Metronet should be allowed to recover up to half of its overspend, the government's arbiter said today.

The company should have claimed between £140m and £470m for extra costs in the first seven and a half years of the contract rather than the £992m it claimed before being forced into administration in July after running up £2bn of unscheduled costs.

The arbiter's ruling, that Metronet  should be paid  between £370m and £1bn is vital to the administrator as it tries to value Metronet's contract before it puts it up for sale.

Owned by WS Atkins, Balfour Beatty and Thames Water, Metronet's 30-year contract included £17bn of new investment.

The ruling will not have pleased London Mayor Ken Livingstone who is keen to see Metronet taken over by Transport for London, the public sector body which runs transport in London.