LU wins ruling against Tube Lines over cost overruns on Jubilee and Northern line upgrades

Verdict comes as PPP contractor struggles to close £1.35bn funding gap

This report is from yesterday's Guardian. You can read the original story here.

London Underground has scored another victory in a funding battle with Tube Lines, the company charged with improving three of its busiest lines, after seeing off a £327m compensation claim.

Tube Lines alleged that overruns on upgrading the Jubilee and Northern lines were LU's fault, but an independent ruling has laid the blame at the company's feet. Tube Lines, which has admitted solvency concerns but insists it is viable, must now cover the £327m cost and LU's legal fees.

Richard Parry, acting managing director of LU, said the verdict was a "total vindication" of the tube operator's stance in the funding row.: "We are very pleased to have seen off this attempt to take lots of money from the public purse and drag our reputation through the mud."

The ruling dismissed Tube Lines' claims as "labyrinthine, artificial and unconvincing". The Jubilee line upgrade to deliver faster and more frequent trains is due to finish in October, 10 months after its original delivery date.

The verdict by an independent adjudicator comes as Tube Lines, the last remaining contractor in the public-private partnership to upgrade the network battles to close a £1.35bn funding gap for the next seven and a half years. Tube Lines says the work, funded by the taxpayer and government-backed debt, should cost £5.75bn but has been told in a draft ruling by PPP arbiter Chris Bolt to do it for £4.4bn. Bolt will deliver his final verdict within months.

It is understood that Tube Lines executives, while disappointed by last week's ruling, do not view it as serious threat to the company's survival prospects. Dean Finch, Tube Lines chief executive, admitted recently that board members had considered whether the business was solvent in the wake of the £4.4bn ruling. The Jubilee line overruns are already expected to cost Tube Lines about £50m - the equivalent of one year's profits.

Tube Lines is co-owned by US firm Bechtel and Amey, a UK-based public service provider. LU has sounded out Tube Lines about a takeover but so far the shareholders are supporting the business.

A Tube Lines spokeswoman said the company would review last week's adjudication before deciding whether to appeal.

The latest ruling is a blow for Tube Lines' earnings prospects because Bolt expects the company to use financial claims frequently over the next seven and a half years to claw back costs. The adjudicator's verdict signals that such a strategy could be an expensive failure