Services group reports loss after changing the way it counts its bid costs for PFI projects.
Support services group Amey this week slashed millions of pounds from its profits for the past three years after changing the way it accounts for PFI bid costs.

Amey posted an 拢18.3m loss for 2001 when the City had been expecting profit of more than 拢50m. Amey鈥檚 profits have been cut because it is taking costs into account earlier and recouping them later than before.

The group said this was because PFI deals were taking longer to finalise and were more expensive to bid for, although its previous accountancy practice had attracted criticism from the City.

A City source said: 鈥淭hey needed to do something because they had been too aggressive when accounting for bid costs, but this is pretty radical and I鈥檓 not sure if it is necessary.鈥�

The group said it is now writing off bid costs 鈥� which totalled 拢28.5m last year 鈥� as they are incurred, rather than once the contract reaches financial close. If Amey wins a contract and has its bid costs reimbursed, the group plans to write the costs in gradually over the project鈥檚 construction period, rather than taking them at once.

This treatment of bid costs is conservative compared with most other contractors, who write back the costs once appointed preferred bidder.

The change has forced Amey to restate its profits for 2000 and 2001 to reflect the new accounting procedure. It has written off bid costs of 拢28.5m for last year, 拢7.8m for 2000 and 拢9.8m for 1999. Amey has also decided to defer income totalling 拢17.1m. This will appear on the group鈥檚 bottom line as projects mature and risks lessen.

As a result, the group has posted a pre-tax loss of 拢18.3m for the year to 31 December 2001. Under its old procedures, Amey posted a 拢27.3m pre-tax profit for 2000 but this has fallen to 拢5.7m under the new accounting regime.

Amey said it had decided to change its policy after a draft report looking at how bid costs were treated was released last year. Amey chief executive Brian Staples said the changing nature of PFI deals had also prompted the change.

He said: 鈥淲e now bid almost exclusively for very large and complex projects, many of which have long gestation periods, with PFI and public鈥損rivate partnerships being the longest of them all.鈥� He added that although profits for 2000 and 2001 had been hit by the change, he expected results in future years would improve as deferred income becomes countable.