Metronet, the London Underground contractor, announced this morning that it will go into administration after racking up a £2bn overspend bill.
It has asked the London mayor, Ken Livingstone, to appoint an administrator. Alan Bloom, an insolvency specialist at Ernst & Young and the former administrator of Railtrack, is expected to be appointed to run Metronet at the high court later this morning.
In a statement, Metronet said its two Public Private Partnership contracts to renovate and maintain the capital's tube system were unsustainable. Its Metronet BCV programme, for the Bakerloo, Central and Victoria lines, had an unpluggable funding gap of just under £1bn. Metronet's creditors and shareholders – Balfour Beatty, WS Atkins, Bombardier, EdF and Thames Water – had refused to provide more funding.
"Metronet Rail BCV requires additional funding to enable it to carry out its contractual obligations during the period of the Extraordinary Review," said the company.
"This company has now established that it has no access to such further funds."
Its second contract , Metronet SSL, for London's sub-surface tube lines, had built up an overspend of £1bn. Metronet said Monday's negative ruling by the PPP regulator on a request for emergency funds for Metronet BCV had effectively doomed the other contract as well.
"Applying the logic of the PPP Arbiter's draft direction to the circumstances of Metronet Rail SSL, the Board of this infrastructure company has come to the conclusion that any application for Extraordinary Review ... would come to a similar position."
Under the terms of today's process, Metronet has asked to put Metronet BCV and Metronet SSL into administration. However, the company will in effect cease to exist once the contracts are sold on by the administrator.
Metronet's collapse, less than a year after its financial troubles became apparent and four years into a 30-year programme, is an embarrassment for chancellor Gordon Brown and his PPP policy. Mr Brown drove through the tube PPP in the face of strident criticism from Mr Livingstone who, ironically in the light of this morning's events, took his battle to the high court in 2001 and lost. His advisers are expected to see today's events on the Strand as a vindication of his stance.
The mayor is expected to assure Metronet's 3,000 staff that there will be no mass lay-offs, although senior jobs are expected to go, putting in doubt the position of Andrew Lezala, Metronet chief executive. Ernst & Young's Mr Bloom will stabilize the business, which receives £860m in annual payments from the state, before selling the contracts to a new owner – who will assume responsibility for Metronet's workforce.
The head of London Underground, Tim O'Toole, has assured Londoners that the service on the lines that Metronet is responsible– nine of the capital's 12 – will continue as normal. However experts have warned that the PPP administration process is untested and was not foreseen when the contracts were launched in 2003.
Metronet, a company set up to manage the upgrade of three-quarters of London's tube network, has gone into administration (which is similar to Chapter 11 in the United States) after having accrued debts of up to £2 billion, following the decision on Monday to limit the amount of extra funds that the company would receive from public funds.

A notice on the Metronet website announced that the Boards of both Metronet BCV (responsible for the upgrade of the Bakerloo, Central and Victoria lines) and Metronet SSL (responsible for upgrade of the 'sub-surface' lines) had asked the Mayor to seek the appointment of a PPP Administrator. The statement says that the decision follows a period of 'financial uncertainty', with the decision of the arbiter leaving Metronet "unable to carry out its contract".

Metronet's shareholders, the companies Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water had blocked access to an extra funds, and each have a limited liability of £350 million, their original equity stake.

Transport for London have reassured the public that tube services will not be affected - Metronet is not responsible for day-to-day operation - but it is so far unclear what will happen to the upgrade contracts.