have committed to meeting the assurances the Deputy Prime Minister gave to Parliament relating to the right of Infraco JNP employees to remain inside the LUL pension scheme and to providing the same rights that non-transferring staff enjoy in respect of the free travel benefits.

CONCLUSION

  38.  The future of the London Underground Network as a revitalised public service, meeting the needs of its passengers and contributing to the national and local economies, has been clearly articulated by LUL. It has defined its objectives, specified improvements and enhancements it requires to meet customers' expectations and had the vision to look beyond its own organisational boundaries to find ways and means to deliver. Through the mechanism of PPP, the existing skills and expertise of its Infraco subsidiary will be complemented by specific management experience in implementing complex, large-scale infrastructure enhancement and maintenance programmes. From securing funding, to implementing enhancements on and maintaining the JNP network, to underpinning LUL's service reliability, Tube Lines believes it will add value to the vital public service provided by LUL by delivering on time and to budget, to the mutual benefit of the transport authority and the travelling public.


 
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