Examination of Witnesses (Questions 209
WEDNESDAY 21 NOVEMBER 2001
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
(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
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
youthe 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
(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
(Mr Forman) Yes.
(Mr Mustard) That is correct.
Chairman: Thank you very much.
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.
216. So, you are saying, a billion plus, because
it must be continually maintained and improved?
(Mr Forman) Yes.
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?
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.