4. The PPP deals were subject to a value for money assessment before they were finalised, comparing bids with a public sector comparator. The National Audit Office reported on those assessments1. NAO also took the view that creation of the role of Arbiter was important in protecting value for money. Specifically, one of its recommendations was as follows:
- "Departments should negotiate commercial terms that are broadly neutral in respect of unforeseen and unforeseeable asset condition because seeking to transfer too much risk is likely to over- compensate the private sector on grounds of uncertainty. Steps were taken to think through and reduce such risks in this case. Specifically, the provisions for decision by an independent Arbiter mitigate the risk that thresholds for price review are too easily reached. In larger deals, Departments should consider similar arrangements."
5. The PPP Agreements establish the concept of the Notional Infraco as a basis for judging efficient delivery: this is defined as the entity which has the same contractual obligations and financing as the actual Infraco, but which carries out its activities in an "overall efficient and economic manner and in accordance with Good Industry Practice". The contract identifies some characteristics of Good Industry Practice, but it is for me as Arbiter to judge what is efficient and economic and to assess the costs and revenues of the Notional Infraco when disputes about price are referred to me.
6. In assessing the characteristics of the Notional Infraco, the approach I have adopted, following consultation with the PPP Parties and others with a relevant interest, has involved a number of elements:
- review of actual Infraco performance and plans;
- "internal" benchmarking between the three Infracos;
- "external;" benchmarking with other relevant metros and railways; and
- expert technical advice.
7. In order to ensure that the Arbiter has adequate access to information, the GLA Act gives me powers to obtain information from the PPP Parties and their associates. I have also published the results of benchmarking work which I have commissioned, although technical advice drawing on actual performance and plans is generally confidential to the Parties.
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1 London Underground PPP: Were they good deals? 17 June 2004, HC: 645 2003-04