UK - Balfour Beatty new tube contract

[John Ashworth]

Partner of failed Metronet in line for new tube contract
Dan Milmo, transport correspondent The Guardian, Thursday March 6 2008

This article appeared in the Guardian on Thursday March 06 2008 on p25 of the Financial section. It was last updated at 00:10 on March 06 2008.

Balfour Beatty, a shareholder in failed tube maintenance firm Metronet, is close to renewing a lucrative public private partnership contract despite government criticism of investors' role in the collapse.

The engineering group is expected to win track renewal business on the underground as the London mayor's transport body, Transport for London, sifts through the wreckage of a £17bn PPP programme. The Metronet collapse was widely blamed on an ownership structure that gave work to the company's shareholders, including Balfour Beatty, which then broke the budget by up to £2bn.

In an appearance before the transport select committee last year, the transport secretary, Ruth Kelly, indicated that the insolvency would affect the chances of Metronet's shareholders winning other PPP contracts. "One of the issues we look at is competence and delivery record ... and of course those issues will be taken into account," she said.

One of the most vocal critics of the PPP agreements, Graham Stringer MP, said yesterday that Balfour Beatty's imminent business win was "extraordinary".

"The transport secretary said that the real penalty in all of this should be to the reputation and future contracts of the contractors and shareholders. This news shows that to be not true ... Given the way that the PPP was operated, London Underground should be looking for completely new contractors."

Balfour Beatty has many competitors for track renewal work including Jarvis, First Engineering and Carillion. A spokesman said the company was on the verge of signing a new track renewal deal after the old agreement expired in the wake of Metronet's lapse into insolvency.

"We are quite close to signing a contract of between 12 and 18 months' duration, to proceed on similar terms to the old contract on delivering track renewals. The relationship between London Underground and ourselves is very good."

Balfour Beatty also confirmed that it will take a £95m hit against its involvement in Metronet yesterday, as it announced a 48% rise in underlying profits to £201m. The group was one of five shareholders in Metronet whose £70m investment was wiped out by cost overspends. TfL is taking over the two PPP contracts owned by Metronet but is expected to confirm a deal after the mayoral election on May 1.

Balfour Beatty declined to reveal the terms of the contract, which is shorter than the original seven-and-a-half year deal signed under Metronet.