MetroNet hits the buffers

UPDATE
MetroNet, the tube maintenance company, went into administration this morning. This leaves the tube bosses in a bit of a tight spot: no one thought it necessary in the hopeful early days of PPP to detail the procedure for when a contractor goes belly up.

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Last Updated: 31 Aug 2010

Essentially though, they'll be left with two main options: 1. let the vital tube upgrades grind to an ignominious halt; or 2. ask the Treasury to bail them out. No prizes for guessing which course they will take - some sort of taxpayer-funded rescue is likely. Exactly what PPP was designed to avoid.

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Metronet's plight will produce a sticky situation for Gordon Brown. After all, the PPP and PFI funding mechanisms - essentially devices for sharing the financial risk of costly infrastructure projects between the Treasury and the private sector, thus keeping the government's borrowing figures down - were some of his biggest ideas.

But despite the Tube PPP contract's 2,800 pages of minutely detailed cause-and-effect, no-one thought far enough outside the box when drawing up the documents to decide what should happen if one of the main contractors were to go under. Oops.

If it does happen, not the least of the many ironies involved will be the fact that - for all the PPPs much-criticised complexity, it won't be the weight of bureaucracy that brought MetroNet low. Just the old-fashioned, unglamorous failings of inefficiency and bad management. Metronet's scheduled work until 2010 is expected to come in a whopping £2bn over its £8bn budget. Tube Lines, meanwhile, the company which looks after the rest of the network under the same the same PPP structure is on time and under budget with its commitments. Admittedly, MetroNet handles a much larger portion of the syetem than Tube Lines but it's a pretty fair comparison nonetheless.

Today's EGM was prompted by MetroNet's  failure to secure an additonal £551m from London Underground.  Wiith its shareholders - for whom MetroNet has been an expensive disaster - under no obligation to put in any more money and its banks apparently unwilling to do so, the firm's board may have no choice but to go for administrative protection. The personal liability conssequences of not doing so are the stuff of all company director's nightmares.

On second thoughts, Gordon may be just a tiny bit relieved that it didn't all happen a few weeks ago while he was still runningthe Treasury, into whose lap the job of sorting it all out will probably fall. How much more aggro might that have been?

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