Metronet nearer exit from administration

Metronet has lurched a step closer to exiting from administration after it cancelled a major contract to upgrade the signalling systems on nearly a third of the London Underground network.

The company said that the cancellation of the £550m contract, which had been previously granted to Westinghouse Rail Systems, would result in "significant savings" and allow it to keep completion of the troubled multibillion-pound project on track. The contract will be re-tendered once Metronet emerges from administration and will be overseen directly by the company.

Administrators have been working for months to unravel the labrynthine structure that governed Metronet, a firm set up by five private companies to overhaul the Tube. It went into administration in July amid £2bn in cost overruns. Transport for London, the company that controls the Tube and is ultimately overseen by the Mayor of London, Ken Livingstone, has agreed to take over Metronet once it has returned to health.

Tim O'Toole, managing director at London Underground, said the deal was a "real step forward in the process of removing Metronet from administration". He added: "A great deal of progress has already been made and we remain on track to transfer the two Metronet companies to two Transport for London nominee companies as soon as possible."

As a result of the dissolution of the contract yesterday, Bombardier agreed to make a one-off £95m payment to Invensys, the owner of Westinghouse. The train-maker had originally subcontracted the work to install a signalling system on the Circle, District, Hammersmith & City and Metropolitan lines to Westinghouse.

Invensys said it still expects to book £180m from other upgrade work and that it plans to bid on the lost contract when it comes up again for tendering. The contract under which Bombardier is providing 47 new trains to the Victoria line while Westinghouse upgrades the signalling system, will continue untouched.

Metronet entered administration in July last year amid cost-overruns and delays. Its failure is a major source of embarrassment for Gordon Brown, who had hailed the project as a prime example of the Public-Private Partnership (PPP) model that has been championed by the Labour government. In an indication of the inherent complexity of Metronet's structure, the move was explained in four press releases, each published by different parties to the negotiations.

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