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NAO: poor governance and leadership led to Metronet failure

June 5, 2009 - Martin Hoscik@MayorWatch

A new report from the National Audit Office (NAO) into the failure of collapsed Tube PPP contractor Metronet has blamed “poor corporate governance and leadership” for the firm’s demise.

The company collapsed in July 2007 when shareholders including WS Atkins and Balfour Beatty wrote off their holdings in the company and refused to provide additional funding. It then entered administration before control of the firm passed to Transport for London and London Underground last May.

In February 2008 the Government, which had previously refused to compensate Londoners for the collapse of the company, performed a u-turn when it announced a £1.7bn “grant” to pay off creditors.

Today’s report estimates that the loss to the taxpayer arising from Metronet’s collapse, including the cost of the Government’s “grant” of which some has been offset by the public sector receiving the benefit of Metronet’s capital investment, “is between £170 million and £410 million, in 2007 prices”.

It also notes that London Underground only had a “limited ability to manage the contract in a way that prevented costs from escalating” and had to ask the PPP Arbiter whenever it needed more cost and performance details. The NAO says in future the Arbiter should work with LU to provide assurances on whether work carried out offers value for money.

Caroline Pidgeon, Liberal Democrat London Assembly Transport Spokesperson, commented: “It is unforgivable that as much as £410 million of taxpayer’s money has been wasted. The PPP deal that was forced on Londoners by Gordon Brown has been totally exposed as a bad deal for both taxpayers and for passengers.”

Transport for London has welcomed the report which has found the contractor “was managed effectively during administration”. The report highlights the decision by TfL and the PPP Administrator to slow the pace of track renewal and replacement work.

Richard Parry, Interim Managing Director of London Underground, said: “We are pleased that the NAO’s report confirms our long-held view that Metronet’s collapse was as a result of the failure of its management team and shareholders to properly plan, manage and execute the maintenance and renewal work that was their responsibility. This led to costs spiralling out of control and, ultimately, Metronet going bust.”

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