TfL tables offer for Metronet as top five execs axed

Transport for London, the operator of the London Underground that is chaired by the Mayor Ken Livingstone, has made an offer to take over Metronet under which it would pay nothing for the troubled firm charged with overhauling two-thirds of the Tube.

The formal bid lodged yesterday coincides with a day of boardroom bloodletting at Metronet. Ernst & Young, its administrators, fired the company's top five executives, including the chief executive Andrew Lezala and the finance head Philip Pacey.

The dismissals sparked outrage, as the executives of the failed company are understood to be in line for pay-offs totalling more than £500,000 between them.

The developments mark the latest in a series of ructions for Metronet. It entered administration in July when its bankers declined to make £551m in emergency financing available after a bitter dispute broke out between the company and TfL over who should foot the bill for £2bn in cost overruns.

Under the TfL proposal, Metronet's assets and staff, currently divided into two operating companies, would be transferred into a pair of TfL companies, at "no additional cost to the organisation". They would be "managed on a standalone basis while the long-term structure is agreed with the Mayor and Government," TfL said.

Ernst & Young acknowledged receipt of the offer and said that it would respond within a week.

Metronet, responsible for upgrading nine of London's 12 Tube lines and the associated stations, has been sharply criticised for falling behind schedule, exceeding budgets and causing inordinate disruption to the operation of the Underground. Tim O'Toole, London Underground's managing director, said: "We strongly believe that the best and most robust way to achieve our ultimate goal is for an exit from the administration process as early as possible. It is for this reason that we have now lodged our formal bid for Metronet, which I trust can be concluded as swiftly and efficiently as possible."

Metronet, owned equally by five partners – Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water – began operating in 2003 under a public-private partnership (PPP) that was a pet project of then-Chancellor Gordon Brown. Mr Livingstone had been less than pleased with management of the company for some time, and had opposed the PPP set-up from the outset. Yesterday's move to take control of the struggling group raised fears that it would lead to increased costs to taxpayers or to users of the Tube, already the world's most expensive public transport system.

Brian Cook, head of the watchdog group London Travelwatch, said he was "uneasy about the cost implication, as TfL has had to agree to fund the vast costs of administration and to underwrite the vast majority of Metronet's debts." He added: "The Government signed up to the PPP model against the wishes of both London's government and TfL, and should meet all the costs of getting out of it."

Andie Harper will bec-ome chief executive on 31 October, when Mr Lezala and others step down. Also shown the door yesterday were Ken Owen, the commercial vice president; David Clarke, the vice president of change management; and Paul Emberley, the communications chief.

When Metronet first ran into trouble last summer, it approached Tube Lines, the consortium responsible for upgrading the lines Metronet is not – the Northern, Piccadilly, and Jubilee – about taking over the project. Industry sources doubt, however, that Ferrovial, the owner of Heathrow airport and a main shareholder in Tube Lines through its subsidiary Amey, is keen to take on another sensitive British infrastructure project.

Capita loses congestion charge contract to IBM

Transport for London was dishing out surprising news all over town yesterday. Aside from its bid to take control of Metronet for the low price of £0, it also dealt a blow to Capita, the business process outsourcer that has handled the London congestion charge contract since the scheme started five years ago.

In an announcement that took some City analysts by surprise, TfL said yesterday that that from 2009, when the current contract is renewed, IBM would be taking over the duties.

The news knocked 5.5 per cent of Capita's share price. It closed at 700p, the FTSE 100's worst performer for the day. Analysts said this was by no means a death blow – Capita had indicated previously that the contract was worth £56m, and said yesterday that losing the contract would create a £9m profit dent in 2010, when it would have started to book profits under the new deal.

TfL called the IBM offer the "most economically advantageous". The decision ends a 12-month bid process to run the scheme, which generated £123m in revenue for TfL last year. TfL said: "We expect to continue our excellent working relationship with Capita over the next two years." The contract has a five-year term, with an option to prolong it to 10.