The Collapse of the London Underground PPP: What Can We Learn From It?

The London Underground PPP seems a long time ago now, and for many on the 'mainline' side of the railway family it perhaps barely registered, but it remains an epic story of ambition, failure and redemption. It may be a stretch to seek lessons from it for the mainline railway today but I think there are some. First, a caveat or two: I'll be using 'we', for convenience, but the PPP has always evinced strong opinions and not everyone will agree with my perspective - I'm speaking only for myself and drawing on my own (likely flawed) memories and opinions. To the extent there were successes I played only a minor role. Also, I've tried throughout my career not to be ideological. I'm interested in what works and what doesn't and I don't really care, or have strong feelings, about ideologies as they affect railways - but the PPP was an intensely ideological project so it can't be avoided in the discussion.

Birth of the Epic London Underground PPP

Although shorter-lived than the quarter-century mainline privatisation experiment, the PPP was borne of the same underlying 1990s ideology: that the private sector was better at managing things, per se, and that private money was the best way to provide the vast capital funding needed by railways. The first contention is questionable, strongly underpinned by the assertion still prevalent today that British Rail and pre-PPP London Underground were dreadfully managed. I don't think that's true (although, like everyone else from the private sector, I did at the time), but at least there is an arguable case, while even during the course of the PPP the hollowness of the second became clear, as we were to find out. The government can borrow money more cheaply than anyone else, and if it is going into public infrastructure the protections and legal webs necessary to protect the private investors puts up the cost of capital even more. Private money was supposed to be more wisely spent because of the incentive to do so, but in practice risks were insured or contractually caveated away, or just put into the margin - at the expense of the public sector customer and thus the taxpayer. That was the PPP: the vast and hideously complex edifice rested on obvious economic silliness.

And vast and hideously complex it was. I was involved in various phases and roles; one of the first was as assistant to Metronet's Commercial Director during the bid phase. Metronet ran two of the three 'Infracos' (BCV and SSL) created to take on management of the infrastructure and trains from LU and I had been seconded from my employer, one of its five shareholders, Adtranz (now Bombardier). As a rolling-stock engineer this was a job for which I was singularly unqualified, but no matter. During the PPP it was always a case of just getting stuck in. There was always an impossible amount to do. I found myself overseeing the relationship with our several-hundred-pounds-an-hour lawyers. I soon realised the contract as it was evolving was completely unmanageable. I set up a database of legal agreements which had to be executed on the close of the deal: there were 10,000 just for Metronet alone. Most were trivial (resignations of directors etc) but some of these were themselves hundreds of pages long and filled with brain-twisting formulae and legalese. I worked out that 10,000 stacks of A4 paper is the area of two tennis courts. And there were dozens of other legal entities each with their own voluminous, interwoven thicket of contracts: LU; LU's subsidiaries like Acton Works; the third Infraco, (JNP, run by Tube Lines); the supply chain companies like Adtranz; other PPP contractors dealing with ticketing, power and so on, and on . . .

It's easy to blame the legal profession for this unfathomable complexity, but it really wasn't their fault. 9/11 happened as the contracts were being negotiated, and London Mayor Ken Livingstone's (and LU management's) deep-seated opposition merely prolonged the negotiation period and the protections demanded by investors. During the stand-off the government covered our legal costs which were running at around ￡1m a month. I learnt to take less of the lawyer's delicious but chargeable tea and biscuits when I visited their offices. It didn't help when a traction motor fell off a Central Line train at Chancery Lane in early 2003 as contracts were due to be signed. All of this just resulted in more and more contractual protections for the investors and more complexity. It was said that during the PPP negotiations 10% of the commercial lawyers in the City were working on the deal. Certainly, afterwards, several of them sailed off into the sunset in their new yachts.

The PPP in Practice

At this point, I'd had enough, and left for another foreign adventure only to return in 2006 as a direct recruit at Metronet, beginning the most turbulent and interesting few years of my generally interesting and eclectic career. Metronet had an extraordinarily ambitious agenda: upgrade all eight of its Lines, increasing capacity and installing new trains and CBTC signalling; rebuild or refurbish many of the stations including in our case the huge upgrade at Kings Cross/St Pancras which preceded the rebuilding of the mainline stations; deal with all of the other assets, hidden and visible, which make the tube work, from escalators to point motors; install asset management processes and much else; recover a backlog of renewals that stretched back decades; and all the while deliver the assets to provide a reliable, safe tube service every day, in the teeth of a hostile Evening Standard and a cool, always professional but deeply sceptical London Underground. It's fair to say that, despite some great successes, Metronet wasn't doing well, especially with its stations programme, although in hindsight I'm not sure success was even possible.

There was a strong view in Metronet that part of the problem was LU's allegedly impossibly gold-plated standards, and I was sent away to investigate. My findings were surprising, and unpalatable: whatever the problem was, it wasn't LU standards. They were by and large models of common sense built up over years of experience, and where they were indeed gold-plated, or new technologies came along, there was a sensible process to challenge and revise them. Ever since I have been suspicious of attacks on standards and the people who write and defend them. Usually the attackers haven't read the standards, or considered why they are written as they are, and are happy just to repeat the trope that they are 'gold-plated'.

In fact, I think, the problem was simply the unworkable complexity of the contractual spider's web which made doing anything and everything (unless wholly within Metronet) gruelling and dispiriting. Change was a horror-show. Obvious improvements couldn't usually be implemented (or even considered) if they crossed any of the many contractual boundaries. (To be fair, we could make beneficial changes within our own domain, probably more easily than LU could have done pre-PPP). London won the Olympic games after the PPP had been signed. How was that to be accounted for? There were also multiple layers of management on both sides simply administering the fearsome contract and 'man-marking'. This, plus the high cost of capital, made the PPP very expensive.

An LU colleague of mine did some analysis (stripping out capex costs and other one-offs) when I was still there which showed how basic unit costs (￡/train-km) had nearly doubled in the period the PPP was being conceived and negotiated, and 'shadow running' was in place (broadly 1997-2003) and then nearly doubled again during the PPP itself (2003-2008/9). From 2009-13 (when I left) the curve abruptly turned down (with the same slope) and for all I know it is still going in the same direction. Even if the PPP brought improvements, they were at a substantial premium cost.

Post-PPP Era

Eventually, in around 2008/9, Metronet went by stages into administration and was dissolved (as we used to joke, just as the last magnetic red blob on the thousands of visualisation boards turned to a green tick). Tube Lines survived for a little longer since it managed the contracts and its stations programme better (and may formally survive yet) but the PPP was over, and many of the people and all of the projects were absorbed relatively painlessly back into LU. The contracts fell away. This gave me a chance to see the PPP through the eyes of LU and its long-suffering, proud, people. They were happy to acknowledge the good things that the PPP brought, with new ways of doing things (some of which were really good) and above all a tidal wave of money. But, they would point out, the PPP had given rise to a capital budget of billions of pounds a year, whereas they had had to make do typically with low hundreds of millions, with the sole exception of the Jubilee Line Extension. What could they have done with similar riches? They also pointed, not always fairly, to the perceived decadence of the Infracos, from salaries to drinks at leaving dos and the quality (indeed the existence) of meeting buffets. Certainly adapting to the spartan frugality of LU was a shock, but it soon made sense: this was public money. It had been all along.

Soon afterwards the global financial crisis struck, and ridership fell for the first time since the 1980s, so we were faced with the need radically to cut costs. The challenge was to do so whilst keeping the service running through the Olympics and beyond, and protecting the many half-complete and desperately needed capital enhancement and renewal programmes. This is where the parallel with the mainline situation in 2021 arises: radical restructuring coincided with a radically different (and, at the time, bleak) outlook for future traffic and income. So how did LU do, and what can the mainline learn?

Pretty well all the key PPP renewal and enhancement schemes continued unaffected (at least as far as deliverable outputs were concerned: there were many detail scope and delivery changes to improve efficiency) and most were delivered broadly on time and budget under LU management. Most would agree, for example, that the Victoria Line Upgrade, the world's first ATO-on-ATO resignalling, which is now delivering 36tph, is a triumph. Similarly the huge station upgrades as at Kings Cross or Victoria. The Olympics were also a triumph. LU's reputation is enhanced since then, and it is rarely now the target of the Evening Standard. In the world club of large metros, COMET, by most benchmarked measures, LU is at or near the top.

Redemption

How was the post-PPP redemption achieved? There was, to begin with, a great unity of purpose. The Olympics helped, but everyone was clear that everything we did was about making London better. There was no other objective. Freed from the plethora of targets in the PPP contracts it was possible to think about what was really important, to this overarching objective, and what was not. We got pretty good at asset management, sponsorship, asset maintenance and programme delivery - and were now able much better to consider the perspectives of our new LU operational, public-facing and strategy/service development colleagues (just as they were similarly acquainted with our asset and programme delivery struggles).

It was much easier to take a 'whole railway' view of everything we did. Ironically a set of 'whole railway' (indeed, 'whole city') measures, Journey Time Capability (JTC) and Lost Customer Hours (LCH), which LU had developed before the PPP and were built-in to the heart of the PPP contracts (and are therefore often wrongly conflated with the PPP itself), were extremely helpful in taking this 'whole railway' view. They allowed us to rank the cost:benefit of minor tweaks and major interventions on their benefit to London and customer surveys showed an uncanny correlation between the measures and customer satisfaction. It was easy to make business cases for arcane but profoundly beneficial things such as marginally increasing the brake rate of Central Line trains or optimising track layouts. JTC drove the design of powerful 09TS (Victoria Line) and S-Stock trains (fast acceleration sharply improves JTC through shorter journey times and increased capacity) and provided the economic basis on which to push the Victoria Line to its amazing 36tph capability today. I've often thought the mainline would benefit from a similar, perhaps simplified set of whole-railway utility measures, and perhaps they will now emerge post-Covid. (Though they make no sense unless there is someone able to apply them at a whole railway level across all assets.)

Sometimes programmes could be combined to get an economy of scale. The Deep Tube Programme, now underway, is an example: under the PPP there would have had to be several separate programmes each with different designs of trains and management and engineering teams. Now the whole of the technically similar deep tube can be addressed together in a single ambitious programme. Great work was done on reforming traditional maintenance regimes and practices, which could never have happened under the PPP since the contract baked in the traditional regime. We also learned to make do without things previously considered critical. JTC and LCH helped guide the tough decisions.

Quite a few projects were abandoned or deferred, and trains and other assets were life-extended and extended again. The Bakerloo Line trains (1972) are now the oldest non-heritage trains in GB passenger service. There was a forceful cull of consultants and contractors. Things were to be done in-house, or not at all. Salaries were frozen. Sadly, there were many rounds of redundancies. Offices were consolidated, and consolidated again. Young people thrived while others, on much higher salaries, found it tougher (myself perhaps included).

Three Key Lessons

The first lesson for me is the most important of all: the railway needs to be looked as a whole system. There needs to be unity of purpose, and for the railway as a whole it's not to make a profit, but to serve society. That's not an ideological point, it's just fact of life. Nothing wrong with making a profit, and the more the railway can cover its own costs the better, but it's not the overriding purpose.

The second lesson is about tackling costs. I'd already picked up this up from my time in train-building companies, which were in perpetual crisis due to over-capacity and where controlling costs and dealing with changing competitive strategic realities was a constant. But the post-PPP experience cemented it. Banning colour photocopying or biscuits in meetings might send a message, but not the right one: the real costs are not as easily identified or tackled, but they must be to make real progress. It is vital to think about the big structural, built-in costs, and find creative ways to build them out. When circumstances force a restructuring, as with Covid, the end of the PPP, the global financial crisis, or 'Williams', there is an important, fleeting, opportunity to do things that would be unthinkable at other times.

Finally, having spent the first half of my career selling outsourced train maintenance and services, I learned something new: complex contracts and outsourcing are unlikely to work well in railways simply because the railway is the ultimate system. If contractual and organisational boundaries prevent people seeing the whole picture, losing sight of the railway's purpose, then costs build up, and performance (as measured by rail user and societal satisfaction, not by narrower contractual measures) can decline, not just because of the transaction costs but because it is difficult to see the right things to do, and even harder to do the right things. Innovation is stifled, in ironic contradiction to the notion that outsourcing encourages it. Complex contracts freeze things up. Contracting and outsourcing can work, but only where the contractual interface is simple, the client and contractor are free in their own domains, and there is a 'guiding mind' somewhere able to make sure the right things get done across the whole railway.

Opportunities

While there may be much sadness and heartbreak in the years to come (costs are, after all, usually in the end someone's livelihood), there are also huge opportunities to make the mainline railway, and therefore the country, better than it was. LU's post-PPP experience is worth considering as politicians and the railway community ponder the uncertain future.

[edit notes: revised 1/2/21 to take into account some comments, particularly adding a section on JTC and Lost Customer Hours]