The future of the public-private partnership (PPP) to upgrade London Underground is in doubt after a row broke out between the arbiter of the contract and the remaining private company carrying out the work, Tube Lines.
The dispute centres on arbiter Chris Bolt’s draft estimates of what work to maintain and upgrade the Jubilee, Northern and Piccadilly lines should cost over the next seven-and-a-half year period of the PPP. Bolt’s estimate is more than a billion pounds lower than Tube Lines’ bid of £5.75 billion. London Underground, which took over maintenance of the remaining two-thirds of the network from Metronet when it collapsed in 2007, argued that the work should cost just £4 billion.
Bolt said that a company “operating in an efficient and economic manner… could deliver its obligations at a substantially lower cost than projected by Tube Lines, though not as cheaply as suggested by London Underground”.
Tube Lines said it was “very disappointed” by Bolt’s assessment. Outgoing Tube Lines chief executive Dean Finch, who is leaving the company to join National Express, added: “A settlement at this level is not conducive to private sector involvement in the Underground.” Tube Lines will now negotiate with London Underground and the arbiter before final costings are determined in March next year.
Andrew Cleaves, Tube Lines commercial director, told PE that Bolt’s estimate of costs was “extremely challenging”. “We are disappointed with the result, and we think there are things that have been done incorrectly,” he said.
Bolt said he expected Tube Lines to boost its income from the contract by making claims from London Underground in “view of the impact of its approach to the contract”. Cleaves said the arbiter had acknowledged that London Underground was a “difficult client”. He added that Tube Lines had already won back more than £100 million in claims so far, with a further £400 million outstanding. “We don’t think making claims is the way forward. We want an improved partnership with London Underground: we want to work constructively and not to make claims. They are not good for LU, and not good for us,” said Cleaves.
Cleaves said benchmarking with both Metronet and London Underground showed Tube Lines was typically a third cheaper than London Underground in carrying out the same work. “Our costs are going down, their costs are going up.” He claimed that if London Underground was to do the work of Tube Lines over the next period of the PPP, it would cost the taxpayer an additional billion pounds.
Asked if London Underground’s estimate of £4 billion was an attempt to force Tube Lines out of the contract so Transport for London could take over maintenance of the Jubilee, Northern and Piccadilly lines, Cleaves said: “It’s hard not to think that that’s the case but I would like to think people see the value we are bringing to this contract. But it’s hard not to come to the conclusion that LU has come up with an estimate that is the same as its budget.”
Cleaves said the departure of Finch to National Express was not related to the arbiter’s draft estimates. “It’s unfortunate timing but it was simply a great opportunity for him,” he said.
© PE Publishing, 17 December 2009
