3.7 When Price Waterhouse produced its report in October 1997 about possible PPP business structures, it estimated the cost of reorganising London Underground and procuring the PPP would be about £110 million. This figure was estimated from the known costs expended in privatising British Rail. In 1998, the Department initially set a lower budget of some £70 million. London Underground did not consider this realistic and in February 1999 its main board agreed a budget of £150 million of which £100 million was budgeted expenditure for external advice.
3.8 London Underground engaged professional project managers, Hornagold & Hills, to track expenditure against budgets, to obtain estimates of future expenditure and to report progress. This firm of project managers, together with London Underground's senior project managers set the initial budgets for each of the appointed advisers; for PricewaterhouseCoopers and Freshfields the original budgets were each set at about £4 million. The final amounts paid to these two firms for procuring the PPP and reorganising London Underground were £21.4 million and £29.2 million respectively (Figure 13b). The overruns do not reflect early over optimism or misunderstanding, but rather, the fact that initial budgets were set to reflect estimates of the known amount of work to be done. With the PPP being a novel business approach, the knowledge of what was required to deliver the project was incomplete. As parcels of work were identified, London Underground, its project managers and advisers determined what was required and estimated the cost. The overall budget was then amended and authority for the change sought from London Underground's main board.