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Analysis of the London Underground PPP Failure

Authored by

Trefor Williams

Working Paper Proceedings Engineering Project Organizations Conference South Lake Tahoe, CA

November 4-7, 2010

Proceedings Editors

John E. Taylor, Columbia University

Paul Chinowsky, University of Colorado - Boulder

Proceedings-EPOC 2010 Conference

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ANALYSIS OF THE LONDON UNDERGROUND PPP FAILURE

Trefor P. Williams1

ABSTRACT

The London Underground Public Private Partnership (PPP) allowed for private sector

consortiums to take over infrastructure maintenance and rehabilitation of the London

Underground system. Private financing was arranged to fund the infrastructure rehabilitation

programs and the PPPs also received annual grants from the government. The PPP arrangements

were contracted for a 30 year period beginning in 2004, yet by early 2010 both private

consortiums had failed and control of the infrastructure had returned to the government. This

paper is a literature survey of the many problems that beset the London PPP, as well as current

thinking about PPPs in general. Topics considered include the financing of the PPPs, the PPP

contract, construction management issues that affected rehabilitation projects, and the

contracting relationships between the PPP consortiums and their parent companies.

KEYWORDS

Public Private Partnerships, infrastructure, contracts, financing

INTRODUCTION

The London Underground Public Private Partnership (PPP) has always been

controversial, from the planning stages of the scheme to the final failure of the partnerships and

their ultimate return to the London Underground public agency (U.K. National Audit Office

2004a, UKNAO 2004b, Gosling 2008). A government report on the feasibility of the PPP

indicated that the scheme would give better value for money than a comparable public alternative

(UKNAO 2000). However, Shaoul (2002) questioned the accuracy of the government’s analysis

of the viability of the PPP scheme before it was implemented.

The primary reasons given by the British government for the implementation of the PPP

scheme was the inability of London Underground, as a public agency, to deliver long term

infrastructure improvements. In the period before implementing the PPP, the London

Underground’s budget for infrastructures projects was re-evaluated every year, so damaging cuts

were often made to the budget for infrastructure renewal projects (UKNAO 2004a). The budget

cuts did not allow London Underground to move forward with major long-term rehabilitation

efforts causing deterioration in the Underground infrastructure.

The goals of implementing the PPP contracts were:

• To provide a more stable funding environment with the private sector obtaining long term

funding.

• Give private sector project management an interest in the projects success over a thirty-year

period.

• Allow the London Underground government agency to retain control of operating the

trains.

1 Professor of Civil Engineering, Center for Advanced Infrastructure and Transportation, Rutgers University,

Piscataway, NJ, [email protected]

mailto:[email protected]


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• Deliver projects in a more efficient manner than past methods of project delivery used by

London Underground.

The London Underground PPP was a complex arrangement where the government

agency, London Underground, operated the trains, but three PPP consortiums were set up to

maintain, and rehabilitate the underground infrastructure. Figure 1 shows the complex

relationships between government and private entities and the cash flows from the government

agencies to the private sector. The figure shows several interesting items. First, it indicates that

London Underground made annual “Infrastructure Service Charge Payments” to the PPPs of

approximately £1.1 billion. These service charge payments were made monthly and were

adjusted based on three performance measures. The measures were capability, availability and

(Source: United Kingdom. National Audit Office, 2004) Reproduced under the terms of the

Click-Use License.

Figure 1. Structure of the London Underground PPP


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ambiance. Capability is a measure of the ability of the infrastructure to support train service. It is

based on a passengers average journey time. Availability was a measure of the

The service charge was paid by a grant from the U.K. Department of Transport which

was passed to Transport for London, the parent organization of London Underground and then to

London Underground. Second, it was London Undergrounds responsibility to operate the trains

that were paid for out of fare receipts. Finally, it shows that the PPP consortiums, Metronet and

Tube Lines were responsible for the maintenance, replacement and upgrade of trains, and the

Underground’s civil infrastructure.

The PPP consortiums took over control of the underground infrastructure in 2004. The

PPP contracts were intended to run for thirty years with periodic performance reviews every 7.5

years. Various problems occurred in the implementation of the PPPs and by 2008, two of the

three PPPs (both controlled by a consortium called Metronet) went into bankruptcy when they

became unable to meet their spending obligations. Their failure resulted in London Underground

having to buy 95 per cent of Metronet’s outstanding debt obligations from its private sector

lenders in February 2008 rather than repaying this debt over the 30 years of the contract. The

U.K. Department for Transport made a £1.7 billion grant available to help London Underground

buy out the remaining amount of the private debt. Estimated loses to the taxpayer of the

Metronet failure have been as high as £4.1 billion (UKNAO 2009). The final PPP, Tube Lines,

ended in early 2010. “Tube Lines initially wanted £6.8billion (later reduced to £5.75billion) for a

major programme of renewal on the Piccadilly and Northern Lines, and the arbiter has only

granted the company just under £4.4 billion (Wolmar 2009). This shortfall caused the Tubelines

consortium to go bankrupt and London Underground has bought the consortium’s shares for

£310 million. As of the fall of 2010 control of the entire Underground infrastructure has returned

to London Underground. Controversy still exists around the PPPs as London Underground

contends it can provide infrastructure rehabilitation at a lower cost than the consortiums, while

others believe its costs may be up to a third higher (BBC News 2010, U.K. House of Commons

Transport Committee 2010)

The PPP Structure

PPPs can be defined many different ways and can take on various types of structures. A

general definition of PPPs is that they are “an arrangement of roles and relationships in which

two or more public and private entities coordinate in a complementary way to achieve their

separate objectives through the joint pursuit of one or more common objectives” (Lawther,

2002). A definition of complex infrastructure PPPs is “a long-term contract between the public

and private sectors where mutual benefits are sought and where ultimately the private sector

provides operating services or puts private finance at risk (Garvin 2010).” In the case of the

London Underground a complex PPP structure was required. The London Underground PPP can

be categorized as a Design-Build-Finance-Operate (DBFO) PPP project. A private partner in a

DBFO is responsible for the design, construction, maintenance and operation of a facility. The

DBFO private partner finances the project and is granted a long-term right of access. The public

partner makes service payments to the private partners based on performance metrics (Williams

2003)

Three PPPs were formed. One group of bidders, Metronet, won two of the PPP

consortiums. The companies included in Metronet were Bombardier, W.S. Atkins, EDF Energy,


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Thames Water and Balfour Beatty. The third PPP consortium was called Tube Lines and

included Bechtel and Armey as partners.

Figure 2 shows the detailed structure of the Metronet PPP consortiums and their

relationship to public oversight agencies. Funding came from private debt financing and the

annual infrastructure service charge payment from the London Underground. There was an

arbiter who decided on pricing when disputes occurred. The PPP contract was set up so the

arbiter could award additional funding if the work was considered to be what an economic and

efficient supplier in similar circumstances could charge. In other words, the arbiter could adjust

prices upwards if he considered the request to be reasonable and representing good “value for

money.” The arbiter could make additional award decisions only when requested by the PPP

consortiums or the London Underground. The arbiter had no power to impose changes to the

PPP agreement. The arbiter could also adjust prices during a periodic review that was scheduled

to occur every 7.5 years during the PPP contract (PPP Arbiter 2010).

The PPP contract allowed up to £360 million in contingency to be paid to the PPP

consortium for unforeseen changes in the work. Each consortium was responsible for £50 million

in additional costs each year before they could receive additional compensation. It is important to

note from the figure that although the Department for Transport guaranteed the debt to the

private debt providers, it had no direct oversight of the operations of the PPP.

Purpose of the Paper

The failure of the London Underground PPPs raised many questions about the application

of PPPs to construction projects. Questions have arisen concerning the benefits of the London


Click-Use License.

Figure 2. Detailed Structure of the Metronet PPPs


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PPP arrangements and the actual cost to tax payers. In addition, project management issues arose

during many of the rehabilitation projects that were related to the nature of the PPP contracts.

The purpose of this paper is to analyze available literature about the London

Underground PPP's failure and the literature about PPPs in general to determine what the causes

of the PPP failures were, and in particular what contractual and project management practices

contributed to the PPP's failure. The paper will focus on problems with infrastructure projects

conducted by the PPP.

SOME BACKGROUND LITERATURE ON PUBLIC PRIVATE PARTNERSHIPS

In theory a PPP can provide improved service quality, risk sharing with the private sector,

and cost savings (Bloomfield 2006).. There is some disagreement concerning the effectiveness of

PPPs in achieving these goals. This may be caused to some extent because PPPs have been

applied to many different types of projects, with the projects varying greatly in scope, contract

type and length. Hodge and Greve (2009) state that evaluations of public–private partnerships

thus far point to contradictory results regarding their effectiveness and value-for-money. They

state, “Despite continuing political popularity, greater care is needed to strengthen future

evaluations...” They also analyzed available literature that assessed the value for money

outcomes of various PPPs. They conclude that there is both supporting and opposing outcomes

reported for PPP projects and that there is a need for a more rigorous financial analysis of the

benefits of using PPPs.

Kwak et al. (2009) have determined through a literature survey that the success or failure

of a PPP project is dependent on four groups of factors: the competence of the government, the

selection of an appropriate concessionaire, an appropriate risk allocation between the public and

private sectors, and a sound financial package, The problems with the London Underground

PPPs centered on the allocation of risk between the government and private sector and the ability

of the government agencies to appropriately monitor the private participants.

Many PPPs have been successful. Garvin (2010) discusses the latest techniques used in

Europe and states that for highway transportation projects governments in Europe governments

have developed a large body of experience to deal with the implementation of PPPs. The

increased use of PPPs in the United States is also advocated. Bloomfield (2006) reports on the

success of a waste water treatment PPP in Seattle. The U.K. National Audit Office (2003) has

reported on the performance of Private Finance Initiative (PFI) Projects, a British government

PPP program. These PPPs as being delivered on time far more often than traditional

infrastructure contracting arrangements. They reported that where traditional public

infrastructure provision arrangements are on-time and on-budget 30% and 27% of the time,

British PFI public private partnerships are on-time and on- budget 76% and 78% of the time,

respectively. Possibly, successful PPP projects are not as complex as the London Underground

PPP, are more clearly defined, with distinct life-cycle phases. It was also concluded that the PPP

projects provided the contracting government agencies with more price certainty and that the

facilities constructed had good quality. PFI projects that have had problems usually suffer from

poor project definition and poor management (Major Project Association 2003)

Unlike a highway project where it is typically new construction that is well defined, the

London Underground PPP was in essence “open-ended,” with various projects spread out over a

planned 30-year period. Because there was uncertainty as to what the projects would include this


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contributed to the failure of the PPPs. The London Underground PPP was not created for a single

project unlike many PPPs but was created to conduct many products spread out over time and

location vastly increasing the PPPs’ complexity.

A project similar to the London Underground PPP, the Madrid-Barajas International

Airport project has been discussed by o and Vassallo (2009). The project involved the

extension of an existing subway line with maintenance of the line to be handled by the PPP and

operation of the line handled by the government agency responsible for the subway system. They

conclude that this “nonintegrated” approach, with a separation of the responsibilities for

operation and maintenance is beneficial for urban railway projects. They conclude that from the

point of view of the government, nonintegrated PPPs have the advantage of boosting competition

in the bidding process, and subsequently reduce monopolistic power over an integrated PPP

where the PPP will both operate and maintain the urban railway. For urban rail users, a

nonintegrated approach has the advantage that it does not involve a breakdown in transportation

service. As users strongly penalize transportation changes, this promotes a greater use of public

transportation. A particular difference between the two PPPs is the difference in scope of the

projects, and the fact that the Spanish project was new construction.

Perhaps, the size and complexity of the London Underground PPPs, differing from the

Spanish PPP where a single project for a relatively short section of a subway line, indicates why

problems were encountered with the London Underground PPP. In addition, although the

London Underground was operated in a “nonintegrated” way, there were disputes between the

London Underground and the PPPs concerning line closures for access to tunnels and stations for

construction work.

Some literature relates to the problems inherent in large and complex PPP arrangements

like the London Underground. Vining and Boardman (2008) hypothesize that there is an inherent

conflict in complex PPPs that can cause difficulties between project partners. They state that

there is a divergence of goals between public and private partners with the private sector seeking

to maximize profits and the government agency seeking to minimize current cost, on balance

sheet debts and political costs. Studies have shown that when inter-organizational conflict is

present in it often leads to opportunistic behavior by one or both parties, high contract bargaining

costs, failure to achieve project goals and the breakup of the partnership.

Bloomfield (2006) has suggested that long term PPP contracts need to be approached

with caution and that it has often been recognized that business transactions between government

and private companies are more likely to serve public objectives when competition is robust,

when measurable performance requirements can be specified in advance, when the contractor

can be readily replaced, and when the transactions are transparent. Due to the size of the London

Underground PPP project competition was limited to only a few large consortiums with the

resources to enter into the complex negotiation project. Upon taking over the operation of the

Underground the consortiums could not be readily replaced. The transactions involved in the

London Underground were criticized for lack of transparency with great uncertainty still existing

concerning the consortiums transactions and profits (UKNAO 2009). The very large and

complex nature of the London PPP, the complex negotiations that were necessary to develop the

contracts and the lack of transparency concerning the financial dealings contributed to its failure.


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LONDON UNDERGROUND PPP PROBLEMS

In this section the various problems that plagued the London Underground PPP are

discussed. In particular, issues related to how the PPPs were financed, their contracts and

operational problems that arose during construction problems are discussed.

Failure of Consortium Management and Lack of Governmental Control

British government reports assign most of the blame for the PPP failure to the

consortiums poor internal management (UKNAO 2009). In the case of Metronet, the

management changed frequently and found it difficult to manage the work of its shareholders.

The U.K. National Audit Office report states:

These suppliers had power over some of the scope of work, expected to be paid

for extra work undertaken and had better access to cost information than the

management. The poor quality of information available to management,

particularly on the unit costs of the station and track programmes, meant that

Metronet was unable to monitor costs and could not obtain adequate evidence to

support claims to have performed work economically and efficiently (UKNAO

2009).

In the case of Metronet, its internal structure did not give it access to the required cost and

management data of it component companies as they conducted the rehabilitation projects.

In addition to the problems with consortium management, additional problems existed

with the control the government could exert over the PPP. The arrangements for the London

Underground PPP were dictated in part by the move in the United Kingdom to devolve power

from the central government to local governments. Control of the London Underground was

devolved from the U.K Department of Transport to the Mayor of London and an agency called

Transport for London. This agency was responsible for the London Underground. The

Department of Transport had guaranteed the private loans yet had few ways of controlling the

PPP when problems occurred. The Department of Transport relied on the London Underground

and Transport for London to monitor the projects for financial risk. Yet London Underground

pursued a rigorous interpretation of the contract scope which tended to increase costs. However,

in the case of Metronet, London Underground had difficulty obtaining information and cost data

which would have allowed it to more closely monitor costs and to understand the effect of its

interpretation of the contract scope on project cost increases. In addition, London Underground

lacked the information that would have allowed it to take more of a “partnering” approach with

the consortiums (UKNAO 2009). It can be concluded that Transport for London and London

Underground did not have enough information about project performance to provide oversight

and control over the PPP consortiums activities.

Financing Issues

A controversial part of the PPP arrangement was the use of private debt to finance the

PPPs and if this actually provided cost savings to the government. One critic of the financing

arrangement stated:


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"... You'll often find public quotes saying that the PPP or PFI enables the private

sector to step in and provide infrastructure that the taxpayer cannot afford...

Whether it's deliberate or not, I don't know, but it's a delusion. What you are

doing is delaying paying for something - it's like public borrowing of other kinds,

where the state issues gilt-edged securities but repays them out of future

taxation."(Stephen Glaister, quoted in Professional Engineer, August 13, 2008)

It has been argued that the cost of private borrowing was greater then the cost of issuing public

debt. Some, critical of the PPP arrangement, have argued that rather than borrowing capital at

between 4-5%, which was the going rate for government debt, the PPP companies borrowed

from their shareholders and their banks at a rate of 20%. A public accounts committee report

says this added £450 million to the cost of the PPP contracts, in addition to the £450 million cost

of deciding the contracts, with legal bills (Professional Engineer 2008).

The PPP projects had high debt to equity ratios, with approximately 88.3% debt to 11.7%

equity. Therefore, most of the funding contributed by the PPPs was in the form of private debt

with a relatively small amount of equity risk borne by the PPP consortium members. The small

amount of equity risk provided less of an incentive for the PPPs to perform. In addition, the

government guaranteed 95% of the private debt in the case of bankruptcy by the PPPs (Vining

and Boardman 2008).

The five Metronet participants split the equity requirement of £350 million between

them. This amounted to approximately £250 million after taxes on bankruptcy. This was not a

huge write-off for these large corporations. Furthermore, these firms were major suppliers to the

project. Metronet received £3 billion in service charges from 2003 to 2007, or approximately

60% of all capital expenditures. A large percentage of this was passed on to Bombardier or to

Trans4m, a stand-alone corporation owned by the other four equity partners (Vining and

Boardman 2008). Trans4m was the group of consortium partners that performed the

infrastructure renewal work.

The ways in which the consortiums financing were structured, and the high interest rates

for private finance may have increased project costs. Perhaps the high interest rates the

consortiums accepted from the financiers indicate the risk and uncertainty surrounding the PPP.

Potentially, financing the project through the government using a traditional method like a bond

issue could have reduced borrowing costs. In addition the guarantee of the private debt by the

Department of Transport tended to significantly reduce the consortiums financing risk. Yet, the

contract was structured in such a way that the Department of Transport had little authority to

intervene in the PPP activities.

Contract Incompleteness and Risk Transfer

Soliño and Vassallo (2009) discuss the difference between economically efficient

contracts and incomplete contracts. Contracts have ex-ante and ex-post efficiencies. An

inefficient contract has ex-post inefficiencies because they oblige an exchange to happen

regardless of the ultimate benefit to be achieved by the parties. Ex-ante and ex-post efficiency

are in tension when parties contract under uncertainty. It may turn out, for example, that the

value of the contract performance to the government agency is less than the value of the private

PPP consortium’s cost of performance. A solution to the dual objective of ex-ante and ex-post


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efficiency is setting up a complete contingent contract, which is able to specify obligations in

each potentially possible state of the world and is enforceable according to its terms. Such a

contract ensures that performance occurs when, but only when, it is efficient. However, in

practice many contracts are incomplete. These contracts often do not specify the parties’

obligations in all possible states of the world. One of the major reasons incompleteness occurs

because there is not enough information at the time of signing of the contract.

Contract incompleteness occurred for the London Underground PPPs. London

Underground was aware that the condition of less accessible infrastructure and facilities would

not be known before the award of contracts. “The uncertainty meant that bidders sought

protection from the consequences of adverse conditions exceeding prudent levels of contingency

(UKNAO 2004a).” An example of the contract incompleteness is related to the refurbishment of

stations.

Vining and Boardman (2008) contend that the government and the PPP consortiums

disagreed on the fundamental nature of the contracts. The government believed it had purchased

an output based fixed price contract and the private consortiums behaved like it had agreed to a

series of heterogeneous cost plus projects. In successful PPPs the risk allocation between

partners should be worked out before the contract is signed (Bing 2005). Clearly this was not

accomplished for the London Underground PPP due to its complexity.

The PPP contract stated that the extent station refurbishments could be classified as

modernization, refurbishment or enhanced refurbishment. These terms were not well defined in

the PPP contract, and resulted in disagreements between Metronet and London Underground

over what level of rehabilitation should be conducted at a station (UKNAO 2009). In addition,

the PPP contracts may not have transferred sufficient risk to the private PPPs. Many aspects of

the London Underground PPP contracts reduce the risks the private consortiums must bear. A

House of Commons committee concluded (U.K. House of Commons, Committee of Public

Accounts 2005):

There are caps, caveats and exclusions to project risks borne by the Infracos. The

risk of cost overruns in repairing assets of unknown condition, such as tunnel

walls, is excluded because knowledge of their residual life and associated costs is

incomplete. In the case of assets whose condition has been fully identified against

specific engineering standards, the cost overruns that the Infracos have to bear are

capped, so long as the Infracos can demonstrate that they are acting economically

and efficiently... There is no definition of economic and efficient behavior in the

contracts; an independent arbiter can make a ruling if asked. Exclusions to the

risks borne by the Infracos include passenger demand, lower income with fewer

users and capacity constraints in the face of increased use. These are borne by

London Underground.

This finding indicates that the design for various infrastructure rehabilitation projects could not

be fully specified at the time of the contract signing due to uncertainty in existing conditions.

Therefore, the contract required these risks to be assumed by the government agency. The lack of

definition of what economic and efficient behavior by the private sector infrastructure companies

was which lead to disagreements when funds were requested for additional work. It is essential

with the huge financial stakes a PPP entails that the contract be technically optimal, but also

allow for transparency and clarity (Hodge 2004).


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Contracting Methods for Infrastructure Projects

Metronet and Tube Lines employed different methods of contracting out rehabilitation

projects. Metronet used practices which were sharply criticized because they favored the parent

companies of the consortium. Tube Lines contracting practices were seen as more open and it

was less criticized.

The Tied Supply Chain

The PPP consortium was responsible for letting a large number of projects for major

infrastructure rehabilitation including the refurbishment and modernization of many stations.

These projects involved installing better lighting, décor, elevator access, waiting facilities, public

address and closed-circuit television to enhance safety and the physical environment (Sibley

2009). Other major projects included the upgrade of signaling systems for various underground

lines.

In particular the UKNAO (2009) in its report on the Metronet failure criticized Metronet

for using a “Tied Supply Chain” to deliver the infrastructure contracts and concluded that the

poor management of these arrangements were the primary cause of Metronet’s failure. The

shareholders of the Metronet were also the suppliers of the infrastructure rehabilitation projects

in a tied supply chain, and they adopted governance and management structures which gave

power to the suppliers rather than the management of the Metronet business. Metronet’s

management was unable to extract key information or incentivize suppliers to perform their roles

in line with its own interests (UKNAO 2009). This arrangement gave little incentive to the

suppliers of the infrastructure refurbishment to behave in an efficient manor or to hold down

costs.

Figure 3 shows the structure of the Metronet Tied Supply Chain. The figure shows that an

organization called Trans4m was formed to be the contractor for all civil infrastructure projects.

Trans4m consisted of four of the Metronet PPP consortiums members and was awarded all of the

station and civil works projects let by Metronet. It has been suggested that the participants in the

PPP consortium may have actually had limited losses, even though Metronet went bankrupt,

because of the money which was paid to the parent companies through the “tied supply chain.”

Tube Lines Experience

Tube Lines used a more open process to select contractors to perform rehabilitation

projects. The Tube Lines approach was based on procuring the contractors for individual

contracts through open competition. Tub Lines approach to letting the infrastructure contracts

changed over time as more experience was gained. Initially, a traditional design-bid-build model

was employed. The low bidding contractor typically used subcontractors for most of the work.

Tube Lines found that the use of many subcontractors increased communication time when

problems arose, the station rehabilitations required many design changes and that scope issues

often arose with London Underground. Over time, Tube Lines began acting as a construction

manager with work packages let to the different specialty subcontractors (Sibley 2009). This was

found to be more efficient.


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Tube Lines also experienced some criticism of its contracting practices. A House of

Commons report (U.K. House of Commons Transport Committee 2010) stated “We are

concerned, however, that there may be a temptation for Tube Lines to award projects to its parent

companies for which they do not possess the required expertise. Such practices may have

contributed to delays on the upgrade.”

Approvals and Communications

Many projects had problems with developing appropriate lines of communication

between the public and private partners for approvals and permits. Although there was a single

London Underground contact designated in the PPP contracts, case studies found that for

individual station rehabilitation projects many different approvals were required from several

branches of the London Underground organization (UKNAO 2009). This indicates that various

processes could have been implemented to help control the infrastructure rehabilitation contracts.

Using a configuration management process and clearly establishing lines of communication for

the relationship between private participants and government agencies could have corrected the

problems with approvals.

It has been recommended that more attention be paid to the management of relationships

between private and public participants in a PPP. Smyth and Edkins (2007) advocate a shift from

relational contracting to a relationship management approach that fosters proactive collaboration.

This paradigm shift could have reduced communications delays between the partners.


Click-Use License.

Figure 3. Metronet “Tied Supply Chain”


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CONCLUSIONS AND DISCUSSION

This survey of literature related to the failure of the London Underground PPPs indicates

it was an extremely complex undertaking with many factors that affected the ultimate outcome of

the partnerships. The literature indicates that there were several primary factors that caused the

failure:

• The consortiums lacked good management data, and were unable to provide government

agencies responsible for oversight with good data about cost performance.

• The PPP contract required many different individual construction projects to be conducted

over a long time period. However, the PPP contract could not fully specify these projects at

the time of contract signing because there were many unknowns about the condition of the

existing infrastructure. The PPP contract at times offered vague wording that led to

disputes and conflicts later.

• The British Department for Transport guaranteed the private debt and had to pay £1.7

billion when Metronet failed, yet it had little say in the oversight of the PPP consortiums.

The guarantee of the private debt greatly reduced the financial risk to the consortiums.

• The tied supply chain method of letting rehabilitation projects did not transfer risk to the

contractors performing the work. Tube Lines later found more success in the rehabilitation

projects by acting as construction manager.

The London Underground PPP had many problems, yet many have reported good results using

PPPs. Many PPP projects are of a more limited scope and involve the construction of a single

new facility. Rather then forming large PPP consortiums to do all of the infrastructure

rehabilitation projects for the London Underground it may have been more appropriate to use a

PPP structure for individual infrastructure rehabilitation projects. This would make the individual

infrastructure projects more competitive because the project is no longer tied only to one large

consortium with a long-term contract. In addition, the project estimates will be more accurate

and timely because they will be done at the time of the project initiation rather than a few years

previously when the consortium contracts were signed. Additionally, overall financial risk will

be reduced because only individual projects are included in the PPP arrangements rather than

large portions of the Underground system with the need for large amounts of debt. The British

government has had considerable success with PPPs using the PFI initiative. It is logical to

assume that the knowledge from that program could be extended to the London Underground

infrastructure work. It is possible to conclude that the London Underground PPPs were not a

failure of the PPP form of contract, rather they were an inappropriate application of PPP because

the undertaking was so complex.

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