A stand-up row

‘I can’t think of any PFI project we have inherited that wasn’t dysfunctional in one way or another.” So said Ken Livingstone, in typically forthright fashion. On this occasion he was aiming his ire at Tramtrack Croydon, the company that operates the Croydon Tramlink, a light rail system procured under the PFI. The mayor went on to say that Transport for London would provide extra bus services to alleviate overcrowding on the busiest sections. The operator, he alleged, had shown no willingness to increase capacity in the face of rising demand.

Tramtrack rejected the criticism. The PFI contract, it said, made it the responsibility of London Bus Services (the corporation) to fund any enhancements to operations. In support of its case Tramtrack was able to point to a decision of the Court of Appeal reported just before Christmas. Although the decision is not straightforward it is clear that the corporation failed to obtain a declaration that Tramtrack was obliged to provide, and pay for, enhancements to capacity.

The case contains important points for those drafting output specifications – especially PFI ones.

A key clause in the specification stated that, for the purpose of determining the number and size of tram cars, at least 30% of the passengers had to be able to sit down. Also, the number of standing passengers was not to exceed four for each square metre, or five in the rush hours (the trial judge drily noted that nobody seemed willing to guess what the corresponding figures were at the busiest times on London Underground).

The corporation argued that, as these levels were being exceeded, Tramtrack had to provide increased capacity at its own cost. The trial judge disagreed. Merely showing that there had been instances of six passengers standing in one square metre of space could not trigger an obligation to add capacity. For example, there might be a sporting event that would increase demand. What’s more, the judge was not prepared to imply into the contract some form of testing regime when the parties had not drafted one. The criteria as to passenger space, he said, were therefore design objectives, not performance obligations.

Counsel for Tramtrack argued bluntly that there was no breach of service levels even if trams were repeatedly overcrowded

When the case came to the Court of Appeal, the corporation adjusted its position. It no longer argued that Tramtrack was in breach of contract whenever more than five passengers were standing in one square metre of space. However, it still maintained that the contract required Tramtrack to put on extra trams if there was overcrowding.

The court asked itself: if the parties had intended that the specification should contain an obligation on Tramtrack not to permit excessive overcrowding, where would that obligation be? Not hidden away in the part of the document dealing with design, it concluded. It also agreed with the judge that one would have expected to have found terms about how overcrowding was to be measured, and over what period.

Counsel for Tramtrack argued bluntly that there was no breach of service levels even if trams were repeatedly overcrowded. If either party wanted to increase the capacity or frequency of trams, he said, that party would have to pay for it. The court described this as a “pretty unattractive scenario” but were not prepared to say that he was wrong.

A point for those drafting specifications, particularly in PFI, is to consider whether a criterion is to be merely a broad-brush design objective or a performance standard. If the answer is a performance standard, it is essential to set out a scheme for evaluating performance together with the financial consequences of failure.