Metronet crisis: What next for the Tube upgrade?

The administrators sifting through the debris following Metronet Rail's spectacular plunge into insolvency last week moved quickly to reassure staff and suppliers that it would be business as usual while it sought to transfer the companies activities to another operating company.

Existing contracts

Speculation is rife as to who that new operator will be. Transport for London (TfL) has a number of choices. One option is for TfL to take over the management of Metronet's existing PPP contracts with Trans4M, a joint venture of Metronet shareholders Atkins, Balfour Beatty, Bombardier, EDF Energy, and Thames Water. Certainly Atkins and Balfour Beatty seem amenable to this solution.

An Atkins spokeswoman said: "The administrator could decide that although the contract was wrong, the people were right. However, whether that happens will depend on the administrator. Certainly in the short term the contracts will have to remain in place. We want to ensure as orderly a handover as possible and, if work were to stop, it could end in chaos."

Balfour Beatty echoed this view. "Certainly in terms of our track replacement programme, whatever the new ownership structure, it would be a brave decision to decide to take Balfour out of the equation, considering we have all the staff, equipment and know-how there already."

However, he added that Balfour's appetite to remain on the stations upgrade programme, which had been at the heart of Metronet's claims for £2bn cost overruns, "was not high".

If Balfour Beatty is replaced, as seems likely, on the PPP stations upgrade programme, there will be no shortage of contenders for the work. In pole position are the four contractors - Cleshar Contract Services, Costain, Taylor Woodrow and YJL Infrastructure - that Metronet recently took onboard to help speed up its delayed stations upgrade programme. A source at one of the four firms said: "We would be more than capable of widening our remit on the stations upgrade programme."

However, Mayor of London Ken Livingstone suggested that station upgrades may have to be delayed in favour of track and signalling work.

Alternatives

Some of Metronet's workload could also be transferred to TfL's Alternative Provider framework. Set up last year, the framework consists of Taylor Woodrow Construction, Birse Metro and Morgan Est (formerly Gleeson MCL). Its brief was to cover upgrade work outside of the PPP contracts and to provide a way of benchmarking the PPP infracos' work. The framework was so successful that TfL last month announced plans for another nine supplier frameworks, ostensibly to cover its £2.8bn capital works programme. Some observers say there was always a wider agenda. One said: "The timetable for these supplier frameworks picked up this year. The view is these are all part of TfL's contingency plans, which it put together this year when it realized how bad things were at Metronet."

Another format TfL could adopt is the type of partnership it has with Hong Kong firm MTR and Laing, which recently took over the operation of the North London railway, now rebadged the London Overground. The deal includes the £1bn rebuilding of the East London Tube Line. Unlike the PPP contracts, TfL retains much greater control over the contract.

Tube Lines

Transferring the work to Metronet's rival Tube Lines, which is upgrading the Jubilee, Northern and Piccadilly lines, is another alternative. Tube Lines's record so far is fairly spotless, having delivered most of the upgrade work under its PPP contract on time and to budget. Observers attribute much of its success to the fact that, unlike Metronet, which parcelled out the PPP maintenance and renewals work between its shareholders, Tube Lines has kept costs down and better managed its works programme by competitively tendering its works.

Tube Lines does not dismiss the idea of stepping into the breach. A spokeswoman said the consortium had not been in talks with TfL about taking over the work, but added: "When the situation becomes clearer, a review of any opportunities that exist may be considered."

Tube Lines is well placed to take over at least the management of Metronet's BCV and SSL infracos, having Bechtel as a shareholder. However, Bechtel's firefighting services come at a price, as TfL sources remember. One said: "When Bechtel was brought in to bale out London Underground's other disaster, the Jubilee Line Extension, it did not come cheap."

TfL said it was too early to discuss the options, but gave a nod of approval towards Tube Lines. A spokesman told CJ: "We are going forward with the government, administrators and stakeholders to determine the best vehicle to take forward the works. This will include the private sector. Tube Lines has shown that it is possible to deliver under this structure, but what the final shape will be is uncertain."

Staff and supplier retention

In the meantime, Ernst & Young's administrators will have to move quickly if they are to stop the inevitable haemorrhaging of staff and suppliers that comes with any administration. Although Metronet set out to reassure staff, suppliers and third-party creditors that, under the terms of the PPP administration, they would continue to be paid and that the renewal and maintenance programmes would go ahead, some remained unconvinced. One signals engineer told CJ: "No one likes this sort of uncertainty and if people can get certainty somewhere else they will go, particularly on the operations side."

If this prediction comes true, Metronet's administrators will be hard pressed to prevent major disruption to London Underground's modernisation programme and, in turn, the government's delivery plans for London's 2012 Olympic Games.