1. The role of the PPP Arbiter was established by the Greater London Authority Act 1999 (GLA Act). Under the terms of the GLA Act, the Arbiter is independent of Government and of the PPP Parties and can only be dismissed by the Secretary of State on grounds of incapacity or misbehaviour, or for unreasonable delay in the discharge of his functions.
2. The Arbiter is a corporation sole. I was appointed as the first Arbiter on 31 December 2002, and my appointment now runs to 30 December 2010. I am supported by a small permanent staff. As I am appointed as an individual, and am personally responsible for the exercise of my statutory functions, I have also appointed an Advisory Board to provide independent and expert challenge to my decisions and procedures. Although I am not required by statute to do so, I have published each year a Business Plan and my Annual Report and Accounts setting out the work programme of my Office and the resources used.
3. As PPP Arbiter, I have two principal statutory functions:
- to give directions on matters specified in the PPP Agreements, when asked to do so by one of the Parties to a PPP Agreement; and
- to give guidance on any matter relating to a PPP Agreement, when asked to do so by either (or both) of the Parties to a PPP Agreement.
4. When the Arbiter is asked for guidance by one Party only, the Act gives me discretion about whether to give guidance. Where I am asked for directions, or am asked for guidance by both Parties to an Agreement, I am required to give directions or such guidance as I consider appropriate.
5. Although the Arbiter can be asked for guidance or directions at any time, it was expected that he would exercise formal functions in three main circumstances:
- in giving an annual "definitive statement" on the performance of the two Metronet infracos;
- at the Periodic Review of the Agreements which takes place every 7½ years; and
- at an Extraordinary Review of the terms of a PPP Agreement if there were material changes in costs and revenues within a Review Period.
6. In addition, the Act gives the PPP Arbiter further powers "for the purposes of the proper discharge of the functions" conferred on him by the GLA Act. For example the PPP Arbiter may do "all such things as he considers appropriate for or in connection with the giving of a direction or guidance and… do such other things as he considers necessary or expedient… for purposes preparatory or ancillary to the giving of directions or guidance generally… notwithstanding that there is no matter in relation to which a direction or guidance is required".
7. The PPP Arbiter's function in respect of directions is limited by the terms of the PPP Agreements: if there is no specific provision in a PPP Agreement for the PPP Arbiter's involvement then disputes are dealt with through contractual dispute resolution. Even on matters within his remit, he is only brought in if one of the Parties seek a direction from him. The PPP Arbiter therefore has no unilateral power to change, or propose to change, provisions in the PPP Agreements. Even where he has made a direction on a disputed matter within his remit, the Parties may, under the provisions of the GLA Act, jointly agree to set it aside.
8. In exercising his functions, the Arbiter is under a statutory duty to act in the way he considers is best calculated to achieve four objectives:
- to ensure that London Underground has the opportunity to revise its requirements under the PPP Agreements if the proper price exceeds the resources available;
- to promote efficiency and economy in the provision, construction, renewal, or improvement and maintenance of the railway infrastructure;
- to ensure that if a rate of return is incorporated in a PPP Agreement, and taking into account matters specified in the Agreement, a company which is efficient and economic in its performance of the requirements in that PPP Agreement would earn that return; and
- to enable the Infracos to plan the future performance of the PPP Agreements with reasonable certainty.
The Arbiter is also under a duty to take account of any factors which are notified to him by both Parties to an Agreement, or are specified in the relevant PPP Agreement, as ones to which he must have regard.
9. For the purposes of assessing costs at a Periodic Review or Extraordinary Review, the PPP Agreement establishes the concept of the Notional Infraco. This is defined as the entity which has the same obligations as Infraco, which carries out its activities in an overall efficient and economic manner and in accordance with Good Industry Practice, and has certain other specified characteristics. A key part of the Arbiter's role is therefore to assess what constitutes Good Industry Practice and the level of performance and cost which would be efficient and economic.