49 The preceding sections have considered the process undertaken by London Underground and the extent to which the figures from the Comparators can be relied on for decision-making. This final section provides our view of the steps that London Underground should take before it can make a final recommendation to London Transport and the Department.
50 London Underground recognises the limitations of the Comparators exercise. It has explicitly addressed how the financial information can best be interpreted by decision makers, in the following ways:
■ it has recognised the need to focus on the risks and benefits of the various options, and not just on the headline net present values.
■ it has recognised that the financial model relies on subjective judgements, and it has now decided not to present single expected values. It has used ranges instead of single values to provide a guide to the boundaries of the Comparators.
■ it proposes to explain the content and significance of the PPP bids and the Comparators, rather than just the financial differences.
■ it also proposes to present to decision-makers a range of plausible financial figures, under different operating and financing scenarios. As part of this work, it has identified the largest factors driving public sector costs - investment in stations, signalling, track and rolling stock, and maintenance of rolling stock - and assessed the impact of changes in these factors on overall net present value. London Underground also intends to analyse the financial impact of assuming that the public sector and the private sector achieve identical levels of performance to illustrate relative cost differences.
51 Despite the fact that the financial analysis has limited use, it includes valuable information. London Underground should, as intended, ensure that it fully understands the source of any financial differences between the public sector and PPP options. This level of analysis will help to explain what, if any, extra efficiencies private sector entities propose to bring to the Tube, the extent to which these claims are credible and why they may not be achievable by a public sector operation.
52 In coming to a decision about the likely value for money offered by each of the options, due weight should be attached to all relevant factors. The financial analysis examined in this report is only one of these factors. It is not a pass/fail test, and the uncertainty surrounding the financial figures must be made clear. London Underground should continue to address the wider issues falling outside the financial analysis and discussed in paragraphs 47 and 48 of this report.
53 There are other factors on which London Underground places significant weight, including safety, bidders' ability to strike a timely and acceptable deal and the importance of developing a genuine partnership. It should also ensure that it makes clear the assumptions lying behind any affordability analysis that feeds into the decision. And if any material changes to the financial or Using the financial analysis in decisionmaking commercial terms arise during negotiations with a preferred bidder, London Underground should conduct a further analysis of the value for money offered compared to public sector provision.
54 London Transport's decision to award each contract will be made independently of the other contracts. This means that there could be a mix of public and private provision, with one or two of the three infrastructure companies managed by successful bidders and the other(s) retained in the public sector. If this option is to be given serious consideration, London Underground will need to ensure that sufficient analysis of the impact of this mix has been undertaken and that plans for coping with these outcomes exist. Such a solution would entail additional complex contractual and operational interfaces between public and private sectors, but may also offer strategic benefits by allowing more detailed benchmarking of infrastructure costs.
55 Regardless of which mix of public and private sector provision is selected, the successful implementation of improvements to the Tube requires effective risk management. As part of this process, London Underground should continue to ensure that it assesses the capacity of the bidders and of the public sector to manage risks; that it has undertaken a comprehensive risk analysis covering the whole 30 year period; and that effective management and monitoring arrangements for the 30 year period are in place.