I have been invited to give evidence on 23 June before the Committee of Public Accounts and I should be obliged if you would circulate this memorandum to Members of the Committee prior to the meeting.
I am enclosing a copy of London Underground's report on the first year of the PPP that gives my perspective on performance.1 It gives a more detailed view than that contained in the NAO Report and accordingly gives what I believe to be a more balanced view of performance over the full year. Additionally, there are some structural problems affecting the chances of success of the PPP which are not fully addressed in the NAO Report but which are described below.
As is mentioned in both reports, London Underground has been experiencing difficulty in obtaining information from the Infracos. This is now having an impact on our ability to plan our own resources and discharge our own obligations under the PPP. We have spent over a year agreeing the principles of what is to be provided by the Infracos about their capital and maintenance programmes, but until the information starts flowing comprehensively, conclusions about the progress being achieved by the Infracos is largely anecdotal as illustrated by both reports. In order to demonstrate success, the Infracos need to develop their information systems as a matter of urgency.
Infraco progress in developing required asset management plans has been slow and there is not yet evidence of a strong planning capability within the Infracos. There is also limited demonstration of a whole-life asset management approach, and this has led to LUL rejecting or giving qualified approval to asset management regimes and plans.
The asset performance information referred to in section 5 of LUL's report was provided to the NAO and I believe that it provides some useful insights on the underlying performance of the assets. As yet,it is difficult to observe the type of improving trends that might be expected over the next few years.
The NAO Report assessed the question of whether the Infracos are applying private sector innovations to project management and asset design to ensure early identification of problems. It concluded that, as might be expected at this stage, there are no significant examples although the report described a change in working arrangements implemented by Tube Lines. So far, there has been limited evidence of the promised innovations of new plant and equipment and the infusion of external engineering expertise.
As we all know, the fundamental question about the PPP is whether it will deliver a better Tube and the promised improvements. Partnership, although important, cannot of itself deliver success. The NAO Report places great reliance on partnership issues in the section on success factors but there are other relevant success factors that might have been addressed, including:
- a contractual framework and structure that is sufficiently clear with adequate incentives and contractual remedies;
- robust contract management by LUL to ensure that the public gets the full benefits of what we (and the Government) are paying for;
- effective, state-of-the-art project management by Infracos (and indeed by LUL) to ensure early identification of problems, on-time and on-cost delivery and clear visibility of progress along the way;
- flexible and proactive approach to problem resolution, rapid escalation/resolution of disputes on both sides;
- clear prioritisation and management focus on the most critical projects;
- bringing in expertise from the private sector to fill gaps in knowledge, including in making the Underground's assets operate as efficient as possible; and
- balancing a need for processes against excessive bureaucracy, and learning from early experience to ensure that process does not replace decision-making and effective, rapid action.
I am also of the view that the lack of clarity around PPP/PFI interfaces and LUL's limited change rights and remedies were deserving of more weight in the NAO Report given that these issues have a very strong bearing on whether the PPP is likely to work successfully.
It should be noted that LUL is committed to procure works from its PFI contractors in circumstances where it does not necessarily have the rights to procure them through its PFI contracts. As the PFI contracts were signed at different times, and prior to PPP, they are not always "back to back" and this creates opportunities for exploitation by both PPP and PFI contractors.
The NAO Report recommends that there should be clarity of interfaces with other contracts and where this does not occur, remedial action should be taken. Our power to take remedial action is curtailed by the scope of the change rights available. Also, more debate should have been afforded to the issue as to whether LUL had been left with the tools necessary to meet the management challenges ahead. For example, the power to require works to be undertaken pending resolution of a dispute is generally not available to LUL.
LUL has little or no leverage to secure changes that are required to deliver the Mayor's Transport Strategy and to improve customer service.
The Report does not fully discuss the most important success factor of all: adequate and guaranteed funding for the life of the PPP.
Tim O'Toole
Managing Director
18 June 2004
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1 Not printed.