METRONET, the private sector consortium that runs two thirds of London Underground, has discovered a £314 million black hole in one of the contracts it has inherited as part of the part-privatisation of the Tube.

The black hole relates to cost overruns on the King’s Cross Channel Tunnel Rail Link, where the construction works are being managed by a 100-strong London Underground team which has now transferred to Metronet.

According to a leaked memo seen by The Times, Rod Hoare, chief executive of the consortium, is urgently trying to renegotiate the contract with the Department for Transport. The department is ultimately responsible for the delivery of the Channel Tunnel Rail Link.

The escalating costs were discovered in last-minute due diligence shortly before the Tube deal reached financial close earlier this month. Metronet found that estimated costs for the works had risen to £650 million, against the target cost of £336 million.

The memo reveals that the discrepancy was “not news” to the team, but that London Underground and the Department for Transport “have not fully taken on board this escalation”.

The memo raises concerns that the Metronet consortium will be blamed for the cost increases. It gives warning of the “potential for reputational damage if and when the overrun finally breaks externally”.

A spokesman for Metronet confirmed the existence of the management contract, which he said had been fully disclosed to Metronet’s shareholders — Thames Water, WS Atkins, Balfour Beatty, Bombardier Transportation and SEEboard.

“The Government has agreed that the target cost of £336 million was incorrect. We are confident that they will reimburse the losses,” he said. The Department for Transport was unable to comment.