NAO raises doubts over London Underground PPP

The National Audit Office (NAO) has raised doubts over the future success of London Underground's £15.7bn, 30-year PPP deal.

In its London Underground PPP: Were they good deals? report, published today (Thursday), the watchdog concluded that there was 'limited assurance that the price of the three Tube PPPs was reasonable, and some uncertainty about the eventual price'.

The NAO stated that the problem had been hindered by the lack of greater price certainty at the outset of the contracts.

'There are limits to what the signed deals in themselves can achieve,' said the report. 'The price, scope and funding of the PPPs are reviewed every seven-and-a-half years and so could change.'

In procuring the agreements the NAO said that the 'complexity' of the PPPs resulted from the scale of the deals, innovative output specifications and a limited knowledge of the condition of some assets.

This has resulted in work starting two years later than originally planned and the situation where recovering the maintenance backlog is now expected to take over 22 years rather than the 15 years originally intended.

The report also revealed that terms of the deals changed markedly during prolonged negotiations with the eventual winning consortiums - Metronet and Tube Lines.

This resulted in the addition of £590m to the 30-year cost of the deals after the competitive bidding stage - a third higher than on recent PFI deals.

However, private companies which achieve the lower performance levels set by benchmarks would still see real returns between 10% and 17% a year.