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The Underground in UK (London)

Contents

1.0 Introduction. 3

2.0 The Reasons behind the Rise of Co-Production in the Delivery of Public Services. 4

2.1 Advantages of Co-Production in Public Service. 4

2.2 Disadvantages of Co-Production in Public Service. 5

3.0 Partnership in Public Service. 6

3.1 The Role of Managers in Running Public Service Partnerships. 8

4.0 The Reasons for the Success of Public Financing Initiatives (PFI). 9

5.0 How the Government Can Benefit From Private Capital 11

6.0 Conclusion. 12

 

 

 

 

The Underground in UK (London)

1.0 Introduction

            The London Underground is the pioneer of underground transport system having been constructed in 1863. Notably, it serves two hundred and seventy stations and covers four hundred and two kilometers. Although fifty-two percent is above the ground. The system was initially created by cut and cover, which resulted in tunnels just below the ground. Nevertheless, the original tunnels can take an ordinary sized trained given their enormous sizes. Afterward, the tubes were made much deeper and smaller leading to the name of the tube. In principle, the system was run by private companies, which merged in 1933 to London Passenger Transport Board. Currently, the London Underground Limited (LUL) operates the system, which is a subsidiary of Transport for London (TfL). Just like other for-profit businesses, customer cover ninety-one percent of the firm’s expenditure. The management realized the need to digitize fare collection; therefore introduced the contactless ticketing system, the Oyster in 2003. Notably, the London Passenger Transport Board was responsible for most of the art and design where it commissioned many public artworks, posters and station buildings in a modernist style. Despite the numerous changes in the transport sector, the London Underground has remained steadfast in its bid to stay as choice public transport method for the majority of people in London. Since 2003, the Department of Transport relegated the running of the London Underground to TfL to realize better service delivery. In addition, TfL agreed with three consortiums to run the system for the next thirty years by maintaining the tube and the trains. In essence, the London Underground is run by a Public-Private Partnership (PPP) to achieve the best results for all the people.

2.0 The Reasons behind the Rise of Co-Production in the Delivery of Public Services

Traditionally, the provision of public services was carried by public entities but the need to improve service delivery has led to the creation of partnerships in almost all public sectors. The provision of efficient and reliable transport system is a government responsibility but at the same time, it involves private entities to help run the process smoothly. According to co-production of public services, refers to "The mix of activities that both public service agents and citizens contribute to the provision of public utilities." In essence, the agents act as the regular producers or professionals while citizen production refers to "Voluntary efforts by individuals and groups to enhance the quality and/or quantity of the services they use” (Pestoff, Brandsen & Verschuere, 2013, p. 5). In this way, the people are involved in primary decision-making processes to ensure that the services they get from the sector meet their needs. In addition, the public can engage in other aspects to improve the quality of services such as volunteer services in the area.

2.1 Advantages of Co-Production in Public Service

Although co-production comes with costs, its benefits far much outweigh the expenses. Consequently, public sector has to adapt the system to improve the quality of outcomes, which is one the primary advantages of the process. In addition, the public is willing to collaborate with public service providers to improve the quality of services they receive. As end users, the people understand the kind of services that best suits their needs. On the same note, the values of the services that the public offers are enormous and, as a result, it goes a long way in improving service delivery. Further, communities and families contribute much economically although it is not measured in the public sector. For instance, in the healthcare sector, self-care programs reduce the emergency visits to general practitioners, decrease admissions and save enormous amounts of revenue for long-term patients (Pollock, Jean & Neil 2002). Accordingly, in the education sector, peer and self-assessment by learners reduce class sizes and improve their exam results. Consequently, it is understood that the involvement of the public in the industry has several advantages. The willingness of the public to engage in public services provides a cheap source of money for managing public service delivery (Khadaroo, 2014).

2.2 Disadvantages of Co-Production in Public Service

            According to Durose et al. (2013), co-production has limitations despite the many benefits that it brings to the government sector. For instance, the primary objective of co-production is to achieve efficiency at minimal costs. Nonetheless, measuring efficiency in the short term is almost impossible. Consequently, the public feels shortchanged because it does not reap the benefits that the government proposes when entering into partnerships with the private sector. In essence, many people believe that co-production is “becoming a byword for passing responsibilities to the communities, and that's leading to cynicism and anxiety” (Durose, 2013). On the same note, the government needs to design ways in which to maximize public involvement in service delivery to understand the dos and don’ts in co-production. Additionally, some people believe that PPPs benefit the rich with interests in large organizations that can secure the required finances for the deals. In effect, this affects the peoples’ faith in the consortium because they benefit a few in the society. On the same note, opponents believe that this is privatization of public utilities, which could affect their credibility towards service delivery. The people elect leaders to safeguard their interests in the running of public sector but diverting the same to the private sector is like evading their responsibilities. The government has to convince the public that the deals are for the best for the people.

3.0 Partnership in Public Service

            In principle, majority of public services and government initiatives are taking into partnership to improve the quality of services to the people. Competition in capitalist states forces many investors in the public sector to change the traditional methods of doing business to offer the best services in any area. Additionally, partnerships provide the government with an opportunity to maximize improvements in the public sector. Although the choices that most governments make are high risk, on the contrary, they provide maximum risks to the services. The London Underground has taken into partnership because a single entity cannot offer all the necessary services since it serves very many customers on a daily basis. On the same note, different people have diverse preferences, which call for the need to come up with a service that best meets the majority of the clients' needs. In essence, partnerships bring on board experts from different fields who work together to improve an organization. Notably, sharing of ideas between experts from diverse business fields provides solutions to problems that affect most firms across the world. At the same time, managing a small group of employees becomes easier as each manager has defined roles and target to achieve within a given time.

On the same note, Public Private Partnerships (PPPs) play in integral role in transforming the performance of the private sector. Traditionally, the central government owned and managed London Underground. However, in March 2003, the Department of Transport concluded a three thirty year PPP for maintaining and renewing the London Underground signaling, track, stations and trains. Before the process, the government had procured equipments worth £455 million. The PPPs would provide about £15.7 billion for the next thirty years. About half of the amount would be spent in the first seven and half years. Notably the contract involves three PPPs, which are Metronet and Tube Lines consortium. Although London Underground retains the responsibility for safety and operations, the three private sector infrastructure companies (Infracos) maintains the system. Ideally, London underground pays the private firms according to their delivery of outputs in terms of availability of assets as opposed to the cost of their works (House of Commons, 2005).

In effect, these Infracos must perform to their potential in order to reap maximum returns from the partnership. At the same time, their quest to achieve the most from the collaboration ensures improved service delivery for the people living in London. The deal has provisions for enacting changes in the prices of the partnership at least every seven and half years. The British central government transferred the ownership of London Underground to Transport for London (TfL). Notably TfL reports to the London Mayor. Mostly the Transport Department provides £ 1 billion, which means that its interest in the PPP remains huge (House of Commons, 2005).

The PPPs provides an ideal security in terms of funds for maintaining and retaining the tube. Although the London Underground PPP is complex with several management interfaces, it achieves its goal of providing the necessary funds for the long-term future of the sector. In principle, the British government overruled funding of the Tube via TfL issuance of public bonds. Notably, this would have provided a simpler structure of the running of the entity but it did not offer adequate security of funds (House of Commons, 2005). 

To secure the deal, the government had to deal with disagreements with TfL. As a result, the government assured lenders of the initial creditors of £3.8 billion to get back ninety-five percent of their investment in the event that the PPP was terminated. Innately, repaying this loan cost about £450 million in excess of repaying a government loan for the same amount. Notably, the financiers realized that the borrowing structure had increased risks than the government debt hence the high interests. If the Infracos meet their targets, they earn between eighteen and twenty percent returns and the shareholders would provide £275 million (House of Commons, 2005).

3.1 The Role of Managers in Running Public Service Partnerships

Managers have a vital role to play to ensure that public service partnerships meet their objectives of delivering services at cheaper costs. At the same time, the management has to lead different groups of employees working for private entities involved in the partnerships. For example, three different companies have to oversee the maintenance and renewal of the London Underground. Therefore, the management of TfL must ensure that all the three organizations perform their duties diligently to reduce the chances of stalling the transport system. Nevertheless, human resource management different from one firm to another and, as a result, the various employees expect varying treatments from their firms. At the same time, these employees work towards the same goals, which pose serious challenges to the management (Demirag et al, 2012).

In principle, “PPPs combine the best of both worlds: the private sector with its resources, management skills and technology; and the public sector with its regulatory actions and protection of the public interest” (United Nations & United Nations, 2008, p. 2). Managers for these ventures must understand that they are not dealing with public funds but the private sector resources. The private sector requires maximum returns on investments. Nevertheless, it is impossible to achieve the highest ROIs without having a competent management team. The team should understand the benefits of having the best employees in the department. Although the government audits public funds, the private sector requires maximum accountability and responsibility for the management. The managers must know that the funds entrusted to them are to make profits. Subsequently, they must design ways of reaping the maximum benefits from the investment (Demirag et al, 2012).

The private sector has enormous amounts of resources to invest in any business venture to earn more profits. However, it expects profits within a given time. In effect, the managers of the PPPs must devise ways of increasing employee motivation to work towards the firm’s goals and meet the set deadlines. Although managing the team of workers has challenges, the management should be out in place line managers who oversee the daily chores of the employees. The line managers should be answerable to another boss who understands the intrigues of running a PPP. Nevertheless, all employees should be treated with dignity to ensure increased performance for the organization. In fact, these employees are not civil servants who answer to the government as their employer. Furthermore, the public does not gauge their performance as it happens with the public sector that is not run via a PPP.

4.0 The Reasons for the Success of Public Financing Initiatives (PFI)

PFI is a form of PPP, that draws money from the private sector to fund the maintenance and running of the public service sector. In essence, PFI is a subset of the PPP but the results are always the same. The government contracts the private sector because of the private sector’s access to capital and human resource to perform duties, which were traditionally done by the government. Notably, PFIs are successful in the world because of their access to large amounts of cash, which ensure the completeness and the sustainability of the given project. In addition, the consortium runs the entity as a private company that is wary of the competition. Moreover, the consortium must meet its part in the contract to reduce conflicts with the government. Managers take responsibility and accountability of the firm to ensure maximum returns. On the same note, before a private company enters into a contract with the government, the firm studies the terms and conditions to ascertain whether they are realistic. Afterward, the company conducts a survey to learn how to manage the sector within the given time to achieve the best results. On the ground, the PFI recruits the best employees in the job market to help it make it targets within the specified timeframe (Barlow Roehrich & Wright, 2010).

The terms of the contracts put pressure on PFI to meet the targets. In most cases, the contracts are “no service no fee” performance basis (Yescombe, 2007). Subsequently, the contracts run for about thirty years where the PFI must utilize the time to reap maximum benefits. Since the firm performs tasks that occur during the time of the contract, the managements understand the need to act according to the public expectations. Governments develop a specification that ensures that the consortium loses a payment element if it does not meet the targets. In effect, the management creates a team of employees that works to meet the laid down expectations. Notably, writing the contract determines whether the public demands are met at all times (Barlow, Roehrich & Wright, 2010).

In essence, PFI and PPPs are successful in most of the countries that have embraced them. One of the primary reasons why they succeed is the need for the private sector to make a profit. However, the gains cannot be realized without meeting the terms in the contracts. Although they failed initially in the UK as the opponents saw it as a means of privatizing the public sector, the government has learned from past mistakes to enter into contracts that safeguard the interests of the public. At the same time, the consortiums are more responsible in their dealings to ensure that they receive favorable ratings from the public to secure deals with the governments in the future. Although many people feel that the consortiums could take advantage of the payout in time of termination of the contract, the private sector looks at the long-term benefits that it stands to gain by remaining in the contract agreement.

In addition, the two parties must agree to the terms of the contract before putting it on paper. Therefore, the two ascertain that the conditions are viable and thus agree to work together for the agreed time. Accordingly, the private sector has adequate funds to run the services and maintain all the utilities in the area. Sustainability is essential to building the peoples’ belief in the public sector. On the contrary, the public might lack the necessary funds and human resources to run the public sector efficiently. Nonetheless, the private has the two in abundance thus providing the service in an efficient manner.

5.0 How the Government Can Benefit From Private Capital

The private sector has adequate capital to run government services efficiently for a profit. However, the government should develop contracts that best suits the interests of the public. The general measures the service delivery, which fails when the government does not establish a viable contract. However, the arrangements should take into consideration the interests of the investors to increase their willingness to enter into more deals to promote service delivery. At the same time, the social capital lies in bank accounts for the lack of investments and, as a result, the government has to provide incentives to appeal the society into running government agencies. Since the contracts are performance based, the incentives should be worthwhile for the investment in the long term (Demirag et al, 2012).

In addition, the private sector runs the entities smoothly and increase service delivery unlike government-led institutions, which could lack in creativity. Notably, the government cannot run nationwide services smoothly with all the employees reporting to one office. However, the private sector invests funds in a venture and creates a breakdown of authority to increase employee performance and thus meet the needs of the clients in a better manner. On the other without profitable returns for the private sector, such deals are hard to come by because private firms are for-profit organizations. Their primary goal is to increase revenue and profitability for the organizations hence the need to take only the most profitable ventures. Further, public loans to the government are expensive and risky to take because the people could fail to purchase municipal bonds. However, the private provides a guaranteed source of funds and human resource to run the entities (Lossa & Martimort, 2012).

6.0 Conclusion

London Underground remains a leader in service delivery in the United Kingdom since its inception in 1863. Although it has undergone numerous changes, the organization continues to improve its service delivery in London and beyond. The British government saw the need to enter into partnership with three consortiums to smoothen the provision of services in the transport sector. The deal ensures that residents of London have access to better services at a reduced cost. The government pays the consortiums after delivering the agreed services, which means that the PPPs must accomplish their part as per the contract. Since the government controls the London Underground, it is in a position to ensure that travelers’ needs are met at all times. At the same time, the management of the tunnels must be according to the recommended standards. On the other hand, the consortiums have a committed workforce that works towards satisfying the terms of the contract and realize better returns for the organizations. Despite the many challenges that TfL and the government have gone through, they always come to an agreement on how best to run the transport system in London. In brief, for the next thirty years, the British Government expects to achieve much success in the running of the London Underground and keep at the highest level of public service delivery.

 

 

References

Barlow, J., Roehrich, J. K., & Wright, S. (2010). "De facto privatisation or a renewed role for the EU? Paying for Europe’s healthcare infrastructure in a recession.” Journal of the Royal Society of Medicine, 103: 51–55.

Demirag, I., Khadaroo, I., Stapleton, P. & Stevenson, C. (2012) "The diffusion of risks in public-private partnership contracts." Accounting, Auditing & Accountability Journal, 25(8): 1317 – 1339.

Durose, C., Mangan, C., Needham, C. & Rees, J. (2013). "University of Birmingham." Transforming local public services through co-production. Retrieved 07 March 2015 from http://www.birmingham.ac.uk/documents/college-social-sciences/government-society/inlogov/briefing-papers/transforming-local-public-services-co-production.pdf

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Yescombe, E. R. (2007). Public-private partnerships: Principles of policy and finance. Amsterdam: Elsevier.