Entry into administration

1.31  In February 2007, the Mayor of London, who was also the Chair of TfL, stated publicly that London Underground saw no basis for a settlement with Metronet to fund extra spending and called for Metronet to ask the Arbiter for an Extraordinary Review.

1.32  By March 2007, the projected extra spending was £1.8 billion. Figure 4 shows how projections increased over time on the stations programme, which was the largest component of extra costs. The projected spending on stations went up from £1.3 billion at bid by: £100 million by March 2005; £400 million by March 2006; and £1,100 million by March 2007.

1.33  On 28 June 2007, Metronet formally asked the Arbiter to carry out an Extraordinary Review of Metronet BCV, five months after the Mayor's statement. The Chairman of Metronet at that time told the NAO that the delay was caused by difficulty in obtaining information from Metronet's suppliers. On 29 June 2007, TfL wrote to Metronet expressing concern about increasing costs and saying that new debt might not be covered by the guarantee arrangements.

1.34  Metronet sought additional payments from London Underground of some £1 billion for its BCV business and said it expected to seek a similar sum for the SSL business. Figure 5 is based on Metronet's original plans for the first 7½ year period and shows that £8.7 billion in funding was available (£6.9 billion in 2002 prices), but Metronet was expecting to spend £10.5 billion on capital, operations, finance and administration. This amounted to a funding gap of £1.8 billion. Metronet also asked for an interim increase in payments of £551 million from London Underground over the following 12 months.

1.35  On 3 July 2007, Metronet and London Underground concluded negotiations that had started in April 2006 for a revised stations programme. There were two key elements to the settlement:

i  Metronet agreed to amend its reference to the Arbiter to reduce its claim for additional spending on the first 13 stations by £45 million, from £108 million to £63 million.

ii  Metronet agreed to accept liability for 90.5 per cent of the total delay to the completion of the 13 stations and for forecast delays to a further 27 stations, which included delays associated with planning, designing and building works.

5	Metronet's projected funding shortfall as at July 2007
Source: National Audit Office analysis of Metronet data
NOTE The first period runs from April 2003 to October 2010 (7½ years).

1.36  Pending a final decision on the Extraordinary Review, on 16 July 2007 the Arbiter provisionally concluded that, based on his judgement of economic and efficient activity, he could agree an interim increase in payments to Metronet BCV of £121 million for the year 2007-08. This was some £430 million less than requested. Soon after, Metronet concluded that it would run out of money and asked the Mayor to petition for the appointment of a PPP Administrator. Metronet BCV and SSL entered administration on 18 July 2007. TfL provided a loan to enable Metronet to continue operations during administration.