PPP Arbiter conclusions on Tube Lines request for guidance

PPP Arbiter guidance (29 pages, PDF) on the remuneration of investment by London Underground infrastructure companies (infracos) that is not required to meet service standards, but is believed to minimise whole-life costs by reducing expenditure requirements in future price control review periods. This is in response to a request by Tube Lines for assurances about the treatment of such investment at the next price control review.

The Arbiter concludes that, because the contractual duty of infrastructure companies includes a requirement to minimise whole-life costs, expenditure incurred in doing so and not anticipated in the bid on the basis of which the infrastructure company was awarded its PPP contract may not be recoverable as a "net adverse effect" under the contract. He maps out a process for agreements between London Underground and the infrastructure company, or Arbiter guidance in the absence of agreement, to deal with individual investment proposals.

The Arbiter also encourages London Underground and infrastructure companies to renegotiate the PPP agreements so as to enhance the opportunity for infrastructure companies to profit (for example through a glide-path or rolling mechanism) from identifying worthwhile investments that reduce long-term costs. He leaves it to the parties to take the initiative of discussing options ahead of the 2010 review.

For further information or advice please contact Franck Latrémolière.

Filed under PPP Arbiter, Price controls, Public transport.

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