Press Release - The Department for Transport: The
failure of Metronet
5 June 2009
A report today by the National Audit Office has found that the
failure of Metronet – a private infrastructure company responsible
for the maintenance and upgrade of sections of the London
Underground – has led to an estimated direct loss to the taxpayer
of between £170 million and £410 million. There has also been an
impact on passengers who have not seen all the improvements that
were promised in the original timescales, though £4.2 billion of
maintenance and upgrades were nevertheless delivered by Metronet
under the public private partnership contracts.
Metronet went into administration in July 2007, predominantly
because its poor corporate governance and leadership meant that it
could not manage its shareholder-dominated supply chain. Transport
for London (TfL) guaranteed 95 per cent of Metronet’s borrowing,
with the Secretary of State for Transport assuring Metronet’s
lenders that the Department for Transport (DfT) would not just
stand by should London Underground or TfL be unable to honour this
guarantee. When Metronet failed, the DfT made a £1.7 billion
payment to meet the guarantee so that the running of the
Underground would not be compromised.
It was London Underground’s responsibility to manage the
Metronet contract to deliver the long overdue improvements to the
Underground but DfT had a responsibility to protect the taxpayer
from any financial liability. The PPP contracts nevertheless gave
the DfT few formal levers to protect the taxpayer, leaving the DfT
to rely upon other parties, including London Underground, TfL and
Metronet’s shareholders and lenders.
When these parties did not resolve Metronet’s problems, and
Metronet failed, the taxpayer was left exposed. This exposure
crystallized in the early repayment of £1.7 billion to Metronet’s
lenders, and a loss to the taxpayer equivalent to between 4 per
cent and 10 per cent of the work delivered. DfT needs to consider
how to reduce future risks to the taxpayer and, with the Mayor of
London, how best to ensure effective and efficient delivery of
improvements and maintenance of the Underground.
The DfT sees TfL’s ownership of Metronet as an interim solution
and, as part of a Joint Steering Committee, made recommendations on
a long-term solution to the Secretary of State for Transport and
the Mayor of London. They are now preparing to take a joint
decision.
The Comptroller and Auditor General said:
"The Metronet PPP contracts to upgrade the Tube left the
DfT without effective means of protecting the taxpayer. Metronet’s
failure led to a direct loss to the taxpayer of between £170
million and £410 million. The DfT’s work with the Mayor of London,
TfL and London Underground on a long term solution will need to
improve governance and risk management in the new arrangements they
are intending to put in place to protect the
taxpayer."
Notes for Editors
- Metronet contracted to use its shareholders and their
contractors as suppliers rather than go through the process of
competitive tendering. The five shareholders of Metronet were
Balfour Beatty, Bombardier, WS Atkins, EDF and Thames Water. The
executive management of Metronet changed frequently and was unable
to manage the work of its supply chain.
- Metronet was awarded the contract to upgrade and maintain
infrastructure, trains and stations on the Bakerloo, Central,
Victoria, Waterloo and City, Circle, District, East London,
Hammersmith and City and Metropolitan lines under a public-private
partnership. A separate company, Tube Lines, was awarded the
contract for the Jubilee, Piccadilly and Northern lines.
- After Metronet went into administration, Metronet and London
Underground agreed to reduce the number of stations to modernise.
Twelve modernisations have been cancelled and a further 47
postponed into the second 7 ½ year period of the contract. These
arrangements will be reconsidered when decisions are taken on the
permanent solution for the Metronet lines.
- Press notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General is the head of the National
Audit Office which employs some 900 staff. He and the NAO are
totally independent of Government. He certifies the accounts of all
Government departments and a wide range of other public sector
bodies; and he has statutory authority to report to Parliament on
the economy, efficiency and effectiveness with which departments
and other bodies have used their resources. This report has been
made by Tim Burr, who was C&AG until 31 May 2009. He was
succeeded by Amyas Morse on 1 June 2009.
Press Notice 37/09
All enquiries to Phil Groves, NAO Press
Office:
Tel: 020 7798 5339
Mobile: 07770 678 477