14 The existence of Arbiter poses risk for each party. He could, in theory, decide a price level that is unfavourable to the Infracos. Or he could reach a pricing direction that does not suit LUL. He must take into account the Infracos' need to fund long term investments and allow the Infracos to make the rate of return agreed in the contract, while ensuring that they meet the criteria of economic and efficient behaviour. He therefore must take an independent view on matters referred to him.
15 He has sought to reduce risks to the parties by issuing two new policy documents in January 2004 that set out how his office will go about its work - 'The PPP Arbiter: Role, approach and procedures. A policy statement.' and 'Routine Provision of Information to the PPP Arbiter: Initial requirements.'15
16 The Arbiter has adopted the following aim for his office:
To give sound and timely guidance and directions on relevant aspects of the PPP Agreements when this is requested, and to work constructively with the parties to the PPP Agreements in support of their key objective of providing to the public a modern and reliable metro service in a safe, efficient and economic manner.
We seek to achieve this by:
■ Working within a clear, transparent and consistent framework;
■ Giving reasoned guidance and directions which are based on well developed analysis shared with the Parties and procedures which achieve predictability in process and outcome;
■ Establishing effective dialogue with the PPP Parties and other stakeholders to facilitate timely response to requests for guidance or direction, while maintaining our independence; and
■ Operating to high standards of accountability in all our actions.
17 Any technical reports that the Arbiter prepares during the course of a reference will generally be confidential to the parties to a reference. Reports which assess, for example, economy and efficiency, and use information from all Infracos in benchmarking would be made available to all PPP parties to ensure an equal understanding of the Arbiter's approach. The Arbiter will publish guidance and directions in full, along with such additional information as is appropriate to give an understanding of the conclusion he has reached.
18 The parties will need to provide the following information to the Arbiter, which together are intended to allow the Arbiter to give an early warning of potential Extraordinary Reviews and take an initial view on the economy and efficiency of the PPP parties:
■ Historical - Information supplied to bidders; supply chain, subcontracting and partnering arrangements at transfer; details of estimated risks and associated contingencies
■ Core monitoring - Agreed changes to the contracts; performance information (day-to-day and monthly); capital project progress; asset management strategies, plans and analyses; high level actual and forecast costs and revenues;
■ Other - Evaluation of competitive tendering for major new subcontracts (contracts with a value in excess of £15 million); variations to major subcontracts (where the variation exceeds 10 per cent); material variations to funding arrangements; risk registers and risk management processes; summary board level reports.
19 The Arbiter plans to present a further paper later in 2004 describing the analysis that will be undertaken on the initial routine information, for discussion with the PPP Parties and subsequent publication. This is intended to ensure that the analytical framework that the Arbiter applies is transparent and properly understood.
_____________________________________________________________________________________
15 The first document was based on public consultation, in particular correspondence with London Underground Ltd, Metronet, Tube Lines, European Investment Bank, London Transport Users Committee, Office of the Rail Regulator, John Biggs (London Assembly member) and Charles Yates. The second document was commented on by the PPP parties