What is a UK company when it comes to jobs, intellectual property and paying UK taxes? The minister says that 97% of Crossrail contracts are based in the UK. Consultant Martin Blaiklock suggests the figure is 27%.
This is something to explore when we are next allowed to put down Written questions in the Lords after our long summer break, but in the mean time hare are Martin’s arguments below – which I fully support. Tony Berkeley
Aug 5th, 2014
On July 3rd, 2014, the Parliamentary Under Secretary of State for the Ministry of Transport, Stephen Hammond, MP, delivered the “Annual Update on Crossrail 2014” as a Written Statement to Parliament.
This Statement claimed that:-
• “there are over 11,000 people working on Crossrail at over 40 sites across London”;
• the £1.2bn contract with Bombardier will support 760 UK manufacturing jobs, plus 80 apprenticeships;
• the construction of a maintenance yard at Old Oak Common will create 244 jobs, plus 16 apprenticeships;
• during construction, Crossrail “supports the equivalent of 55,000 full time jobs around the UK”; and
• “97% of Crossrail’s contracts are based in the U.K.”
Parliamentarians were, no doubt, expected to believe the above. Such information might come as welcome news as to the UK’s contribution to this major project, confirming that Recovery was on the way, …….. but, is it true?
• to date Crossrail has awarded around £6bn of design and construction contracts [ref. Crossrail website]. All together it amounts to just over 100 individual contracts.
• of these contracts some have been awarded to individual companies, some to consortia, and some to joint ventures;
• following the Prime Minister’s and the Mayor of London’s desire for transparency, Crossrail shows on its website the monthly payments, – quoted to the penny, – for individual contracts.
However, the actual contracted values are not published, i.e. they remain hidden!.
Contracts are arranged in categories, such as £0 – <£5mn, or £5mn –
£25mn, or £100mn – £250mn, but there are no specific contract values attached*.
[* NB. An FoI request is outstanding for this data].
Given the above information, it is possible to calculate the minimum and maximum amounts contracted for the 100+ contracts awarded. The mean of these totals, so derived, turns out to be very close to the £6bn that Crossrail admits to.
UK Companies’ Participation:
With the above data and knowing the identity of the contracted parties, it is possible to estimate the value of the contracts entered into by UK-domiciled companies, i.e. companies that are UK-owned, managed, and controlled.
In the case of consortia or joint ventures being the contracted party, the UK company participation has been estimated proportionately, reflecting that it is normal, on such occasions, for ownership and control to be split proportionately between the parties, e.g. 50/50, or 33/33/33.
The results show that, out of the £6bn design and construction contracts signed to date, only 27% by value went to UK-domiciled companies. This figure contrasts starkly with the 97% the Minister claims as “UK-based”.
In fact, contracts worth £4.25bn were awarded to non-UK companies!!
Does it matter?
For major projects as Crossrail, the actual contracted party most probably is a “special-purpose”, limited liability project company or joint venture, – quite possibly “UK-based”, – but with counter-guarantees from parent companies, both UK and non-UK domiciled, to ensure contractual performance.
Secondly, it is at Board level in parent companies that decisions are taken as to:
(b) the major items of equipment to be employed on a specific contract,
e.g. all 8 Crossrail tunnelling machines (£10mn ea.) come from Germany; and
(c) appointments made as to senior project manager positions.
Any Intellectual Property rights (IP) and project management experience gained by undertaking Crossrail contracts will also reside with the parent company.
Finally, closer examination shows that there are few, if any, UK nationals on the Boards of those non-UK, Crossrail contractors, or guarantors, whether in consortia, or not. Their motivation will be to support their national interest first.
Hence, the national identity of contracting parties and their guarantors is important in identifying as to whom will benefit long-term from working on the Crossrail project. These will be the companies who later use that knowledge and experience on other international project opportunities.
It will also identify where the profits arising out of contracts with Crossrail, – and, therefore, tax liability, – reside.
Given the results of the above, it seems highly questionable as to how much experience and know-how the UK will generate out of the Crossrail project.
The Minister also claims 11,000 people are currently working on the £6bn Crossrail, i.e. £500,000 per job. At, say, £100,000 per job, where is the balance being spent?
Crossrail will argue that, under EU procurement Regulations, they have to put all tenders out to international competition, and award contracts against the lowest price. Correct. But why is it that in 2011-13 SNCF awarded 3 TGV contracts with a value of €14bn to three French companies (Vinci, Bouygues and Eiffage), the Dutch awarded the Nord-Zuid line to a Dutch-German consortium, etc.?? ……and today the UK cannot even build a railcar of its own design, viz. the £1.2bn Crossrail contract with Bombardier of Canada.
Unless Government is aware of to whom and why contracts such as those for Crossrail are awarded, the UK will forever be destined to be a customer, as opposed to a supplier, of high-tech equipment and construction.
It is time for a reverse, otherwise we shall remain “up the creek without a paddle”, and our young engineers will depart these shores.
Following the Minister’s July 3rd Statement, the Lord Berkeley raised a Written Question [ref HL1439] in the Lords as to the domicile of Crossrail contractors, etc., and received a Written Answer from Baroness Kramer, Minister of State for Transport [ref. WA313, July 30, 2014]. This repeated the earlier quotation from the Minster in the Commons that “97% of Crossrail’s contracts are based in the UK”. It made no mention, intentional or not, as to the domicile of such companies.
So what now?
My estimate of the participation of UK-owned companies in Crossrail amounts to approx.. £1.75bn out of a total £6bn. Hence, one could argue that the Minister on July 3rd, supported later by his fellow Minister in the Lords, has been misleading Parliament as to expenditures to date on contracts to UK companies for Crossrail to the order of £4.25bn.. Not an insignificant sum.
Many followers of UK Parliamentary affairs and readers of Hansard could be misled by the Ministers’ Statements and gain the impression that UK-owned, managed and controlled companies have obtained 97% of the contracts Crossrail awarded, whereas the truth indicates that this figures should be close to 27%.
I recommend that a correction be made so that the public are under no illusion as to the limited participation of UK-owned companies in this major project.