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MPs slam PPP system after 'spectacular failure' of Metronet

The Commons transport select committee has slammed the Public-Private Partnership (PPP) system following the collapse of Tube upgrade contractor Metronet. NCE understands that the deadline to tranfer Metronet to Transport for London has been extended to April.

Chairman of the Transport Committee, the Hon Gwyneth Dunwoody MP, said: "The future of most of London Underground's upgrade and maintenance work is now in doubt. The public, whether as taxpayers or Tube passengers, is paying for the private sector's inefficiency and failure.

"Any reasonable person, looking at the current situation, would find scant evidence to sustain a dogma that the private sector will always deliver greater efficiency, innovation and value for money than the public sector."

"If the Government is ever again tempted by a seemingly good deal from the private sector, it should recall Metronet's pathetic under-delivery and the deficiencies in the contracts that allowed it to happen."

Metronet's shareholders came in for scathing criticism. The Committee found that Metronet was little a buffer between its parent companies - Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water - and the obligations of the PPP Agreements.

The Committee said that in theory, Metronet's shareholders would absorb much of the risk, and reap the rewards of PPP contracts. But, responsibility for the cost overrun fell to the public sector.

According to the committee, Metronet had few assets, simply acting as an intermediary between its owners and London Underground.

They found that only 40% of the station upgrades were completed in tis first three years, and costs rocketed to 375% of the anticipated price and by November 2006. Track renewals did better, with 65% renewal work achieved.

The Committee recommended that:

- The Government must not allow this blurring between the roles of shareholder and supplier in future bids to carry out work by the private sector.
- The Government should not enter into any further PPP agreements without a comprehensive and accurate assessment of the level of risk transfer to the private sector.
- The Secretary of State should make a full assessment of the additional costs that have been incurred as a result of the failure of Metronet and then tell the House what proportion of these costs are to be met by central Government and what proportion she expects residents of London and Tube passengers to pay.
- The Government should bear the Metronet debacle in mind if and when its parent companies next come to bid for publicly-funded work.

London's Mayor Ken Livingstone consistently opposed the PPP system. A spokesperson for Transport for London, which will take over Metronet when it leaves PPP administration said, "Metronet's collapse was a result of it and its stakeholders' failure to properly plan, manage and execute the maintenance and renewal works it was responsible for.

"TfL is now addressing this by seeking to get Metronet out of administration and under our control in two nominee companies as swiftly as possible this year. Nothing will hold up the transfer of Metronet to Transport for London once all the necessary steps in the administration process have been taken."

Chief Executive of London First, Baroness Jo Valentine, says the PPP system is not discredited, but does not let Metronet off the hook either. "The Tube PPP has not failed. Tube Lines is still doing the job it was contracted to do.

"And because Metronet wasn't doing its job effectively, its shareholders have lost hundreds of millions. Before PPP, this underperformance and overspend may have gone unnoticed for years. Surely, Mrs Dunwoody and her colleagues have no nostalgia for the 70 years of underinvestment, declining passenger service and increasing taxpayers' subsidy which preceded PPP?

"It's clear that whatever the situation, the private sector has to be involved to deliver the Tube modernisation that passengers need and deserve. It is the biggest infrastructure programme in Western Europe," she said.

Metronet went into PPP administration in July 2007, and has been run by PPP administrators Ernst&Young ever since, funded by emergency cash from Transport for London, who are the sole bidders for Metronet's contracts. Funding was due to be exhausted on January 18.

The deadline has passed, and, according to a spokesperson for Ernst&Young, "The exit timeframe is as soon as possible." According to the RMT union, an early April date to bring Metronet into Transport for London would bring the costs for PPP administration up to around £500M.

The spokesperson could not reveal where the sticking points were in unravelling Metronet's contracts, but said that, "Our obligation is to transfer Metronet to a new entity."

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