Risk management ‘inadequate’ on Tube deals

3 March 2010

3 March 2010 | Jake Kanter

The Department for Transport (DfT) has been criticised for inadequate risk management on contracts to upgrade the London Underground.

The Public Accounts Committee (PAC) said in a report yesterday that poor oversight and management of deals delivered by collapsed Tube maintenance firm Metronet cost taxpayers up to £410 million.

Metronet went into administration in 2007 after it could no longer meet its spending obligations.

The PAC said it was unacceptable that the DfT ignored a National Audit Office (NAO) warning to take a hands-on approach when managing the deals.

The committee said problems lay in the devolved delivery arrangements of the contracts. The DfT assumed, it said, that Metronet would put in place robust financial management and strong corporate governance. It added that London Underground, Transport for London (TfL) and the Mayor of London failed to obtain the information they needed to oversee the contracts effectively.

In addition, the DfT did not plan for additional risks, including Metronet’s “tied” supply chain. Much of the work to revamp nine of 12 tube lines was awarded to the firm’s shareholders, so once Metronet was in financial trouble, so were its subcontractors.

 “Departments need to have the right commercial skills in place and perform robust risk analysis when negotiating such contracts, to monitor the risks thereafter, and be prepared to intervene where necessary,” the PAC report said.

A DfT spokesman said: “The NAO itself recognised that 90-96 per cent of the money spent through the Metronet public private partnership was economic and efficient and that the fundamental failure lies with Metronet.

 “We were also prevented from micro-managing the contracts under the terms of the London devolution legislation which is why, since the PAC hearing, an independent advisory panel, has been established to provide expert scrutiny and advice on the TfL investment programme.”

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