The failure of London Underground PPP

By colinbuchanan

The final winding up of London Underground’s PPP maintenance agreements signals the
end of perhaps the biggest and disappointingly underreported transport fiasco of our
time. Its demise on the 7 May was certainly a good day to bury bad news from both
Labour and Conservative perspectives.

Transport for London (TfL) was established in 2000 but control over the London
Underground was not transferred to it until 2003. In the interim £455m (according to
the NAO) was spent on setting up a 30-year PPP contract whereby three infrastructure
companies (infracos) were to take over responsibility for the maintenance and renewal of
London Underground’s rolling stock, stations, tracks, tunnels and signals. This was the
brainchild of The Treasury and Gordon Brown, the then Chancellor, who foisted the
unwanted contract on TfL and the then Mayor Ken Livingstone despite legal challenges.

Under the contract the Metronet consortium won two of the concessions and Tube Lines
the third. It was not long before Metronet went into Administration, in July 2007, as costs
spiralled out of control. The cost to the taxpayer of its demise is estimated at £2bn. There
then followed heated debates on the cost of works to be undertaken between Tube Lines
and London Underground which appeals to the independent arbitrator failed to fully
resolve. Eventually to bring the unhappy saga to an end TfL bought Tube Lines for £310m
and at last it is free of a contract that few understood.

PPP was a Conservative invention which the Labour Government continued with great
enthusiasm. It was a classic case of taking an inherently simple idea and applying it to
more and more complex situations without fully understanding its limitations. The NAO,
in a 2004 report on the London Underground deal was unable to say whether it offered
value for money because it was just too complex. The idea that risk can be fully
transferred from the public to the private sector is fundamentally flawed. The private
sector is able to limit its liabilities and walk away from a loss making contract. The
taxpayer is unable to do so.

PPP saw a Labour Government privatise the maintenance of the Underground and a
Conservative Mayor finally renationalise it. The taxpayer has been saddled with almost
£3bn worth of costs with nothing to show for it. Well that’s not true we got slightly
cleaner stations and a bit of paint splashed around as those were the quick wins that
gave the infracos the best return for the smallest outlay. The biggest scandal is that no
politician has been held to account for the disaster and as usual the only winners are the
lawyers.