2.2 DfT had ultimate responsibility for ensuring that the interests of the taxpayer were protected, but DfT had few formal levers to manage the risks to the taxpayer that arose. DfT was not party to the PPP contracts and had no direct influence over performance. While the payment of grants to cover PPP costs was potentially an important lever, the payments could only be made as part of a block grant to TfL, without conditions, reducing the direct leverage it gave. It was therefore difficult for DfT to manage the risks to the taxpayer arising out of the PPP contracts. DfT had to obtain cooperation through influence, assisted by its role as funder of the grant.
2.3 In keeping with the original design of the PPP contracts, DfT's risk management strategy placed reliance on:
i monitoring by London Underground and TfL, who had undertaken to take all possible steps to avoid deviation from the funding plans in a letter to DfT;
ii the Arbiter's role as set out in the PPP contracts and the Greater London Authority Act 1999; and
iii monitoring of Metronet by its shareholders and lenders, which DfT anticipated they would carry out to protect their respective investments.
2.4 DfT's risk management strategy was determined by the Greater London Authority Act 1999 which devolved oversight powers to London Underground, TfL and the Mayor of London. The Secretary of State could only direct the Mayor to make changes to transport strategy where it would be inconsistent with national policy and have an adverse effect outside London.
2.5 A number of factors meant that DfT was exposed to significant policy and financial risk:
i Although DfT was not the formal guarantor of Metronet's borrowing, the Secretary of State had given assurance to Metronet's lenders which later resulted in DfT making grant payments of £1.7 billion to help London Underground purchase Metronet's debt obligations. This sum would otherwise have been repaid over the 30 year life time of the PPP contracts.
ii In agreeing long term funding guidelines for TfL, DfT considered that it might have to increase grant levels to meet the cost of extra spending under the PPP contracts. This increase could occur where the Arbiter decided the extra spending had been incurred economically and efficiently and it could not be borne by London Underground or TfL or covered by reducing the scope of the work programme.
iii DfT had to rely on TfL and London Underground to manage the contracts, despite TfL having opposed the PPP contracts when they were being negotiated.
iv The PPP contracts were novel and complex.