The london underground and the ppp

The London Underground & The Public-Private Partnership
Incidents, strikes and slow delivery of improvement works

The London Underground can pride itself on being the oldest and one of the largest underground transport systems in the world but it cannot be denied that, in terms of performance, it leaves a lot to be desired. Tube users experience more often than not delays and line closures,due to incidents, improvement works and strikes. Incidents range from power losses through trains passing red signals to derailments, like that of Chancery Lane in 2003, where 32 people were injured. As for improvement works, the LU (London Underground) is currently undergoing the largest system overhaul of its history since decades of under-investment had left the Underground on the verge ofobsolescence. Albeit intended to take place during night hours and weekends, improvement works often end up taking place during service hours in the week due to poor planning. Last but not least, there is the problem with the infamous tube strikes, which seem to be taking place with an increasingly higher frequency. The main demands of the employees are job security, pensions, safety and payparity.
Even though the problems mentioned above have been around for many years, the Government’s attempt to solve them by creating a Public-Private Partnership seems to have worsened the situation. By privatizing the maintenance and improvement works division, the Government hoped that the private hand would increase its efficiency and carry out the long-needed investments. However, the Government’sattempt to improve the inefficiencies of the LU through its partial privatization in 2003 has not lived up to its expectations but has rather generated a storm of claims over funding between the LU and the private companies participating in the Public-Private Partnership (PPP): Metronet and Tubelines. These are also collectively referred as the Infracos. Finally, Metronet and Tubelines had to beacquired by Transport of London (parent of the London Underground) after one went into administration in 2007 (Metronet) and disputes with the other (Tubelines) escalated disproportionally during this last year. This means that the London Underground finds itself now back to where it was before the PPP, with the same problems and the same challenges, but having gone through a storm of claims, whichhave trebled its legal expenses within the last five years, from £4m to £12m per annum.

To find the causes of London Underground’s evils one must look at some aspects of its strategy and organization design as well as its incentive system and corporate culture. The different causes will now be introduced and possible solutions will be suggested.

Firstly, since the existence of the PublicPrivate Partnership there has been a clash of strategies and interests between the LU and the Infracos. Whereas LU’s strategy is to deliver the maximum value to passengers without surpassing the budget, the Infracos’ strategies were to maximize their profit and create value for its shareholders. In addition, when Metronet and Tubelines were still in private hands and had to decide which companiesto award projects, they tended to award them to its shareholders i.e. parent companies, no matter whether they possessed the required expertise or not, which resulted in inefficiencies and a higher cost. Later on, when the performance of Metronet and Tubelines was reviewed and they demanded more funding than originally planned, a designated arbiter would coordinate the tough distributivenegotiations between LU and the Infracos over the amount of money to be paid out to the latter. These conflicts could have been avoided from the beginning if enough lateral mechanisms had been put in place, since the arbiter was obviously not enough. For instance, a supervisory board could have been created, whose role would have been to control very closely the effective allocation of means by the...