The decision, which was due to have been announced on Tuesday, is crucial to contractors. Of the 拢7bn of work needed on the Tube, they estimate that 拢1.6bn will be spent on stations: will they be able to control this work themselves or will they find themselves bidding for work from the Railtrack empire? As one bidder says: 鈥淚t鈥檚 very big, very complicated and very politically sensitive.鈥� But at least the complicated scenario gives consultants employed on the project some extra work to justify their huge fees.
London Transport chief executive Denis Tunnicliffe has already admitted that 拢65m will be paid out in fees, but another LT director this week told 黑洞社区 that the figure has now risen to 拢85m.
Management consultants Arthur Andersen and PA, accountant PriceWaterhouseCoopers and law firm Freshfields are among those clocking up hourly fees at a rate construction consultants can only dream of. And one party likely to pay the price is Labour 鈥� Prescott spent years chiding the Conservatives over the 拢100m-plus fees that were spent on rail privatisation.
So, what are the government鈥檚 options? It has already been decided that LU will operate the trains. The rest of the network will be split among three infrastructure companies, or infracos, that will be responsible for three lots of lines. Railtrack is due to be given control of the 鈥渟ub鈥搒urface鈥� lines, including the District and Circle (which are partly subterranean and partly on the surface).
There had been a plan to allow Railtrack to bid for further 鈥渄eep-tunnel鈥� Tube lines 鈥� London Transport last week prepared draft prequalification documents that awarded Railtrack the sub鈥搒urface lines and allowed it to bid for one more set. Now the firm is expected to withdraw from consideration for the deep lines 鈥� and is possibly relieved to be concentrating on the sub鈥搒uface package, rather than overstretching itself.
This last consideration is a serious one: the firm鈥檚 balance sheet may be strong enough to take on the whole of the Tube, but the construction industry believes its project management capability is not.
Mark McVicar, a transport analyst with bank Societe Generale Strauss Turnbull, says: 鈥淥ne of the biggest risks for Railtrack is that one of its major projects will go wrong. The West Coast Main Line, Channel Tunnel Rail Link phases one and two and the Underground鈥檚 sub鈥搒urface lines would crack most organisations. Two Tube lines might be too much, even for a company the size of Railtrack.鈥� There is speculation that as much as 90% of Railtrack鈥檚 senior construction people are bought into the company from outside consultants, calling into question their long-term commitment.
And with the West Coast Main Line struggling to get off the ground, one rival bidder says: 鈥淚t鈥檚 disappointing to see Railtrack so involved, given its track record.鈥� There is anger about the cosy relationship Railtrack has built up during months of exclusive talks over the sub鈥搒urface lines. And one of Railtrack鈥檚 team is David Hornby; he is now general manager for Railtrack鈥檚 鈥淧roject Submarine鈥� 鈥� the London Underground deal. Not so long ago, he was LU鈥檚 director of engineering But if the industry is annoyed by Railtrack鈥檚 privileged treatment, there is some good news emerging about the process.
The good news is 鈥�
At first, the idea was to attempt to get the private sector to take on as much risk as possible, but surveys have so far failed to give LT all the information it needs to do this.
It recognises that an affordability study still to be undertaken would be futile if it attempted to get the private sector to price for unknown risks across the network, because the bids it would get would be simply too high.
One risk is that one of its major projects will go wrong. Two Tube lines might be too much, even for Railtrack
Analyst Mark Mcvicar
As one bidder says, no amount of information could be enough: 鈥淚鈥檇 like to know everything. On tunnels, I want to know about the membrane, the leaking and behind it, the type of soil and the subsidence and seepage trends over five years around it.
鈥淚f it鈥檚 a station, I want to know about the floors, the escalators, the lifts and to see the plans going back to when they were built.
A lot were built between 1910 and 1950 on London clay, so the effect of that interests me.鈥� So, the source on the LT board says the company has decided that, rather than ask contractors to price the risk of unknown problems, perhaps in deep tunnels, LU will take liability for these issues itself.
There has also been a shift in emphasis on penalties to be charged to infracos if something goes wrong on their lines. The initial idea was for payment to be mainly linked to the availability of the lines to LU鈥檚 services, but they will now be mainly linked to the throughput of passengers.
This means that, rather than an infraco being penalised heavily if part of the system is out of use, it will be well rewarded if more passengers are delivered to their destinations. This, it is thought, will provide an incentive for efficiency and innovation, perhaps using faster trains or even ones with double decks.
Funding the improvements
And a longer-term worry for bidders, that London Underground may not be able to fund the improvements out of its own revenues, as planned, is also to be allayed. The LT director told 黑洞社区 that Transport for London, an arm of the new Greater London Authority, will be given a special covenant to fund the investment.
The Treasury is moving to give TFL government guarantees that would give it a 鈥渢riple-A鈥� debt rating, similar to a guarantee given on the money Railtrack will be repaid by the government to fund the Channel Tunnel Rail Link. This way, affordability for the public sector is again protected, because bidders will be unlikely to submit higher bids to cover the risk of LU being unable to pay for the improvements they make.
One other feature of the deal was also addressed this week 鈥� the pensions of 6000 of London Underground employees, who will be transferred to the infracos.
With the Rail, Maritime and Transport Union boasting 80% membership among these maintenance, engineering and procurement staff, there is concern within LU about the part-privatisation plan. The concern stretches as far as Tunnicliffe, who is forcing through the plan but who, according to other LT executives, is philosophically opposed to it.
The pensions problem
There are significant people issues. A lot of people at the highest level don鈥檛 want this to happen
A Bidder, on LU鈥檚 attitude to the deal
One bidder says: 鈥淭here are some significant people issues. A lot of people at the highest level don鈥檛 want this to happen and the delays over Railtrack鈥檚 role have made it worse. It makes people think it will be put it off for some time.鈥� But it is not surprising that the position is sensitive internally, because pensions at LU are at good terms, which the private sector would be unlikely to match.
Although private sector bidders would not be allowed to tamper with pensions already accrued, they can change the rate at which they build up in future. The RMT says LT now puts in 15% of an employee鈥檚 pensionable pay, with employees adding 5% of this into an employee鈥檚 pension.
But it argues that infracos would not make any contribution to employees鈥� pensions.
This week, Treasury minister Alan Milburn announced that all staff transferred through the PFI process are to be given packages 鈥渂roadly comparable鈥� with their current deals.
How much will the bids cost?
The recent hiatus has been tough for all concerned. Major contractors have formed powerful consortia and been dealing with their own expensive advisers for a year. They expect to have to spend 拢4m on bidding for one infraco, 拢6m on bidding for two; and if they close a deal, success fees will push this up to 拢12m-14m.
But at least with Railtrack being out of the equation for the time being, contractors will feel they are operating on a level playing field for the deep Tube lines. In the meantime, with the timetable for the part-privatisation expected to slip way beyond its already-delayed spring 2001 target date, maintenance of the Tube network needs to go on.
The part-privatisation may seem out of the stratosphere of many in the industry, but its slow progress is starting to have an effect. Vernon Clough, managing director of 拢30m-a-year Mabey Construction, which does 拢15m of LU work every year, is one medium-sized contractor that is concerned.
He says: 鈥淭o start with, LU was probably given an unrealistic timetable, but now that has been moved back there is a danger of a black hole in the funding for maintenance arrangements opening up.
鈥淢oney the government had anticipated would come from the private sector will now not be available for some time, and we are seeing early indications that funding is slowing down. On some projects, LU is having a second look before starting; some are delayed in different ways.
