The new compromise, ending a stand-off between mayor Livingstone and deputy prime minister John Prescott that has lasted months, was announced last Friday. The essence of the deal is that the mayor must swallow public–private partnership financing but, in exchange, Kiley wins the right to change the contracts. A source close to London Underground says the PPP has already cost £120m, including £15m to each consortium, and £30m more will be spent before contracts are signed.
At a DETR briefing on Monday, the four consortia were told that they would receive Kiley's revised brief for the PPP contracts this month and would have to submit new bids for the two packages of deep lines next month. Three of those consortia have also submitted final offers for the sub–surface lines – they will have to submit revised tenders at the same time. A consortium source predicts that Kiley will focus on introducing new clauses to tighten up safety and ensure that management control does not slip out of the Greater London Authority's grasp.
Another source says Kiley will leave the basic structure of the PPP intact: "Private equity will remain. There will still be three infrastructure companies and one operating company. But we will work toward more unified management, enshrining more partnership in the contracts. Kiley wants more control over the management, when work is done and the priorities." A consortium member puts it this way. "Kiley is concerned about visibility; about being able to observe, through some form of IT system, that projects are being done on time and to his satisfaction, so he can specify work to be done in different areas as demand changes." The consortia now predict that Kiley will:
- Put in an extra tier of management, so his team of specialists can exert more strategic control over the infrastructure companies.
- Reduce the period after which contracts are reviewed from seven-and-a-half to five years.
- Insist on an integrated IT system that allows him to monitor the progress of projects.
The stakes have been high, on both sides.
Until last week, Prescott had refused to budge an inch on the PPP, even though five independent reports had cast doubts over whether it provided the better efficiency or value for money in than Livingstone's idea of a publicly funded bond issue.
It is easy to see why Labour is so wedded to the PPP, having spent two years developing its plan. But Livingstone made overturning the PPP the central plank of his election campaign last year. One bone of contention between the two was funding, the other was the division of responsibility for management. Transport for London may run the Tube, but private consortia would control signalling, track and stations.
So who has won this battle? One consortium source says Livingstone was always resigned to making PPP work and that his all-out opposition was a front designed to wring sufficient concessions from the government. On the face of it, the government has come out of it without blinking. The Treasury will not permit any changes to the contractual structure of the PPP that might make banks reluctant to take equity stakes. All the same, Prescott's decision to permit Kiley to iron out "fatal flaws" in the contracts is a concession.
For the consortia, it has been a long slog. They have weathered a hail of bad publicity from the Livingstone publicity machine. In October, after the Hatfield rail crash, they were branded "the worst kind of capitalist scum" and opinion polls showed that the public had deep reservations about handing over control of the Tube under a scheme that seemed far too similar to a railway model in which profitability was perceived to take priority over safety.
Next month's deadline will be the third time the consortia have submitted bids for the BCV (Bakerloo, Central, Waterloo and City, and Victoria) and JNP (Jubilee, Northern and Picadilly) deep lines packages. Bids were first submitted last November and a preferred bidder was to have been chosen in December. However, following talks between Prescott and Kiley at the end of last year, the consortia were asked to resubmit bids last month. They were told to cut £80m from the fee they would charge Transport for London for using the infrastructure and to rethink the bids to give track and signalling work priority over station refurbishments.
The consortia have warned the government that if it does not go ahead with the PPP soon, they will disband their international teams of experts, which cost hundreds of thousands a month to run. As one source said: "We can't keep the teams together if the thing is going to be delayed and delayed. It will be difficult to bring people back on later, and new people will have missed out on a huge learning curve." Insiders predict that once the Livingstone-Prescott deal has been sealed, things will move quickly and, by May, either the LINC consortium (Mowlem, Bombardier, Alcatel and Fluor Daniel) or Metronet (Adtranz, WS Atkins, Balfour Beatty, Seeboard, Thames Water) will be named preferred bidder for the BCV lines. At the same time, they expect Tuberail (Brown & Root, Alstom, Amec and Carillion) or Tubelines (Amey, Jarvis, Bechtel, Hyder and Halcrow) to be chosen to take over the JNP package. Metronet, LINC or Tubelines will be appointed preferred bidder for the sub–surface lines – the District, Circle, Hammersmith and City and Metropolitan – soon after. Bidders say it will take another eight to 12 weeks to tie up the deal. This takes us to August.
However, although the PPP has been given the political green light, details of the contracts must still be agreed. There are thorny problems to be resolved, chief of which is safety. The Health and Safety Executive must give its approval before the PPP contracts get the go-ahead. After Hatfield, when new checks were introduced, the examination will be merciless. The HSE is not expected to reach its conclusions until April, after a rigorous review. Its report will have to take into account the changes Kiley makes to the contract.
The consortia hope that the HSE's review will calm public fears over PPP. One says: "The idea that the public sector has a monopoly on safety issues is ridiculous. Heath and safety is a priority of any sector where employees risk life and limb. Five thousand patients died in NHS hospitals last year because of cross infection – much of it caused by public sector staff not cleaning wards properly. The story sank without trace. Imagine the furore if that had happened in the private sector – we'd have been crucified." The source also rejects Livingstone's argument that the PPP leads to constant litigation between different parties because of the convoluted chain of responsibility, saying the only way to simplify management control is to break down barriers to partnership. He said: "Railtrack has done some groundbreaking work on this with its alliance contracts, so that instead of retreating into corners, everything is everyone's problem." Another consortium source says Transport for London's fear that the fragmented ownership will lead to inefficiencies and duplication of effort was based on misunderstandings of the contracts. He says: "Now that Kiley has full access to the contracts, he will see he has much more control than he thought." The consortia remain confident that the government will want the PPP out of the headlines before May, when pundits expect the general election to take place. As one insider says: "The last thing Blair wants is Red Ken stealing headlines from New Labour over the Tube system in the countdown to the general election."
The Tube – the story so far
20 March 1998 Deputy prime minister John Prescott announces a PPP aimed at “bringing £8bn of investment into the Tube over 15 years”.
September 1999 London Underground creates three infrastructure divisions to “shadow run” a PPP, allowing it to test and modify arrangements.
April 2000 Select committee enquiry into the PPP finds it “a convoluted compromise”.
July The LINC consortium (Mowlem, Bombardier, Alcatel and Fluor Daniel) and Metronet (Adtranz, WS Atkins, Balfour Beatty, Seeboard, Thames Water) are shortlisted to take over the Bakerloo, Central, Victoria and Waterloo and City lines. Tuberail (Brown & Root, Alstom, Amec and Carillion) and Tubelines (Amey, Jarvis, Bechtel, Hyder, Halcrow) are shortlisted to take over the Jubilee, Northern and Piccadilly lines.
12 November The London Labour Party votes to scrap the PPP.
13 November MPs debate the PPP in the Commons, and demand that Bob Kiley be allowed to inspect London Underground.
20 November Best and final offers for deep Tube lines submitted
13 December Kiley presents alternative proposals for modernisation of Tube to deputy prime minister John Prescott.
16 December National Audit Office report says the government’s case for the PPP is unproven. And Prescott says Kiley’s alternative plan for the Tube is “interesting” and asks for more details.
December Government tells bidders to rebid by January 2001, cutting their proposed infrastructure service charge by £80m or 15%.
5 January 2001 Consortia make their best and final offers for deep Tube lines.
2 February Prescott asks Kiley to “take the lead in drawing up proposals to modify the PPP”.
5 February Metronet, LINC and Tubelines make best and final offers for sub–surface lines.
If Transport for London desires at any time during the 30-year term of the PPP to change performance requirements, it must propose those changes at least one year in advance; the Infraco will not be obligated to implement any such changes until its demands for more money have been agreed to or determined by an arbiter
Bob Kiley’s report to Ken Livingstone, 13 December 2000 The health and safety management systems are too complex, in terms of structure, layout and style for people to understand it and for it to work effectively … and the boundary of control between London Underground, the infrastructure companies and their contractors is not clear
Health and Safety Executive’s Validation of London Underground’s Railway Safety Case, key findings, 12 December 2000 The success of a public–private partnership requires a genuine alignment of interests between contracting parties to ensure that partnership is more than just a statement of intent. Achieving this alignment means that all parties to, and stakeholders in, a deal need to be engaged throughout the process
National Audit Office, Financial Analysis for the London Underground Public Private Partnerships, 15 December 2000 We are concerned that the terms of the debate have been skewed by the government’s evident determination to proceed with the PPP, so that critics and supporters of the main alternative – the bond option – can be painted as unreasonable, obstructive or even ideological
Industrial Society review, London Underground: The Public Private Partnership, 4 December 2000 We are concerned that the £7.2bn estimate for investment over the next 15 years seriously underestimates what may be needed
Industrial Society review We are also concerned that the bidding consortia are too small. On the evidence presented to us on their balance sheets, if there is any significant cost overrun or unexpected eventuality, they will have to issue more shares … or else simply not undertake the needed investment
Industrial Society review The thorough inventory of the state of the physical plant – the tunnels, track, signalling and stations that should have been the starting point of this exercise – simply does not exist
Bob Kiley’s report The primary motivation of most consortium members is to create a captive market to sell their manufactured products, not to earn a return on their limited investment in the consortium
Bob Kiley’s report