Amey plots route to exit controversial £2.7bn roads deal

Amey is looking to end its £2.7bn highways maintenance contract with Birmingham City Council despite it having 17 years left to run, TheBusinessDesk.com can reveal.

The infrastructure support services group is currently paying penalties averaging £4m per month and its Spanish parent Ferrovial has had to put a £208m provision into its accounts to cover additional costs.

The accounting change is a result of a Court of Appeal judgement earlier this year, which found in favour of the city council, and the council’s decision to charge full deductions of 100% of revenues per month.

Ernesto López Mozo, Ferrovial’s group chief financial officer, has now said Amey is looking to exit the 25-year deal early.

“The provisions are based on the continuity of the contract,” he said. “However Amey is hoping for an alternative solution that could suit all the parties.”

He said Amey will streamline its UK PFI portfolio and that “there is opportunity to sell some stakes”.

The 25-year contract with Birmingham City Council began in 2010, but since 2014 the two sides have been at loggerheads. Amey overturned the judgement of an independent adjudicator in the High Court in 2016 but the city council had this reversed in the Court of Appeal.

Amey has requested permission to appeal before the Supreme Court but Ferrovial believes the provision, which covers investments, deductions and penalties, is “a prudent approach”.

It had expected the “extraordinarily high amounts of penalties and deductions levied” to be reduced, as they had been in previous years. But Birmingham City Council has maintained deductions at the higher level although Amey has said it “will attempt to overturn them with the mechanisms provided in the contract”.

López Mozo said: “The amounts we considered were in the range of £50,000-£150,000 per month. The average in the first four months of the year is around £4m per month.

“Amey intends to challenge these deductions but, from an accounting point of view, we have changed our estimates and increased the costs as part of the provision.”

The £208m provision also takes into account additional investments during the initial phase of the contract as well as expectations of high deductions and penalties to be applied by the Birmingham City Council.

The additional investments are expected to bring forward some costs but not be entirely additional.

The contract was split into a five-year core investment period and then enter an operational phase. Although Ferrovial has closed its accounts for the investment period, the city council has said this period “will now remain open until the milestone works are completed”. Ferrovial expects “a material proportion” of its investment will be recovered through the later phase.

Amey has said more than £350m was invested in the city’s highways in the first five years. The PFI contract has handed over the maintenance of 2,500km of roads, 4,200km of footways, 95,000 street lights, 76,000 street trees, around 1,100 traffic light signals and over 1,000 bridges, tunnels and highways structures.