London tube PPP ends in public buyout

Public entity Transport for London has bought Bechtel and Amey, a Ferrovial subsidiary, out of Tube Lines – the private sector consortium tasked with upgrading London’s underground rail – for £310m. Mayor Boris Johnson is happy to be free ‘from the perverse pressures of the Byzantine PPP structure’.

Transport for London (TfL), the public body responsible for London’s transport system, has ended the troubled public-private partnership (PPP) to upgrade London’s underground rail by buying the private sector out of the contract.

Tube PPP: contract ends
after just seven years

Tube Lines – the consortium formed by Ferrovial-owned Amey and San Francisco’s Bechtel to upgrade the London underground – sold their stakes in the consortium to TfL for £310 million (€359 million; $465 million). Amey will walk away with £207 million of that amount with Bechtel netting the remaining £103 million when the sale concludes by the end of June.

Amey will continue to provide management and maintenance services for three of London’s underground lines on an ongoing basis while Bechtel will work with the public authorities for an interim period to ensure a smooth transition of works, TfL said in a statement.

London Mayor Boris Johnson, a stern critic of the PPP, said the deal was “excellent news for London”, adding that works should proceed in a more timely fashion now that the transport authority is “freed from the perverse pressures of the Byzantine PPP structure”.

He had previously accused the PPP of wasting “hundreds of millions of pounds of public money”, arguing that Amey and Ferrovial’s management of the contract “would be called looting […] in other countries”.

The PPP contract had its share of problems from the beginning, starting with the City of London’s 2007 bailout of Metronet, one of the original private sector partners in the PPP, after it went bankrupt. Tube Lines fared better but its performance was repeatedly criticised by the London authorities as delays to the upgrading process kept mounting.

A dispute over refurbishment costs intensified the differences between the two parties, forcing PPP arbiter Chris Bolt to intervene. Tube Lines wanted £5.75 billion from the London authorities to fund its upgrade programme over the next seven-and-a-half years but the authorities were only willing to part with £4 billion. Bolt told the London authorities to pay Tube Lines £4.46 billion and advised them to borrow to help plug the gap.

A parliamentary report released in late March further damned the PPP, highlighting that “20 months following the demise of Metronet, the Government is no nearer being able to demonstrate that the PPP provides value for money for the taxpayer”. It did, however, point out that parallel refurbishment works being carried out solely by the London authorities were a third more expensive than Tube Lines’, calling for more transparency on the public side.

The 30-year PPP contract to improve the world’s oldest underground rail had been shepherded by Prime Minister Gordon Brown in 2003, when he was Chancellor of the Exchequer.