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A small issue of money

How Metronet got into such a mess is a confusing story. Having listened to the evidence presented to parliament last week, NCE sheds some light.

Those who are unfamiliar with the story of how Metronet took on, enthusiastically embraced, then handed back the immense challenge of revamping two-thirds of the London Underground quickly glaze over when the subject is breached.

But when you talk to anyone who is familiar with the story of political battles, cost escalation, scope creep and impossible challenges, you quickly find that there are many different interpretations of even the most straightforward "facts".

So, it comes as no surprise to learn that Metronet itself did not really know what was going on in its own company while it was upgrading London Underground's tracks and stations.

The bizarre admission comes out of a series of interviews conducted by the Transport Select Committee last week. The first revelation was that Metronet did not have a clear picture of what it was supposed to be doing from the start.

Graham Pimlott, Metronet chairman until the company's collapse in July said: "Transport for London (TfL)'s requirements were different to those bid. If the specifications could have been set, a lot of problems could have been avoided.

"I think contractual arrangements were a factor, as Metronet's contracts with Trans4m (Metronet's internal sub-contractor) gave Metronet little leverage. They had to pay when bills were presented, and could not withold for failures," he said.

Trans4m was Metronet's contracting arm, owned by four of Metronet's five shareholders - Atkins, Balfour Beatty, EDF Energy and Thames Water.

The fifth shareholder, Bombardier, had a separate contract to supply rolling stock.

In this topsy-turvy world, Metronet was committed to paying sub-contractors for work that was unspecified and might not be done, or not done correctly.

Pimlott said that he had tried to withold payments, but added: "I was threatened with litigation." Committee chair Gwyneth Dunwoody asked Pimlott if the tied supply chain - to Trans4m - was responsible for increasing costs. "Poor management was somewhat responsible, yes," he said.

Pimlott implied that the shareholder's dual roles - as both shareholder and contractor were muddled but, "over a period of time became evident". Dunwoody said this was incompetence, to which Pimlott agreed.

To Committee member Graham Stringer, MP for Manchester, Blackley the concept of shareholders paying themselves as contractors looked dodgy. "Partners tried to push all the money to the contractor. This looks corrupt," he said.

But incredibly, according to Pimlott, even Metronet's banks were unconcerned until 2006 as Metronet simply did not know the state of its finances and progress. "It was not obvious in 2005 that the sum [spent] would be so large."

The costs were held somewhere beneath Metronet, between Trans4m and its sub-contractors.

According to London Underground managing director Tim O'Toole, who apparently secured Metronet for £1 last week, he became very concerned in 2004, when Metronet - behind in its work - "projected an underspend of £70M-£90M per infraco", or £140M-£180M in total.

"We kept pushing for more information," he said. "The situation did not make sense."

But O'Toole displayed his softer side under questioning, and had some praise for Andrew Lezala, who, he pointed out, gave Metronet its reality check when he took the top job at Metronet.

Lezala, O'Toole said, "re-projected the baseline costs. And then they asked for £1.2bn".

He agreed that the failure of the company was essentially down to its structure rather than the personalities. " [Even] If [former General Electric boss] Jack Welch had been running it, it would have failed."

The select committee meeting also highlighted that the huge sums said to have been paid to five Metronet executives, including Lezala, two weeks ago were completely untrue.

Press reports suggested £1.2M had been paid to the five shareholders, but Metronet's PPP administrator Alan Bloom of Ernst & Young said they were paid nothing to leave. And he would know.

O'Toole was also kinder than we might have expected about the PPP system. "It would be disingenuous to suggest that nothing good has come out of it," he said.

In fact, the most important work - the refurbishment of the track - is progressing well. O'Toole was adamant that the track is the top priority. "The Underground has suffered from decades of underinvestment. Track has to be replaced."

Metronet eventually fell down on its station upgrade work, and this has now been severely hampered by its collapse. O'Toole said up to 60 stations would now be delayed.

Several questions remain - what will be the final cost of this upheaval? TfL confirmed that it pumped ú336M into Metronet to fund it in PPP administration - will fares increase? How bad is the collapse - should there be a public inquiry?

Transport secretary Ruth Kelly said there would not be a public inquiry, but said that the "terrible failure" of Metronet would be taken into consideration should its shareholders bid for government jobs.

And the Metronet saga is far from over. Bringing contracts back into TfL makes it both client and contractor. Could this generate the same problems as before? The answer remains unclear.

O'Toole is confident he can run everything efficiently. But what of the PPP - one-third is still upgraded by private sector contractor Tube Lines who itself still has much work to do.

O'Toole talked obliquely about a system that could replace the PPP. He will have something specific in mind, but until we know what this could be, the twists and turns in the story will no doubt continue.

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