There were further developments in the row between Transport for London and Metronet over maintenance costs on the London Underground today when Chris Bolt, Arbiter for the London Underground PPP Agreements, published his guidance on the treatment of investment at an Extraordinary Review and declared that the company had failed to carry out its activities “in an overall efficient and economic manner.”
Last month Mayor of London Ken Livingstone has today called on Tube maintenance contractor Metronet to seek an Extraordinary Review by the PPP Arbiter in order to resolve disputes over “massive cost overruns”.
The Mayor called on the Arbiter to decide “how much of the cost overrun must be borne by the Metronet shareholders – Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water” adding it was time “for Metronet’s shareholders to stand up to their responsibilities.”
At the time a spokesman for the company said they were “working hard to achieve a commercial settlement with London Underground – but should there be no positive outcome, we shall pursue the ‘Extraordinary Review’ route to recover the money which is due to us.”
In today’s guidance Mr Bolt confirmed that “where an Infraco expects to incur costs above the level allowed for in its bid, it has a contractual right to seek additional payment from London Underground to the extent that it considers the costs are incurred in an overall efficient and economic manner and in accordance with Good Industry Practice.”
“The purpose of my guidance is to provide greater clarity to both Metronet and London Underground on the approach I would expect to take if asked to carry out an Extraordinary Review and the timescales for such a review.”
“A key requirement for an Extraordinary Review to be carried out effectively is adequate information. Given that any Extraordinary Review of the Metronet contracts is likely to involve a review of all aspects of its programme, these requirements are likely to be considerable.”
The guidance also reviews the seven investments identified by Metronet, but notes that each investment is generally part of a larger programme of works. This means that without carrying out a full Extraordinary Review it wasn’t possible for the Arbiter to reach firm conclusions on the costs identified by Metronet.
Mr Bolt added “while it seems clear that Metronet will need to undertake much of the work covered by the seven identified investments, the evidence leads me to conclude that the projected costs are not fully efficient and economic. This is consistent with the view I reached last year that Metronet has not carried out its activities since the start of its PPP Agreements in an overall efficient and economic manner and in accordance with Good Industry Practice.”
A statement issued by Metronet this morning said the company “recognises that it was not economic and efficient in all its activities during the earliest stages of its contract, but it is now working hard to rectify this position across its operations.”
Metronet’s CEO, Andrew Lezala, said the items submitted to the arbiter “were specifically chosen to give us a general view as to how such costs might be treated through an extraordinary review. This means that to the extent the costs have been incurred economically and efficiently, Metronet should be reimbursed, either through a commercial deal, or through an extraordinary review process.”
According to some reports today’s guidance could saddle Metronet with an estimated bill of £750 million.
Mr Lezala said the company will now “consider the appropriate strategy to recover the money from London Underground.”
