Rail maintenance firms face the axe

Network Rail could be forced to slash its maintenance contractor base further and spread work more evenly to cut costs.

The rail operator believes it has too many contractors on its books, several of which have small rail stakes and a lack of investment in areas such as people, management systems and improved safety facilities.

A reduction in its supplier base would lead to some of its current contractors - which include Amey, Amec, Jarvis, GTRM (Carillion), First Engineering (part of Peterhouse Group) and Balfour Beatty - losing maintenance work valued at a total of £1.2bn a year.

An unnamed rail insider claims that having so many maintenance contractors will no longer be economically sustainable for Network Rail.

"There are too many players in rail. You will have to be a certain size to survive Network Rail's challenge to save up to 20% of its £5bn annual costs by March 2006," he told CJ.

The source added that as most rail contractors have an average 6% share in the market - except GTRM and Jarvis, which have around a 14% stake - costs are set to rise, not fall, as contractors struggle to maintain resources on small but demanding contracts.

"Just to get into rail and maintain a contract you need high-tech safety systems and professionals," he said.

"Network Rail would prefer longer-term agreements with contractors with greater market share, which means some names will have to go."

The problem will be intensified, he added, with Network Rail's New Maintenance Programme giving it greater control over contractors. Those most under threat appear to be Amec, Balfour Beatty and Amey, which have a relatively small market share but the same high costs as the others.

Earlier this year, the rail operator reduced its contractor base after Serco moved out of the maintenance market by giving up its £60m-a-year East Midlands contract. This was part of Network Rail's move to bring three contracts in-house to improve performance. The other two were Balfour Beatty's £80m-a-year Wessex deal and Amey's £45m-a-year Reading contract.

A spokesman for Network Rail said that, while the company had no immediate plans to reduce its contractor base, it would consider bringing more contracts in-house if a contractor was performing badly.