The PPP scandal

T HE government’s privatisation of the Tube’s maintenance contracts, known as PPP, has become a byword for inefficiency, complexity and corporate greed. Various consultants and lawyers were paid over £100 million alone to set up the deal(see table below) which finally cost the taxpayer nearly half a billion pounds. These staggering sums have been justified on the basis that private sector investment will flood into the network and lead to massive improvements. However, a London Underground report maintains that existing assets will not be in a good state of repair until 2025 and casts some doubt, due in the main to poor project planning, on the private sector’s ability to deliver improvements to the underground infras- tructure. A National Audit Office (NAO) report, called London Underground PPP – were they good deals?, also underlines the huge start-up costs and that the Infracos are likely to make annual profits of between 10 and17 per cent. Nevertheless, returns could be as high as 18-20 per cent if targets set out in the private sector bids are met – this looks unlikely given current private-sector performance. Not renowned for using radical language, the NAO said: “there is only a limited assurance that the price that would be paid to the private sector is reasonable”. The report goes on to make the point that with the deals being reviewed every seven years there is still some uncertainty as to what the final cost of the PPP will actually be. The two private-sector groups that run the network, Metronet and Tube Lines, have received over £1 billion in the last financial year and paid almost £16 million in fines. The NAO report criticised the consortia for the work they have carried out. The PPP and the “shadow-running” of the contracts prior to their introduction have also been constantly marked by derailments, falling levels of maintenance, confusion and communications breakdowns. Gravy train The NAO has also revealed that the financing of the private consortia’s £3.8 billion of borrowing so far is costing £450 million more than would have been charged if the government had raised the money directly. One of the most controversial issues over PPP is the fact that private sector risk is covered by the public purse in virtually every respect. The government The PPP sca Recent reports into the Public Private Partnership on London Underground confirm that the scheme is little more than a mechanism for giving guaranteed risk-free profits to shareholders. 28 has issued ‘letters of comfort’ to the private companies who have loaned £3.8 billion to the Infracos. This means that if Metronet and Tube Lines default on debt repayments the public will stump up 95 per cent – or £3.6 billion – of the money. This led RMT parliamentary group member John Trickett MP to remark at the House of Commons Public Accounts Committee evidence session on the National Audit Office report, that the PPP “must be one of the worst deals ever put in front of the Committee of Public Accounts”. Remarkably, London Underground also agreed to pay the private companies the costs they incurred during the PPP contract bidding process – a grand total of £275 million. Additionally, the private sector was richly rewarded by London Underground itself for the external advice they gave the company during contract negotiations. Poor performance In 2003/4 the Infracos received a payment of £1.07 billion from the public purse via the Infrastructure Service Charge. Despite this enormous sum, Infraco performance is described in the London Underground report as “mixed”. Serious concern is expressed in relation Metronet and Tube Lines project management. The report explains that “high level asset management strategies have been haltingly produced and suffer from inadequate engineering input, while detailed work plans have sometimes been either non-existent, incomplete or inconsistent, rather than competent and professional. The planning capability demonstrated this past year will not be adequate to manage the volume of work once the renewals programme accelerates”. Ill-conceived Many commentators have pointed out that the government’s blind determination to push through PPP and the privatisation of Tube maintenance was ideologically- driven. It would also appear that ministers or government and Tube officials simply did not understand the nature of these deeply complex contracts. Under PPP, it was claimed that the private sector would fund the project, yet taxpayers are spending over £1 billion a year to pay for desperately needed improvements. The PPP was allegedly designed to remove the costs of running the Tube from the government’s public spending bill yet the taxpayer is paying more in interest payments at higher commercial rates. RMT general secretary Bob Crow said that the union will continue to campaign against the PPP and for a return of the Tube to public control. “These reports highlight the fact that this PPP is no more than a money- making exercise for private interests to make huge, guaranteed profit levels at the expense of the travelling public and the workforce,” he said. andal is out Firm Advice Cost £millions Freshfields Price Waterhouse Cooper Arthur Andersen PA Consulting Ove Arup Hornagold & Hills, KPMG and 25 other firms Total Legal (with IT legal team) Commercial (part financial) Reorganising Operations Reorganising Engineering Engineering Project Management, Audit Insurance, property, pension and miscellaneous technical advice £29.2 £21.4 £13.8 £12.5 £6.0 £26.5 £109.4m External Advisor costs to London Underground 29