London Underground (Hansard, 30 March 2000)

§ Mr. Hill

London Transport awaits bids for the two deep tube infrastructure service contracts tomorrow. These will be very detailed, weighty proposals. It will take several weeks to analyse and clarify them properly. When this process is completed, the bids will be tested for best value against the public sector comparator.

I have today placed in the Library of the House a detailed note which describes how London Transport have constructed the public sector comparator against which bids for infrastructure improvement and maintenance contracts under the Public Private Partnership (PPP) can be tested.

The methodology on which the comparator has been built is designed to offer a fair and reliable estimate of how much it would cost London Underground itself to carry out all the work needed to upgrade and maintain the Underground network over the next 30 years, to the standard required under the PPP contracts. The comparator will show the cost for each of the three infrastructure companies separately, so that each bid can be directly assessed against its public sector alternative.

The comparator will also explicitly establish how much it would cost to deliver the required contract outputs if London Underground were to raise the necessary finance through the issuance of public sector bonds. The bids will also be tested against this means of raising finance.

The methodology which London Underground is using, and which is described in the note that I have placed in the Library, has been reviewed by KPMG as London Underground's independent, external auditors. KPMG were asked to consider whether the note accorded with the relevant Treasury guidance and was appropriate to the circumstances of the PPP. KPMG will also be asked to review the actual comparator and the bond-financed variant before they are used to test bids for best value.

The actual values produced by the comparator can be released only once negotiations with bidders have been completed, so as not to expose the taxpayer's negotiating position, and thus jeopardise the chances of securing best value.

As well as the external audit undertaken by KPMG, the design, construction and use of the comparator will be made available for scrutiny by the National Audit Office (NAO). The NAO has made clear that while it is always available to give guidance to the bodies whom it audits on areas of risk and uncertainty, and to draw attention to relevant financial experience in NAO and Public Accounts Committee reports—my Department has accordingly received such guidance—it could not go further and become involved in the decision-making process. This would inevitably lead to questions about its ability subsequently to carry out an independent examination for Parliament, once the key decisions on the PPP have been taken.

The NAO, however, notes that as part of the decision-making process, London Transport is having its work on building and using the public sector comparator reviewed by KPMG. The NAO regards it as being in line with good practice for such comparators to receive scrutiny external to the project.