Runaway Tube legal bills are set to hit the spending cut buffers
22 November 2010 | By Andrew Pugh
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Budget reductions and an end to the PPP saga signal lower legal bills for LUL.
London Underground Limited (LUL) has trebled its legal spend in the past five years, a Freedom of Information request by The Lawyer has revealed.
In the 2006 financial year, which ran from 1 April 2005 to 31 March 2006, the publicly owned body spent just £4.3m on legal fees. By 2010 that figure had ballooned to £12.6m.
However, despite the dramatic rise in legal fees in the past five years, LUL has actually managed to reduce its legal spend since 2008 by 37.9 per cent. With London’s transport budget set to be slashed, it is a trend that looks likely to continue.
While Transport for London (TfL), the parent group of LUL, has yet to unveil detailed plans on how it aims to reduce costs, it has to deal with funding from central government being cut by 21 per cent (£2.17bn) over the next four years.
London Mayor Boris Johnson has already mooted several plans, including reviewing upgrades across the network, which could save £300m. Upgrades to the Northern Line have already been pushed back by two years to 2014.
Between the 2006 and 2010 financial years LUL spent a total of £57.5m in legal fees, with the most lucrative year for law firms coming in 2008, when it was billed £20.3m, the lion’s share of which went to Herbert Smith. In that year alone the City firm pocketed £13.6m in fees as a result of its work advising the company after Metronet went into administration.
In 2003 London Underground began operating as a PPP, under which contracts for the maintenance of the infrastructure and rolling stock were awarded to two private companies, Metronet and Tube Lines.
On 18 July 2007 Metronet went into administration, when Herbert Smith head of projects Nicholas Tott and corporate recovery head Kevin Pullen advised LUL on its takeover of the failed company, leaving two-thirds of the network under its control.
This was followed by a series of disputes relating to the Connect PFI project, a radio communications system developed for London Underground, when the company was once again represented by Herbert Smith. The firm has also been advising on LUL’s long-running PPP contract review. In the past five years it has billed LUL for £30.4m.
The second-biggest earner since 2006 is Eversheds. In its capacity as LUL’s primary adviser for mainstream operational work the firm has earned £4.1m. The third-biggest biller at £3.3m is magic circle firm Freshfields Bruckhaus Deringer, followed by Manches (£2.7m), Berwin Leighton Paisner (£2.3m), K&L Gates (£1.7m) and Bircham Dyson Bell (£1.5m). Some £2.2m was spent on barristers’ fees during the same period.
A spokesperson for LUL says: “Law firms are appointed after a competitive process and LUL continuously seeks to ensure that it achieves value for money from its external lawyers, including driving greater efficiencies through securing reduced fees.
“In a number of matters LUL’s legal costs have been recovered from third parties, for example following successful outcomes in legal proceedings or in relation to the development of LUL property.
“In many cases these are sizeable amounts. Since April 2005 £3,298,300 has been reimbursed by third parties in connection with commercial developments.”
In 2006 a total of £32,400 in costs was recovered relating to the Metronet dispute and a year later £1.5m was recovered in relation to the Metronet and Connect PFI disputes.
In 2010 LUL recovered £1.7m following its dispute with Tube Lines, which was bought out by LUL for £310m earlier this year.
The Tube Lines buyout signalled the end of the PPP saga, and LUL will be hoping it also signals the end of hefty legal bills.
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