Third year of big profits for Metronet at risk as a result of financial penalties

The gloss has gone off Metronet, the consortium looking after two of the three London Underground PPP contracts, at an astonishing rate with WS Atkins, a member of the consortium, today announcing that “day-to-day operational performance has been below expectations”.

Atkins told the Stock Exchange this morning that “Metronet has incurred financial penalties and additional costs relating to track maintenance and signalling issues on the sub-surface lines in early summer.”

Atkins added that the stations modernisation programme remains a cause for concern with only two further stations being completed and accepted back into service over the past six months. The cost of this failure has hit Atkins’s finances.

Why Metronet should suddenly have gone pear-shaped so rapidly is yet to be explained fully.

Metronet’s financial results for the past two years showed remarkable profit margins by conventional construction standards. Last year, Metronet’s pre-tax profit ran to £29m and before that the figure had been an even more mouth-watering, a level at which the highest-paid director felt able to take a pay of £370,000.

As a member of the Metronet PPP, Atkins is entitled to a profit on its equity stake. In the six months to 30 September there was nothing to take, quite a downturn from the previous comparable period when £2.3m was removed.

At an operational level, Atkins is part of a supply chain which made a loss of £400,000 whereas the team was in profit to the tune of £1m last year.

Atkins said that the Arbiter’s recent conclusions (relating to shortfall in performance) are “broadly in line with our own assessments”.

It added: “The intention of the annual review process was to provide a non-binding report which provides useful guidance on the areas of improvement necessary in order to achieve the goal of Metronet being economic and efficient at the end of the first review period in September 2010.”

The number of senior staff seconded to Metronet and Trans4m (Atkins’s supply chain working on the contract) has climbed 150 higher and now stands at 750 people.

See Contract Journal next week for detailed analysis of the Metronet situation.