12 DfT was obliged to rely on other parties. DfT had to respect the devolution of powers to London Underground, TfL and the Mayor of London, which made it difficult to adopt a risk management strategy commensurate with the risks DfT faced. All parties were hampered by a lack of good quality information. DfT relied mainly on public sector monitoring by London Underground, TfL and the Arbiter, and private sector monitoring of the contracts by Metronet's shareholders and lenders. DfT expected these parties, in their respective roles, to identify and then mitigate the risks:
i DfT relied on London Underground and TfL to manage performance and financial risk on its behalf. London Underground focused on holding Metronet to account for delivery, which entailed cost increases in some areas. London Underground did not have sufficiently detailed information to take a 'partnering approach' with confidence and did not have the full array of contractual levers to drive improved performance when necessary. Metronet did not provide good quality performance and cost information in the way London Underground envisaged and London Underground did not have a breakdown of Metronet's high level budget on station refurbishment work. It was, therefore, difficult for London Underground to understand how its rigorous interpretation of the contract scope was tending to increase the costs of the stations work.
ii DfT relied on the Arbiter to warn of potential cost overruns which might fall to the public sector. The Arbiter has no specific statutory duty to protect the public interest, although part of his statutory duty is to promote economy and efficiency. Furthermore, it is not part of the Arbiter's statutory function to help DfT monitor the PPP contracts' performance. DfT were, nevertheless, informed of developments by the Arbiter through informal briefings and presentations.
iii At the outset, DfT expected Metronet's shareholders and lenders to identify and resolve performance problems but they failed to do so. Although Metronet's shareholders and lenders had financial investment and reputations to protect, they did not act as expected. In the case of the shareholders, the governance structures adopted, and their differing priorities and positions as beneficiaries of supply contracts, meant that they did not tackle problems effectively. Only five per cent of the lenders' investment was at risk. The controls they put in place over access to loans did not require evidence that Metronet was delivering as expected under the contract.
13 When the extent of Metronet's problems emerged in early 2006, DfT's response reflected the limited number of levers it had to influence the progress and the outcome of the PPP contracts. By February 2006, Metronet projected £1.2 billion of extra spending over the first 7½ year period. The reliability of this projection was uncertain. But it suggested an increased possibility of DfT having to increase grant levels to help TfL and London Underground meet obligations under the PPP arrangements. DfT responded by increasing its liaison with London Underground and TfL, but decided against becoming involved in disputes between the contracting parties. Instead it relied on London Underground, as contracting party to: develop a better understanding of Metronet's estimated overspending; and encourage Metronet to proceed to an Extraordinary Review by the Arbiter to determine whether the extra spending was liable to be met by the public sector. In February 2007, following a statement by the Mayor of London, Metronet accepted that it would have to ask for an Extraordinary Review. Metronet had spent a further £1.1 billion on capital works and maintenance since the potential scale of its problems emerged 12 months earlier. On the basis of the Arbiter's work we estimate that approximately 90 per cent of this £1.1 billion was spent economically and efficiently, with the remaining 10 per cent being wasted.