Scottish trunk roads contracts lose £4m

Babtie, Ennstone and Ringway's controversial Scottish trunk road maintenance contracts made a loss of £4m last year. The three are members of the BEAR joint venture that won two of the four Scottish deals that cover highways in the north-east and the north-west sections of the country.

Further losses are still possible as an Ennstone spokesman said BEAR is only targeting to break even in 2004. He would not comment on the size of the budgeted loss for 2003.

In an attempt to put its house in order, BEAR's senior management structure has been radically shaken up, the most notable change being that Vaughan McLeod, chief executive of Ennstone, has taken over the position of BEAR chairman from Henry Perfect, the former Babtie chairman.

"McLeod has brought in fresh senior management, including Bill Taylor from Amey as operations director," said the spokesman. "The trouble was that contracts were being mismanaged."

A further change is that management has been incentivised through share ownership. Ennstone's initial 37.5% shareholding in the joint venture has been cut to 19% in order to pass a substantial balance of shares into the hands of senior management.

Ringway and Babtie still hold their original stake.

Babtie, which saw trouble brewing more than a year ago, made a £1.2m provision for the latest losses in its previous set of annual results. However, the figures fell short of the £1.5m needed and a further £300,000 has now been added.

Babtie chief executive Bill Mitchell said he does not expect the need for further provisions to cover any extra under-performance by BEAR in the 12-month period to the end of 2003.

"All three parties have now invested senior management time," said Mitchell. "The most important thing has been to improve so that we achieve delivery on the ground to Scottish Executive specifications. That's happening and benefits will soon show through," said Mitchell.

Asked why BEAR got into a muddle, Mitchell said: "We were asked to mobilise over a shorter period than anticipated. Moving from the tendering phase to having teams in place was very fast."

However, the future might not be as rosy as Mitchell suggests. One of those involved in the consortium said: "It is difficult to retain harmony in the three elements. It's something that is still being worked on."

The Scottish Executive was heavily criticised for the tender procedure used for the award of the contracts (worth £337m in total), resulting in variations in bids of 125%.

Amey won the contracts in the south-east and south-west of Scotland.

Last September the Performance Audit Group highlighted poor management of the contracts, which led to 32 default notices being served - 23 for BEAR and nine for Amey.