Metronet fights back on Tube cost overruns

Consortium tries to establish where the cost liabilities will fall in the event of an Extraordinary Review.

Metronet has taken the first step in its fightback over liability for massive projected cost overruns on its London Underground PPP contract by seeking guidance on an Extraordinary Review.

The move follows the publication of the PPP Arbiter’s report on Metronet’s performance. This strongly recommended an Extraordinary Review after it revealed a projected £750m in cost overruns and found Metronet’s performance to March 2006 neither economic nor efficient.

Under the terms of the contract, Metronet should be liable for no more than £100m in cost overruns. However, if it continues to operate inefficiently, the consortium’s members – Atkins, Balfour Beatty, Bombardier, EDF and Thames Water – could be held liable to pay most of the costs at the first review stage in 2010.

The PPP Arbiter’s office confirmed that Metronet had requested guidance on where responsibility for additional costs would fall should there be an Extraordinary Review. A spokesman added: “This is the first step towards a full review. The PPP Arbiter will report by the end of January, giving an indication of how costs would be apportioned. It is then up to Metronet whether it will apply for an Extraordinary Review.”

Metronet declined to say whether it would ask for an Extraordinary Review following the Arbiter’s guidance. However, a Metronet source said: “Metronet wouldn’t request this guidance if it wasn’t sure it had a strong case against London Underground.”

Metronet claims that additional works that have been done economically and efficiently should be paid for by London Underground (LU). It claims most of the £750m of cost overruns relate to additional works.

A Metronet spokesman said talks with London Underground had reached an impasse. “LU is taking a commercial attitude. We have been discussing this with London Underground for the best part of 12 months so we need to take this further and seek the Arbiter’s guidance.”

A LU spokesman said: “This is a distraction from the real issue of Metronet’s performance. Rather than ask the Arbiter to take a view on who is responsible for meeting the cost of the overruns, Metronet should focus on the real issues of how to improve its performance so they can deliver on time and to budget.”

[Contract Journal, 29 November 2006, p 1]