1.2 The NAO has produced three previous reports on the PPP contracts.1 Our December 2000 report The Financial Analysis for the London Underground Public Private Partnerships followed the Transport Select Committee's enquiry into the PPP contracts'. Our Report scrutinised the financial analysis behind the proposed contracts before they were signed. We found there were many factors that were difficult to quantify but would have an impact on outcomes, including the effectiveness of the performance mechanisms, the willingness of the parties to cooperate to alleviate strategic and contractual risks, and effective risk analysis and management. The Government accepted these conclusions and agreed to factor them into its decision making.
1.3 In June 2004, the NAO produced two further reports. The first, London Underground PPP: Were they good deals?, concluded that there was only limited assurance that the price paid for the work under the PPP contracts was reasonable, because of the complexity of the PPP arrangements and uncertainty over the eventual price. This situation resulted from the scale of the work required, the decision to have outcome-based contracts, and limited knowledge of the condition of less accessible infrastructure. The second report, London Underground: Are the Public Private Partnerships likely to work successfully?, found that the PPP arrangements offered an improved prospect of delivering upgrades to the network compared to the previous investment regime.
1.4 This study focuses on DfT's risk management of the Metronet PPP contracts. It examines:
i the history of the PPP, highlighting key factors that contributed to Metronet's failure;
ii DfT's approach to risk management; and
iii the direct costs and consequences to the taxpayer of Metronet going into administration and progress to a permanent solution.
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1 National Audit Office, The Financial Analysis for the London Underground Public Private Partnerships, HC 54 Session 2000-2001, 15 December 2000; and London Underground PPP: Were they good deals? HC 645 Session 2003-2004, 17 June 2004; and London Underground: Are the Public Private Partnerships likely to work successfully? HC 644 Session 2003-2004, 17 June 2004.