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Nottingham Light Rail

Category: Light Rail

"In a PFI, all parties recognise that they have a vested interest in making it work and that they need to make it work over the long term. As far as the construction side is concerned, if you don’t make it work you don’t get paid and that’s a clear incentive to get the design and the build right and that’s a very big positive of PFI. Obviously the PFI process to some extent takes away the opportunity for the client to interfere but maybe that’s a good thing."

Chris Deas, Service Manager, NET Development and Transport Communications

March, 2005

On the 9th March 2004, 67 years and 6 months after the last tram ran through the streets of Nottingham, Line One of Nottingham Express Transit opened to the traveling public.

But this was no trip down memory lane. NET is a thoroughly modern transport system built and operated under a modern procurement method: the Private Finance Initiative. This was the first light rail scheme procured under PFI and it took years of negotiation and an Act of Parliament to get it up and running.

The PPP Forum interviewed Chris Deas, Service Manager, NET Development and Transport Communications on the first anniversary of the opening of the line.

"The idea of light rail evolved in Nottingham as a response to growing traffic congestion during the 80s and a desire to improve public transport at the time. I suppose the inspiration came from the developments in Manchester but also Nottingham was twinned with Karlsruhe in Germany and Karlsruhe has got a very well developed and very innovative light rail system.

In the late 1980s Nottingham Development Enterprise, which is made up of the City Council, the County Council and the private sector, arranged for a feasibility study to be undertaken which was quite positive. So in 1991 Greater Nottingham Rapid Transit LTD was set up and all three partners put in £500.000 pounds to kickstart and develop the tramway
."

The first task for the new company was to obtain the necessary planning powers. This involved promoting a bill through parliament: The Greater Nottingham Light Rapid Transit Bill.

"These days it’s no longer necessary to go through this process, it’s much more like a local planning enquiry, but in those days we had no choice. The bill took three years to make its way through the parliamentary process before being finally passed in 1994. What we didn’t realise at the time was that that was probably the easiest part of the whole process.

In 1996 following discussions with government about funding, in which we were told we couldn’t have any, we set up a project development group and had a European competition, effectively to get a private sector organisation which had the relevant experience to do a technical and commercial audit of the scheme. That took about a year and the outcome was that we had a specification and a business case which were more developed and which we all thought were workable. Then we were ready for another OJEC for actually procuring the tramway.

But of course by 1997 PFI had evolved as a procurement method in other sectors and that’s when we made our best decision which was to encourage a whole range of different kind of bids for the project. The one we selected was a PFI
."

The £200 million project was to design build and operate a 13km light rail line for 30.5 years linking Hucknall, north of Nottingham, with the city centre. A spur also runs to a park and ride site next to junction 26 of the M1 and there are four other park and ride sites. The contract was won by Arrow, a consortium made up of Bombardier, Carillion, Innisfree, Galaxy, Transdev SA and Nottingham City Transport, a major local bus operator. Chris Deas believes that including the local bus operator in the consortium was crucial to the success of the project.

"There’s no doubt you can cause tremendous damage to the structure of public transport particularly a light rail PFI if you’ve got lots of competition. The involvement of the local bus operator recognises that in the long run the overall public transport pot will be greater if the services can be integrated. In fact another local bus company has recently volunteered to run feeder services to the tramway because it can see the benefits. The key is having a balanced public transport network is which is beneficial to all operators but more crucially, one which is of benefit to the traveling public. We haven’t done any detailed studies just yet but initial indications are that there has been a 20 per cent growth in public transport usage in that corridor."

In its first year of operation, NET has carried almost 8.4 million passengers and saved close to 2 million car journeys. But as such an early light rail PFI scheme, did it spark some local political controversy?

"Yes it did but at the time we were in a position where we had solid grant funded bids and an innovative PFI bid. We recognised at the time that funding for light rail was very scarce so the decision that was available to the local authorities was it’s either a PFI deal or nothing. On that basis they felt they could support PFI subject to the details of the final negotiations agreeing with the government’s terms and conditions and a demonstration that the PFI route offered the best value for money.

And the negotiations did take a long time. With a PFI, bank involvement comes quite late and they were the new boys on the block in terms of light rail. We did have a lot of advice from the Treasury Taskforce, as they were then known, who were there to make sure the terms of this light rail PFI arrangement were suitable. We were effectively drafting a blue print for future transport PFI schemes so it was very complicated and I think that’s primarily why it took until the spring of 2000 for the contracts to eventually be signed
."

Construction started in June 2000 and lasted three and a half years. Monthly payments to Arrow began on completion of construction are linked to performance which is measured over a number of key indicators. About 85% of these relate to the trams running smoothly and operating to a timetable. The rest are measures for cleanliness, availability of passenger information, passenger facilities etc.

"For the first twelve months performance is very good against these indicators. I think that all parties are satisfied that the system we have is reliable and robust and that people are using it.

The way that the arrangement works is for Arrow to set the fares and obviously their business plan is based on a balance between earning the availablity payments by running a good system but also on earnings achieved through the number of people using it. Our goals are complementary here. Arrow would like patronage to be high as they want to earn as much revenue as possible. We want it to be high because of the economic and environmental benefits
."

The council is about to embark on Phase 2 of the tramway. After their experience of phase 1 would they use PFI again?

"Forgetting the ideology side of it for a moment, I would say that we are advocates of a performance based arrangement. We think that brings many benefits to both the public and private sectors and we would not want to move away from that in phase 2.

In a PFI, all parties recognise that they have a vested interest in making it work and that they need to make it work over the long term. As far as the construction side is concerned, if you don’t make it work you don’t get paid and that’s a clear incentive to get the design and the build right and that’s a very big positive of PFI. Obviously the PFI process to some extent takes away the opportunity for the client to interfere but maybe that’s a good thing.

A traditional contract can deliver something but it may not deliver a perfect solution and everybody lives with it. In this case living with it would mean a significant loss of availablity payment to the contractor. If the system had only limped along as has been a problem with other light rail schemes around the country where the trams are unreliable, then it would have hit Arrow very hard. So the contract really incentivises the private sector. As far as the public sector’s concerned, we’re very happy. We got what we wanted which was a system which worked.

Nottingham embraced PFI cautiously I think it’s now comfortable that it can work in that environment
."