We're getting tired of closures

This sounds pretty much like how a single London Underground organisation would manage its own maintenance and upgrade work. Why pay someone a premium to do a job when you are forced to micro-manage it yourself? Splitting up the system would require someone else to manage the fragmentation of resources and coordinating the interfaces between different contracts. I say forced because whoever that someone else is needs to have an intimate knowledge and experience of working in an LU environment with all its rules and standards and has a long term interest in the wider multi-disciplinary system. The PPP attempted to address this by setting up the 30 year infrastructure companies to enable long term planning and staffed with experienced ex-LU people that were large enough to be self-contained units leaving LU to macro-manage. And large and long enough to be an attractive proposition to the private sector’s big hitters… As borne out from the Metronet experience the liabilities ultimately fell on TFL due to the formers failure to deliver its part of the contract.

But it is comforting to know that the City’s finest minds are working to provide the answer. However, I will try to give a pointer to some of the issues and problems I perceive to have affected LU and Metronet though I can only throw in my thoughts based on experience.

The PPP is an attempt to carry out a wholesale upgrading of the system on a scale that LU has not done before. Done while the network is running. I’ve heard it likened to carrying out open-heart surgery to someone running a marathon. It wouldn’t be possible without the funding arrangement LU had prior to PPP and 7-year plans were unheard of.

Firstly, LU are a victim of their own unique environment and in other ways have created a rod for their own backs. Contractors have compared working on LU to being in the nuclear industry and have said it is far more complicated than working on Network Rail. Due to the many onerous rules and standards that have evolved over the years, often added with good intentions e.g. post Kings Cross Fire 1987, work on LU is not as straight forward as a road repair contract for the council. Not only is the actual work difficult for the contractor it is paperwork intensive and their staff need to hold the appropriate licenses. As a result there is only a small pool of specialist contractors to choose from thereby reducing competition. Contractors consider LU to be a difficult client to work with and will charge a premium for it. Sometimes LU are stuck with awarding contracts to small or medium sized contractors who may not be adequately resourced for the small and difficult but critical work. The larger contractors won’t consider these jobs as they aren’t worth the trouble and not profitable enough.

Projects can take a long time in planning and design, sometimes years, due to the strict assurance process and the stakeholder consultation process LU imposes. LU has to enforce this regime on its contractors as agreed in the terms of its statutory Safety License, formerly Safety Case, as infrastructure operator. Large numbers of staff, engineers and management are allocated to writing, reviewing and processing assurance documentation and have to be paid for. A common complaint, whether justified or not, from contractors is there are powerful individuals in the LU hierarchy who can reject proposals or impose overly onerous restrictions but themselves have no financial or programme delivery accountability.

Secondly, it was the organisational structure and the way in which Metronet procured its contractors and the shareholders’ imposed “supply chain” model of procurement. Usually this is a successful and common form of ‘framework’ procurement in the civil engineering industry. What is unusual here was the close relationship between shareholders and the sub-contractors taking on the work. This caused costs to spiral out of control and regardless of the ability of any management team, this was beyond their control. Metronet’s contracting arm for civils and stations work was Trans4m Alliance a management organisation made up of shareholder companies which was further tied to using only shareholder owned subcontractors. This incestuous relationship ensured that the Metronet shareholders were keeping most of the PPP money in their own pockets with little going out to external companies.

Thirdly, Metronet’s dealings with LUL. Not many of you need reminding what PPP stands for but unlike Tubelines, Metronet had seem to forgotten that the final P stood for partnership and instead treated LUL as an all powerful client. There were often differences in interpretations with the complex PPP contract requirements having had no legal precedent.

A fixed price contract is not ‘fixed’ as some may believe. It is right that the contractor will insist on clauses that allows for payment for additional work due to unforeseen conditions or changes in scope by the client. Failing that there are legal means of recovering costs, e.g. Wembley stadium. Fixed cost contract would largely be unsuitable for the nature of a lot of the work undertaken in PPP. Due to the age of the infrastructure on LU work cannot always be properly scoped or estimated and often underestimated. No company in their right mind would sign up to a contract where they would be taking on undetermined liabilities without assurances there would be a limit. Often LU does not possess adequate records of its assets such as structural details, asbestos, drainage runs or buried services to name a few. What hasn’t been mentioned was the Metronet shareholders were given a letter of assurance from the Secretary of Transport that their liabilities would be capped thus making the premise of the private sector taking on 100% of the risk a mockery. Also, from my understanding of contract law a contract is unenforceable when one party penalises another party with unreasonable fines not in keeping with actual losses incurred.

Lastly, there are also the cultural and historical issues. LU is a collection of empires within an empire. You’d be surprised on how policy and decisions have been dictated by personality clashes and office politics with a few individuals with ‘grandee’ status. The infraco split meant there was many more roles to be filled and empires to be made. Leaving out Operations, there are the maintenance groups on one side and the upgrades and engineering on the other. Having worked in both, they don’t have much love for each other. For example, P-Way had built up a ‘Railway tradition’ over many years with some parts ran under a quasi-feudal system. Throw in the trade unions and you have a tricky situation.

One of the reasons I’ve read as to the why PPP was structured in the way it was, is that existing LU engineers and expertise had to be retained with the infrastructure companies. The lessons from Railtrack were not to farm out all their ex-BR engineers and rely entirely on their contractors. In this case they were unlikely to retain or recruit if you a de-motivated work force knowing that they’d be dispensed with at the end of shadow running. PPP had to be ‘sold’ to the engineering staff in this way.

Metronet was an organisation with a public sector structure ran as a private sector business. It would be interesting to compare how other privatised utilities operate. However, it would be difficult for me to say whether Metronet tried to change too much or that the pace of change wasn’t quick enough. From what I gather Tube Lines on taking over JNP swept away the old structure and imposed their own system in short space of time. Speaking to Tube Lines employees in the early days of PPP, the shareholder companies were embedding their own management team into JNP instead of creating a separate contracting arm and supply chain as Metronet had done. At the time “alliance partnerships” were popular in industry practice. They had been proven to work outside but I think the key is that everyone needs to understand each other’s contractual responsibilities well. Here you had a compromise between a public sector mentality and a profit making orientated business trying to work as an integrated team.

This is only a brief summary of personal observations and many others will have different experiences. Given time I’m sure someone will write a book on this subject and give a more definitive account.