Brown to face backlash as Metronet prepares to go into administration
The Times: July 18, 2007
Metronet, the contractor charged with a £17 billion upgrade of the London Underground network, will go into administration today in a move that threatens to ignite a political storm over the future of the Public Private Partnership (PPP).
Sources told The Times that the company will begin formal proceedings this morning. Some senior staff were briefed on the move last night. Alan Bloom, the Ernst & Young insolvency specialist who led the administration of Railtrack in 2001, has already been lined up for the same role at Metronet.
Unions representing the vast majority of Metronet’s 5,000 work-force were asked by the company to attend a meeting at 2pm today. Brian Harris, regional officer of Unite, said: “We fear that Metronet is on the brink of announcing it is going into administration.”
Union leaders had been expecting an announcement at midday yesterday, timed to coincide with the opening of the Toronto Stock Exchange, where shares in Bombardier, one of Metronet’s five investors, are traded. Metronet refused to comment last night.
The contractor has been locked in crisis meetings with shareholders and bankers about its future for the past two days.
The meetings follow Monday’s decision by Chris Bolt, the PPP Arbiter, to turn down the company’s request for £551 million of emergency funding to cover cost overruns on the Bakerloo, Central and Victoria lines. Instead, he allowed Metronet just £121 million, starting from the beginning of next year – and also criticised the company for it ineffiencies.
Ken Livingstone, the Mayor of London, reiterated yesterday that Transport for London (TfL) was ready to step in and take control of Metronet’s two 30-year contracts, which cover maintenance work and upgrades on nine of the capital’s twelve underground lines.
The Mayor, an ardent PPP critic, urged staff to continue to report for work but admitted that some of the senior executives were likely to be ousted. “We have spent months preparing for this,” he said. “There will bean awful lot of people at the top who will go.”
Industry experts said that Metronet’s demise would represent a huge blow to Gordon Brown in the early days of his premiership. He was the architect of the PPP when he was Chancellor.
The PPP was seen as one of the only ways to guarantee the funds needed for the biggest investment in the London Underground since the Second World War.
Last night Susan Kramer, the Liberal Democrats’ transport spokesman, called for a fundamental review of whether PPP was the right model to use on the Tube. “It was such a bad idea from the beginning,” she said. “It has been used for something it was not designed for – 30-year contracts in a complex, ever-changing environment. PPP was designed for very clear, and very self-contained projects.”
Ms Kramer claimed that Metronet may even be able to resell its two contracts under the terms of the original PPP contract, which began in 2003.
TfL has drawn up contingency plans to take back the contracts on a short- term basis before tendering them back out to the private sector.
Leaders at the RMT trade union renewed calls for TfL to keep the work in-house. It claimed that this was the only way to cut an estimated funding shortfall on the Tube of £23 billion between 2010 and 2020.
In the hot seats
Graham Pimlott, non-executive chairman
Just three weeks ago, the former Barclays director was confident of securing nearly £2 billion of funding from London Underground to cover cost overruns on the Tube. He has continally blamed London Underground’s demands for putting extra strain on the business
Andrew Lezala, chief executive
Mr Lezala is no stranger to challenging jobs, having played a key role in the restructuring of Jarvis, which prevented the rail company collapsing under the weight of its debts. He took over from John Weight at Metronet two years ago, with a brief to “accelerate change”
It was Brown's idea
New Statesman: 17 July 2007
When it comes to footing the bill for this ruinous enterprise, let’s not forget who got us into this mess. It was Gordon Brown, who pushed through the PPP
So, tube repair and upgrade consortium Metronet is poised to go bust, having failed to get £551 million in extra money from Transport for London. I can’t say I’ll be sad to see it go.
The amount Metronet wanted in total (the £551m was just an interim demand) was nearly £1 billion, which is a proper scandal, amounting to a pound on every fare paid by every passenger in a year. Public Private Partnership arbiter, Chris Bolt, this week awarded them just £121m, but even this is too much.
Why was Metronet not sacked months ago? If it was up to me we wouldn’t pay them a penny. They should be removed from the tube now, their contract torn up and the services brought back in house.
And I’m not being harsh here. The company’s ‘investment’ in the tube (which in fact amounts to a juicy £70 million a month in public money) has gone bad, but it is entirely their own fault. As the arbiter points out, “if Metronet BCV had delivered in an efficient and economic way, its costs would have been lower than the baseline in the first four years of the contract.”
A pertinent charge laid at Metronet’s door by a recent London Assembly Transport Committee report is that of a complete inability to police, um, themselves. Extraordinarily, the sub-contracts from the PPP have all been awarded, in a distinctly uncompetitive process, to Metronet’s parent companies: Balfour Beatty, WS Atkins, Bombardier, EDF Energy and Thames Water.
The sub-contractors’ board members also sit on the board of Metronet, making it virtually impossible to bring sanctions against them when they failed to deliver the improvements on time. This is a company structure built for breakdown. The best thing that can happen is that the company goes to the wall, saving the taxpayer a fortune and maybe losing some corporations a week or two’s profit.
The list of Metronet’s failures goes on and on, and it’s not just the money: every failure represents hundreds of thousands of hours of misery for individual passengers trying to get to work and go about their lives.
By March last year only 14 of the promised 35 stations had been refurbished (all were late) and they completely failed to prepare the District Line for hot temperatures, causing chaos last summer.
Greens never wanted the PPP in the first place of course, and we have pledged in next May’s election to start moves to bring tube and rail services in London back into public administration.
And when it comes to footing the bill for this ruinous enterprise, let’s not forget who got us into this mess. It was Gordon Brown, who pushed through the PPP despite the opposition of the Mayor, TfL, the unions and almost everyone else in London. That even £121 million should come out of TfL’s budget to cover Metronet’s failings is wrong. The PPP was forced on us by the government and the money to cover its failure should come out of government, not London’s much-needed transport budget.