A typical PPP agreement is the one the British government negotiated with Serco in 1997. Serco is a specialist facilities management company with a billion pounds a year turnover and 35,500 employees. Its operations including running trams in Manchester, light rail in Copenhagen, maintaining 780 km of mainline railway and carrying out 80 per cent of the maintenance work on Railtrack stations.
The Docklands Light Rail was an early infrastructure project of the Thatcher Government. A report published in 1982 recommended the construction of two light rail lines from the City to the Isle of Dogs and from Mile End station to the Isle of Dogs. Government funding was promised within three months, even before enabling legislation had been introduced into the Parliament.

A contract was placed with GEC-Mowlem in August 1984. In the meantime the north-south route had been changed significantly with Mile End being eliminated from the equation. This required a second Bill to be passed through the Parliament. Many of the tracks were to be laid along existing unused railway lines and viaducts.                

This was a classic example of the infrastructure going in before the development. Much of the area was deserted and initial passenger projections were very low: 1500/hour in each direction. The 22km line from
Stratford to Mudchute opened in 1987 at a  cost of 700
million pounds.

However, massive redevelopment of the Docklands area, particularly at Canary Wharf,  was eventually to mean that the DLR could not cope and the Government then had to commit to extending the Jubilee Underground line through Canary Wharf to North Greenwich and Stratford.

In 1997 Serco Docklands won a seven-year contract to run Docklands Light Rail. The minimum reliability standard is 80 per cent. The contract provides financial incentives for bettering reliability targets and penalties for undershooting them. If the performance goes below this Serco Docklands could lose the contract. That seems unlikely at the moment, with reliability at an impressive 98 per cent. DLR also boasts 98 per cent of departures on time, 96.5 per cent of lifts and 98 per cent of escalators operating properly, and 98 per cent of passenger information displays in full working order. Any badly vandalised train is taken out of service immediately for cleaning. The company strives for continuous improvement in passenger satisfaction. A recent survey put it at 93 per cent – up 2 per cent. These are numbers of which Carl Scully can only dream.

Serco is not resting on its laurels. It is experimenting with an innovative system called Daisy, which provides real time information about train departures in local offices and colleges, and WAPS, which will provide similar information as a text message on your mobile phone. This is the private sector hard at work looking after its customers. It is hard to imagine CityRail introducing similar customer-focused improvements.

Well before the Jubilee Line extension was built it was realised that Greenwich and Lewisham south of the Thames should be connected to Canary Wharf by light rail. However, the government decided it couldn’t afford to fund the line, which was to run in a tunnel under the Thames. The solution was a PPP. Some city institutions went into partnership with Greenwich and Lewisham Councils in a consortium known as City Greenwich Lewisham Rail Link PLC (CGLR for short). Because of the high cost of tunnelling under the Thames, a cash injection from the government was needed to make the project feasible.

CGLR has responsibility for maintaining the line from Canary Wharf to Lewisham for 25 years, after which it will be handed back to the government. CGLR will receive an availability fee (rent) from the government until 2009, and from then on a usage fee tied to passenger numbers. Serco Docklands operates the line and agreed to accept the revenue risk for five years, after which it will be transferred to CGLR.

This arrangement is a good example of the complexity involved in many PPP/PFI contracts (there are literally thousands of different permutations and combinations), and shows why public sector negotiating skills have to be of the very highest order.

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