Thursday, 7 February 2008

The Late Lunch Briefing

Metronet: A Failure of PPP?

It was announced yesterday that the government would be picking up the bill (i.e. the taxpayer is picking up the bill) for the massive £2bn hole Metronet blew in the PPP contract they were operating on the London Underground. It is being reported as a deep embarrassment for the government as it was forced upon Livingstone and former TfL Commissioner, Bob Kiley. The Mayor wanted a bonds based scheme while the government insisted that it wanted to put the risk and debt on the books of the private sector. So who was right and why did it go wrong?

Metronet: The Failure of PPP

Firstly, to try and paint the collapse of Metronet as a failure of PPP is disingenuous and playing politics. The reason Metronet failed is not because the government used a Public Private Partnership, but was down to the consortium members of Metronet. WS Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water have effectively cost the tax payer £2bn and suffered very little in the way of penalty. Instead of sub-contracting out the work like Tubelines (which is a very successful PPP deal and working fine on the rest of the Underground), Metronet decided to divvy up their contracts between them. In effect they were paying themselves to do the work. The incentives to actually do the work was immediately reduced. So while Metronet has gone into administration, guess who is still getting paid to carry out the work on the Underground...

The Government played their role too

The government and Gordon Brown do not get off scot free here, however. The big myth that handing out PPP and PFI contracts means that the risk of a project rests with the private sector has been shot wide open here. Metronet as a firm may cease to exist, but the companies that made up Metronet are still going strong and have not had to pay up a penny of the £1.7bn – because when all is said and done the risk sits firmly with the tax-payer. While PPP is in my opinion a good tool for getting major projects done, it by no means shifts the risk away from the tax payer. Nor is it the solution to all projects. Then again, Ken’s bonds scheme had its flaws to and was, at the time, by no means the better option. The big failing from the government in all this is that they allowed a contract to be signed without realising that Metronet would keep it all in house and shaft the tax payer when it all went wrong.

If you are angry by having to shell out for part of this £2bn fiasco, by all means direct it towards Gordon Brown – but the real culprits here are WS Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water aka. Metronet.


James said...

I absolutely agree the culprits are the members of the Metronet consortium. Shouldn't they be banned from working on upgrading the Tube in the future? From past experience, they're obviously not fit to undertake work that can be delivered on time and on budget.

I'm amazed this hasn't bit Mt. G Brown on the ass yet. Though, compared with the money put up to secure Northern Rock, this is small fry. Economic competence? Pah!

Garbo said...

My understanding is that if (when)TfL finally take over the maintenance contracts on BVC and SSL they will re-tender out the sub-contracts. Though I am not sure of this...

Doubt they will be banned from going for the sub-contracts, mainly because of EC procurement law and in practical terms, there aren't many other firms that can do this sort of work in the UK

If TfL tender out a project manager contract though I doubt very much if any of the Metronet consortium will be winning it!