Metronet

Meeting: 
Plenary on 2006-12-06
Session date: 
December 6, 2006
Reference: 
2006/0399
Question By: 
Darren Johnson
Organisation: 
City Hall Greens
Asked Of: 
Peter Hendy (Commissioner, Transport for London)

Question

Answer

Answer for Metronet

Answer for Metronet

Answered By: 
Peter Hendy (Commissioner, Transport for London)

That invites the answer `yes' doesn't it! Actually, as ever, the question is much more complicated than that. My brief starts with saying that the contract is highly complex. That is really a considerable understatement. The fact is, as you all know, the PPP is ferociously complicated but, by and large, is very commercially favourable to the companies to whom the contracts were let.

The consequence of that is that they can perform badly for a very long time and suffer only modest deductions in the infrastructure service charge. They have to be astonishingly bad - there would have to be a long series of persistent failures and persistent breaches, which would take years, and a persistently shocking performance, far worse than anything we have seen - for the contracts to allow us to remove them.

The Mayor has talked, and I know he has talked in front of the Assembly, about suggesting if Metronet, in particular, do not get good enough that legislation would be needed. I think that is a route that could produce a dramatic solution to this but, as you know, promoting and getting legislation through the Houses of Parliament is not a quick remedy, so we are left with trying to manage this.

When Tim O'Toole (Managing Director, London Underground) arrived, he had no engineering department. The premise of the PPP contracts was that you did not need an engineering department, that somehow these infrastructure service providers would just do it all for you. The reality is that he has had to recruit an engineering department to have the skill, not only to manage what they are doing, but to guide them in what they are doing. That is a cost and a difficulty. Then we have to manage them on a day-to-day basis.

Some of the remedies we have found are evident. Metronet - and I will repeat it for what it is worth - as an entity, whilst it is decried by the people whose lives are affected by it on a daily basis, is not an entity that means very much. It is owned by five companies; Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water. It is they and their shareholders who are ultimately responsible for the performance of the company. Not only do I make sure that when I speak publicly I always refer to those companies because they are listed companies on the Stock Exchange, but it is they and the people who run them who actually have to get a grip of this company and start to manage its output.

There are some signs that that is going to happen. The Arbiter's report, is worth reading. It is really interesting reading. For a company owned by five listed companies to be graded as unsatisfactory in corporate governance, ought to mean that the shareholders would be outraged and the people who run the company should be deeply ashamed. I think it is worth reading to find out which bits are good and which bits are bad. You will see in it, no doubt you have read some of it, the Arbiter suggests that the track contract with Balfour Beatty was an unreasonable contract when it was let, and it has been an unreasonable contract ever since and it has got to be renegotiated.

We do what we can to influence their performance on a daily basis. Tim [O'Toole] shouts at them. He has other people who spend their whole time shouting at them, trying to fix things, and we deal with it. In the end it looks as if, at least in the short term, we have to manage these things, and we are reliant on them in the final degree to deliver this lot.

To the extent to which the Arbiter's Report demonstrates that they have not been economic and efficient, and to the extent to which it appears that they have spent the sorts of sums of money they should have done but only done 40% of the station work, our determination, which I am sure is shared by you, is that neither the London council tax payer, nor the fare payers, nor TfL pay any part of that sum. It seems to me to be entirely unreasonable to visit on us, or the people who use the system or the people who live and work in London, the fact that the contract apparently enabled somebody to have performed so badly. Our view is that it is up to the shareholders.

I was frankly very encouraged to see that Atkins' share price fell by 50p when they had to note that their profit had declined by £4 million due to the poor performance of Metronet, and I look forward to the other participating shareholders' share prices being similarly affected, because I know that that will motivate the management, with their relatively large bonuses, to pull their fingers out and sort something out.