Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

Archive for August 18th, 2010

London switches from PFI to conventional contact

with 8 comments

TRANSPORT for London (TfL) has ended its Prestige public finance initiative (PFI) contract with the TranSys consortium of Cubic Transportation Systems and HP Enterprise Services and replaced it with a conventional contract with Cubic.

The PFI contract was awarded in 1998 for a period of 17 years to install new fare collection equipment and so introduce the Oyster smart card system in 2003.

TranSys took on £190 million of debt to fund the PFI and TfL has repaid the outstanding £101 million. TfL has also purchased the rights to the Oyster brand for £1 million. TfL says the new contract with Cubic for all transport ticketing will save about £10 million a year.

That’s the complete story from the International Railway Journal.

We don’t call them PFI – we call them P3s – butt he idea is the same. And in London, they have been a disaster and this is just the latest in a series of decisions to save money by going to a conventional contract. The savings, as noted, are significant.

BC has a politically dogmatic approach that says that while they recognize that it does cost the private sector more to borrow for capital projects, the private sector is so much more efficient that there are savings. Of course they do not have an objective private sector comparator requirement as part of the project evaluation – a British requirement. There could well be objective data that shows that the P3s are very good for the private sector bottom line, but at the expense of the taxpayer. That is certainly the experience of most of these arrangements.

Translink is of course forced into such deals – and as we have seen with the Canada Line – there is more than just the cost of capital to be concerned about. Contracts that are so inflexible that it is not possible to utilize the available capacity when demand rises faster than original expectations – that should have been the story yesterday, not cupcakes given away. It should also be of concern that the funding gap on the Evergreen Line is still not yet filled – and a P3 is supposed to be part of that too. Even though the majority of the funding in place  comes from the public sector it means that the contractor will have a disproportionate amount of power. Just like the way that Translink now cannot divert empty trains from the Airport branch to serve Richmond, where demand is much higher.

I do not think it is likely that the current administration will change its policy with respect to P3s, but the longer they stick with it, the dumber it is going to look.

Written by Stephen Rees

August 18, 2010 at 7:21 am