• In 2003, Transport for London (TfL) signed a £15.7 billion (over the life of the contract) PPP agreement with Metronet (a consortium of five engineering firms) to upgrade roughly 2/3 of the London Underground.
• Cost overruns had reached £1 billion by 2007
• Metronet was placed in administration (bankruptcy) in July 2007. Debts were £1.7 billion.
• The problems
- TfL agreed to guarantee 95% of Metronet's loans, leaving taxpayers exposed.
- Each of the consortium's five members had only £70 million equity in the project, not enough to properly align incentives
- "There simply wasn't enough equity at risk to give incentives for Metronet to perform" -- Stephen Glaister, TfL Board Member
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112 The Economist, 19 July 2007, 7 February 2008