25 January 2008
Press Notice No 12
THE LONDON UNDERGROUND AND THE PUBLIC-PRIVATE PARTNERSHIP AGREEMENTS (HC 45)
The Government should remember the “spectacular failure” of Metronet before ever considering another public private partnership.
This is the conclusion of the Transport Committee report published today: The London Underground and the Public-Private Partnership Agreements. During its inquiry, the Committee looked at the collapse of Metronet, one of two private sector consortia that had signed three 30 year contracts to renovate and modernise the London Underground network.
The Committee says much of the blame for this lamentable state of affairs lies with the Department for Transport, which imposed the PPP on Transport for London. The circumstances of Metronet’s end have shown that the private sector will never wittingly expose itself to substantial risk without ensuring that it is proportionately, if not generously rewarded. It is ultimately the taxpayer who pays the price.
The Committee was not able to get an estimate of the total cost of Metronet’s collapse. However, it heard that the public is likely to be liable for 95 per cent of Metronet’s debt. Transport for London has also been funding an operating deficit of around £13 million a week.
Chairman of the Committee the Hon Gwyneth Dunwoody MP said: “The future of most of London Underground’s upgrade and maintenance work is now in doubt. The public, whether as taxpayers or Tube passengers, is paying for the private sector’s inefficiency and failure.
“Any reasonable person, looking at the current situation, would find scant evidence to sustain a dogma that the private sector will always deliver greater efficiency, innovation and value for money than the public sector.”
“If the Government is ever again tempted by a seemingly good deal from the private sector, it should recall Metronet’s pathetic under-delivery and the deficiencies in the contracts that allowed it to happen.”
The Committee found that Metronet was little more than a buffer between its parent companies - Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water - and the obligations of the PPP Agreements. The shareholders were able to reap the rewards of PPP contracts while in theory absorbing much of the risk. In fact, on Metronet’s collapse, responsibility for most of the cost overrun fell to the public sector. Metronet was a company with few assets and little real purpose beyond acting as an intermediary between its owners and London Underground.
When awarding the contracts the Government and London Underground should have foreseen that the tied supply chain proposed by Metronet, which guaranteed the lion’s share of its work to its parent companies, would not result in efficient or economic performance.
Metronet only delivered 40 per cent of the station upgrades it was contracted to do in the first three years; the cost of work on stations spiralled to 375% of the anticipated price and by November 2006 only 65% of scheduled track renewal had been achieved.
The Committee recommends:
The Government must not allow this blurring between the roles of shareholder and supplier in future bids to carry out work by the private sector.
The Government should not enter into any further PPP agreements without a comprehensive and accurate assessment of the level of risk transfer to the private sector.
The Secretary of State should make a full assessment of the additional costs that have been incurred as a result of the failure of Metronet and then tell the House what proportion of these costs are to be met by central Government and what proportion she expects residents of London and Tube passengers to pay.
The Government should bear the Metronet debacle in mind if and when its parent companies next come to bid for publicly-funded work.
Media representatives who would like to receive an embargoed advance PDF copy of the report at 11.00 am on Thursday 24 January, in preparation for Friday publication should contact Laura Kibby, Media Adviser, on 020 7219 0718 or 07917 488557.
The Report will be available on TSO’s and the Committee’s website shortly after the publication hour has passed (