The PPP: Two Years In
The Transport Committee’s scrutiny into the progress of the PPP
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The Transport Committee
Roger Evans - Chair (Conservative)
Geoff Pope - Deputy Chair (Liberal Democrat)
John Biggs - Labour
Angie Bray - Conservative
Elizabeth Howlett - Conservative
Peter Hulme-Cross - UK Independence Party
Darren Johnson - Green
Murad Qureshi - Labour
Graham Tope - Liberal Democrat
The Transport Committee’s general terms of reference are to examine and report on transport matters of importance to Greater London and the transport strategies, policies and actions of the Mayor, Transport for London
, and the other Functional Bodies where appropriate. In particular, the Transport Committee is also required to examine and report to the Assembly from time to time on the Mayor’s Transport Strategy, in particular its implementation and revision.
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Chairman’s foreword 1
Executive Summary 2
1. Introduction 4
2. How is the Tube performing under PPP? 6
3. Engineering Overruns 9
4. Case Study: The Northern Line 13
5. Future Solutions & Risks 15
Appendix A – Peak Train Cancellations 2003 & 2004 19
Appendix B – Guardian Interview with Tim O’Toole 20
Appendix C - Engineering Overruns on the London Underground 23
Appendix D – Tube Lines’ Memo on Engineering Overruns 24
Appendix E – Metronet evidence to the London Assembly 26
Appendix F - Tube Lines’ memorandum to the London Assembly Transport Committee on improvements to the network 31
Appendix G – Tube Lines’ submission to the Committee, 30th March 2005 32
Appendix H – Metronet submission to the Committee, May 2005 34
Appendix J - London Underground submission to the Committee, May, 2005 36
Two years after the PPP contracts were signed, this report provides a valuable opportunity to take stock of their performance. Have the concerns, which were widely expressed at the time, been borne out? How can the resulting relationships be better managed to get the best deal for London?
London Underground and the infrastructure companies have provided invaluable assistance to the committee in reaching our conclusions and we appreciated their open and constructive approach. All concerned are keen to make PPP work.
First the good news; More trains than ever are available for service, with particularly strong performances on the Piccadilly and Central Lines; better cleaning and graffiti removal have created a noticeably better travelling environment; plans to add a seventh car to Jubilee Line trains are well advanced.
Elsewhere the story is not so good. Overnight engineering work increasingly runs late, with knock on disruption to morning commuter services and recently this has proved a particular problem for Metronet. Consistently poor performance on the Northern Line has led to Tube Lines’ proposal to close sections so that work can be carried out to repair track and signalling. On some lines the programme for track and station renewal is running behind schedule.
There are no easy answers on the Tube and this report does not seek to find them. We offer our guarded support for London Underground’s call for accelerated investment and for proposals to close sections of the Northern Line to allow major work to take place. Such closures must be seen as the exception to standard practice and should not become the rule. We also urge the infrastructure companies to cut the number of engineering overruns and Metronet in particular, to bring its renewal plan back on schedule.
Londoners are entitled to expect nothing less.
Chair, London Assembly Transport Committee
‘You gotta dance with who brung yer.’
Tim O’Toole, Managing Director, London Underground, Transport Committee, 10th March 2005
It is two years since the PPP contracts were signed. Irrespective of the opposition to the contracts –and there was plenty, not least from some members of the London Assembly Transport Committee itself – the PPP is, for now, the principal delivery mechanism for the long overdue and vital renewal of the London Underground. The arguments have been made in court and on Committees here and in Westminster. But the question that needs asking now is not whether the PPP was the right or wrong way to approach this massive job but two years in, is the PPP actually delivering?
Is the PPP actually delivering?
Not surprisingly, the Committee has found that the answer is a frustrating and complex, yes and no.
Some aspects of Infraco performance are encouraging. The Committee is pleased to report improvements in the number of trains available for service, the performance of the Central, Bakerloo and Piccadilly Lines, the passenger environments on trains and in stations and the turnaround of escalator renewal.
The Tube is in better shape than it was two years ago. But as Tim O’Toole articulated to the Committee, ‘there is no cause for satisfaction’ as there was a very low starting point - prior to the PPP, the Tube was deemed inadequate.
Frustration at the performance of the Infracos, and in particular Metronet, has been keenly felt. John Weight recently left his position of Chief Executive at Metronet - one of the two infraco companies contracted to renew the Underground - after shareholders decided that they ‘needed someone new to bring about change’.1
John Weight conceded, in addressing the Transport Committee back in March before his departure, that certain aspects of its performance had been ‘unacceptable’.2 That was mild compared to the criticism levelled at Metronet by the Transport Commissioner, Bob Kiley who described Metronet’s performance to the Assembly as ‘bordering on disaster’.3
The conclusions arrived at by both shareholders and TfL were based on the slow progress of asset renewal since the PPP had started. Metronet’s station refurbishments programme – behind schedule by almost four months4 - and the increasing number of engineering overruns for both Infracos– have proved to be sources of particular frustration for all involved.
And the Northern Line, whose renewal is the responsibility of the second infraco company Tube Lines, has been blighted by delays to such a degree that London Underground is now considering a plan from Tube Lines for full line and branch closures so as to allow for more engineering time.
Closing parts of the Northern Line
The Transport Committee offers its conditional support for the proposed line and branch closures along sections of the Northern Line, the Tube’s most heavily used line. The closures would represent a significant departure from the original PPP contracts but unfortunately do appear in this instance to be a necessary intervention.
However these closures should not come to represent a template for the claw back of any future failures of the PPP. The PPP was designed with the specific intention that whole chunks of London would not be left isolated by line closures because such closures have obvious far reaching impacts for the communities affected – not least the daily inconvenience of using alternative forms of transport.
Any changes to the contract must not provide potential incentives for future line closures. And perhaps most importantly, the savings enjoyed by Tube Lines from the improved engineering conditions should be ploughed back across all of their three lines.
The Committee expects an accelerated renewal of the Northern Line from the line closure but we would also expect to see tangible improvements to other aspects of Northern, Jubilee and Piccadilly Line performance.
Improving Management, Accelerating Investment
The Committee was consistently reassured that by 2010, the improvements outlined for the first 7.5 year phase of the PPP would have been achieved. But is 2010 soon enough? For the vast majority of passengers obviously not.
The Committee heard with some sympathy the pleas from London Underground for a speedier rate of investment to crank up short-term performance but has, like the National Audit Office before us5, also found that there is limited incentive for the Infracos to accelerate investment prior to meeting the 2010 deadlines.
However, it is not just about the Infracos committing more investment that will bring about improvement. There must be an improvement in management from within the Infracos, especially Metronet. There are also management risks to be mitigated by London Underground themselves, especially with the co-ordination of PFIs on the Northern Line radio system (delayed now until 2007) and the electricity supply for the Underground.
The recent changes in Metronet’s personnel are a welcome demonstration of the shared frustration of shareholders and passengers alike. Metronet’s new leadership must now act to restore the reputation of Metronet, and the PPP as a whole, before shareholders can realistically consider an accelerated programme of investment.
It is vital that Metronet is able to demonstrate that its station refurbishment programme is back on schedule by the end of 2005 and that both Infracos are able reduce the absolute number of engineering overruns substantially from current levels by the end of 2005.
The Transport Committee looks forward to monitoring their progress and will question the new Chairman and Chief Executive of Metronet, Keith Clarke and Andrew Lezala, on 21 July 2005, about their immediate plans for Metronet.
The Transport Committee will examine progress in March 2006.
1.1 The PPP is now just over two years old. Overall performance of the tube network is considered to be improving - government service targets are expected to be exceeded, customer satisfaction levels are higher and each day millions are being invested into Tube by the private sector engineering companies contracted by London Underground to improve its ageing infrastructure. However the program of renewal is not proving to be seamless.
1.2 Message boards on each and every station across the Tube network regularly list ‘severe delays’; posters on stations offer apologies from London Underground about why a line wasn’t operating the previous day, and every morning passengers whose tube lines are being worked on the night before wince in anticipation of a fresh delay.
1.3 As John Weight, the former Chief Executive of Metronet - one of the two companies who have been charged with renewing the tube’s infrastructure over the next 30 years – told the London Assembly’s Transport Committee ‘perception and reality can part company’ when assessing the performance of the Tube. This review by the Transport Committee assesses just how the PPP is progressing and attempts to reconcile the perception of the hassled Northern Line commuter with the reality of the actual progress being made on overhauling the whole Tube – from its rolling stock to its stations, from its track to its escalators. This report seeks to answer the question:
Is progress in renewing the infrastructure of the Tube being achieved at a sufficient rate to justify the delays and inconvenience being felt by Tube passengers?
1.4 In attempting to answer this question, the London Assembly’s Transport Committee heard from the Managing Director of London Underground, Tim O’Toole, and the now departed Executive Chairman of Metronet, John Weight, and Terry Morgan, Tube Lines’ Chief Executive, in an evidentiary session on 10 March 2005. The Committee has also trawled extensively the performance monitoring information that tracks progress on each underground line.
1.5 It was in April 2002, after years of negotiation hindered by legal wrangling and widespread political opposition, when the last of the Public Private Partnership contracts (PPPs) was signed between London Underground Limited (LUL) and the private sector organizations Metronet and Tube Lines (the Infracos). The tube was to undergo a 30-year infrastructure renewal program with unprecedented levels of long-term investment that sought to address the years of under investment that had left the Tube apparently lagging behind the metro systems of other world cities such as New York, Tokyo, Moscow and Paris. However, this renewal would be executed by the private sector and supervised by the public sector.
1.6 London Underground retained ultimate ownership and responsibility for trains and stations while the private sector partners took on the maintenance and renewal of infrastructure including stations, track and signalling. This split between infrastructure renewal and operational control is unique among metro systems in the world.
1.7 Applying a 6 per cent discount rate London Underground evaluated the net present value of all three PPPs at £1.57 billion in 2003. The Department of Transport provides funding to cover LUL service charge payments to Metronet and Tube Lines. However the payments made between LUL and the Infracos are much more complicated relying on complex output and target based contracts that use abatements and bonuses to lever performance. These contracts will be reviewed periodically every 7.5 years by the PPP Arbiter, with extraordinary reviews triggered in exceptional, pre-agreed circumstances.
1.8 The Tube has been split into three entities with regard to the PPP. Metronet is responsible for the renewal of most of the deep tube lines and sub-surface lines; Tube Lines is responsible for the remaining lines. Both Metronet and Tube Lines were specifically formed to execute the PPP and are composites of engineering and project management companies who brought with them international experience (see below).
(WS Atkins, Balfour Beatty, Bombardier, Seeboard and Thames Water)
Deep Tube Lines
Bakerloo, Central, Victoria, Waterloo & City
Circle, District, Metropolitan, Hammersmith & City, East London
(Amey, Bechtel Ferrovial)
Jubilee, Northern, Piccadilly
2. How is the Tube performing under PPP?
2.1 The performance of the London Underground and the PPP are monitored separately however inevitably and intrinsically the two are linked. London Underground’s performance is monitored against the Department of Transport performance targets. The performance of the PPP is measured against the targets within 30-year contracts and the performance targets within them.
2.2 The Department of Transport measures performance through customer satisfaction surveys, the number of passenger journeys, revenue, excess journey time, peak time cancellations and kilometres operated. Performance against these criteria is exceeding government targets and is summarised below.
2.3 The performance of the Infracos is measured against 181 benchmarks set out in the 30 year long PPP contracts. These 181 targets cover the number of trains available on each line for LUL to operate, the ambience of stations, the state of a stations facilities (such as ticket machines and train time readers), and the rate at which track, lifts, escalators, and stations are being renewed, refurbished or otherwise modernised.
The Performance of the London Underground
2.4 The latest performance report covering the Christmas period from Tim O’Toole to the Underground Advisory Panel highlighted continuing performance problems with the Northern Line (due to the failure of the train radio system) and the East London Line (due to late running and consequent cancellations). The report also highlighted the smooth running of the Tube on New Year’s Eve.
2.5 Overall satisfaction with the Tube is above expectation for the financial year so far, hovering slightly above the 75 per cent expected levels. Both passenger journey and revenue levels have been above target levels for the last six operating periods6 after dipping below during the first three periods of 2004/05.
2.6 Journey times7 for passengers are just about keeping to expected levels. The Metropolitan, East London, Northern and Piccadilly all report additional excess journey time averages. The Bakerloo, Victoria and District Lines showed the most marked improvement during the Christmas period.
2.7 Annual figures obtained via the London Assembly’s Mayor’s Question Time, show that peak train cancellations dropped dramatically in 2004, largely due to the inflated figures from 2003 caused by the Northern and Central Line derailments and subsequent line closures. There has been a notable decrease in cancellations caused through the unavailability of a driver and rolling stock defects.
2.8 However these improvements have been partially offset by the increase in cancellations caused by industrial action that has increased massively from only 46 cancellations for 2003 to 910 for 20048.
2.9 Establishing the level of performance of the PPP and the Infracos is, by comparison, a more complicated and subjective process. With such a notoriously complex labyrinth of a contract, which has over 180 performance targets as a basis, it was also going to be complex. The natural dynamic of the client/supplier relationship also inevitably breeds a subjectivity that can cloud actual performance. London Underground want more as the client; the Infracos as suppliers have limits.
2.10 There are unquestionably positive signs. More trains are available for service (measured in lost customer hours) than ever before with particular improvement on the Piccadilly and Central Lines. Good performances – generally where bonuses have outscored fines throughout the year - were recorded on the Bakerloo, Piccadilly, Metropolitan, Circle, Hammersmith and District Lines. Recent improvements to previously below average performances have also been recorded on the East London, Jubilee, Victoria and Central Lines.
2.11 However, the Northern Line is the only line on the Underground that has consistently operated throughout the duration of the PPP beneath target performance levels. Tim O’Toole informed the Committee that ‘the Northern Line is our most complex line; it is our heaviest ridership; it is the most intensive service we offer, and it is our biggest problem.’ The reasons for the problems are numerous and are discussed in a Case Study on Page 13.
2.12 More trains are available and the trains themselves are providing Tube users with a cleaner environment. Stations too have been cleaned effectively by the Infracos and this ‘ambience’ strand to the PPP contract has been a relatively consistent success since the PPP started.
Rate of Asset Renewal
2.13 The principal focus around the performance of the Infracos remains the rate of Asset Renewal - that is the track, signalling, lifts, escalators and stations - which continues to be slower than indicated in the PPP bids. The primary concern about this slow progress is that the increased activity planned for the later stages of the first four 7.5 year cycles that comprise the 30 year deal could force LUL’s hand into closing lines beyond agreed engineering slots and has a dramatic impact on mainstream, Monday-Friday services (see Chapter 3).
2.14 The measurement of the rate of asset renewal is difficult to pin down as the approaches or classifications by which renewal is monitored change as the work progresses. It is also important to remember that, although the Infracos incur fines by not attaining a certain level of performance throughout, the biggest fines are levied at the end if the first 7.5 year period. It is up to the Infracos how and when they reach the strict performance targets within that period.
2.15 An example of how this fluctuating monitoring was illustrated to the Committee with the rate of lift and escalator renewal. According to the London Underground’s Advisory Panel, which monitors the performance of both the Tube and the PPP, the Infracos have revised down the planned renewal for the 7.5 year from 58 per cent of all lifts and escalators to 44per cent. For Tube Lines this figure appears to have been scaled back from 65 per cent to 51per cent.
2.16 The figures are right but the reality more complex. The initial contracts had Tube Lines renewing about 190 lifts and escalators; within the first seven and half years 140 will be renewed. The apparent shortfall is due to a reclassification of some of the repair work needed; an engineering decision that means that the remaining 50 or so lifts and escalators that only require ‘a minor intervention’ rather than the full scale overhaul that the contract outlines. Indeed Tube Lines pointed to significant progress on how it repairs escalators - the renewal of escalators at Green Park where work would normally take 26 weeks in actual fact took only nine. Tube Lines expect to exceed the number of lifts and escalators allocated for work in the first 7.5 years of the contract.
2.17 However there is not always a good explanation behind apparent slow progress. Metronet readily admitted that its station renewal program was behind schedule (by an estimated 15 weeks9) and more work was required but that Metronet was still confident of hitting their 7.5 year targets with a dramatic improvement expected over the next 12 months.
Track & Signalling Renewal
2.18 The area of renewal that has arguably the most impact on Tube passengers is on track and signalling. Where a track fails or signalling doesn’t work, delays can be severe and whole services cancelled. The rate of the track renewal, across the whole tube, is also behind schedule two years in. Performance varies across the three sub sections of the Tube: on the Jubilee, Northern and Piccadilly lines track renewal is ahead of schedule. On the two other sets of lines, managed by Metronet, track renewals are behind schedule for the first 7.5 year period.
2.19 Why are there these delays in renewing the track and signals of the Tube? Terry Morgan pointed out to the Committee that in the initial stages of the contract it was simply a case of not knowing the condition of the assets that needed work. Assets were in variable condition and since the PPP started operations the Infracos have developed a better understanding of where the investment is actually needed, as illustrated with the reclassification of certain lift repairs. From a base of admitted ‘limited knowledge’10, the Infracos have developed their programmes accordingly, hence revised short-term targets.
2.20 John Weight further explained using the District Line as an example of how bid and contract assumptions have had to be changed since the PPP start up. Based on the information available to the infracos at the time the original plan assumed that track would be renewed east to west in one broad sweep. After surveying the work in detail, it was decided that this was not the safe way to proceed. The revised plan has renewal starting in Zone 1 and moving outwards. ‘These programmes will flex; they will change.’11 And as a result so too does the rate of progress and the impact on customers.
2.21 One of the most damaging characteristics to this sometimes slow, revised progress is the engineering overrun. Up to the start of 2005, there had been a total of 278 engineering overruns on the Tube since PPP start up.