Maintenance and track renewal at risk as firms warn that they will not carry out contracts on present terms
Contractors have warned Railtrack that they will refuse to carry out rail maintenance contracts if margins are not improved.

Balfour Beatty and Amec said they were not prepared to work for wafer-thin profits if contractual conditions remained the same.

If the contractors stand firm, this could hold back the 拢3.5bn track renewal and maintenance programme, announced by Railtrack last week in the wake of the rail crash in Hatfield, Hertfordshire. It is believed 拢40m of work was completed last weekend alone.

A Balfour spokesman said that the firm was not prepared to work for unacceptable margins. It is understood that talks broke down over the 拢250m East Coast Main Line, where Balfour was preferred bidder, because the two were unable to agree a suitable price. Negotiations have now reopened between Railtrack, Balfour and Jarvis for the contract.

The spokesman said: "Generally speaking, it is clear that Railtrack drives a hard bargain. Whether it be rail maintenance, facilities management, or PFI work we only do the business if we are clear that we get a margin acceptable for our shareholders." He added that the firm was still committed to rail work. "There is no question of turning our back on this," he said.

Amec declared earlier this year that maintenance margins were narrowing. An Amec source said: "We have lost some business in that area because of low margins. Railtrack has been budget-driven in the past and I suppose it is a question of how it will allocate resources."

Generally speaking, it is clear that Railtrack drives a hard bargain

Balfour Beatty spokesperson

A city source confirmed that there was wide-scale unrest among contractors. The source said: "The contractors can earn decent margins when they do regular work for blue-chip clients. That is where they are coming from."

The source added that maintenance work was more demanding than typical construction work, as it involved safety training, protracted pay schedules and investment in equipment.

One contractor that failed to obtain maintenance work claimed that his firm was deliberately misled about its chances of success by Railtrack as a ploy to bring other firms into line.

He said: "The contractors that tried to break into the rail maintenance market were used as a weapon to ensure the incumbents were beaten down on price."

Railtrack said last week that it was in the middle of a review of its maintenance and renewal work, which would lead to fewer and larger contracts.