Amec backs away from English PFI hospitals market

Amec chief executive Sir Peter Mason has said it is "extremely unlikely" the company will bid for English PFI hospitals again, and warned that other major contractors could follow suit.

Mason made the comment after Essex Rivers Healthcare Trust pulled the plug on the £167m Colchester General Hospital

last week, where Amec had been preferred bidder since 2004.

The trust said a change in the payment mechanism and the construction of a nearby health centre meant the hospital was now unaffordable.

The scheme cost Amec £7m in bid and design costs and the contractor is talking to the trust and Department of Health about recovering the cash.

Mason said: "It's extremely unlikely that we will bid for them again. Major contractors will be worried about these hospitals until the government shows goodwill and pays back bid costs."

There is no formal contract between the NHS trust and Amec, but Mason insisted that the government would feel obliged to cover the bid costs for fear that it would start to lose the few major contractors capable of building such schemes.

Mason also cited the 1997 Bates report on the PFI, which recommended that private sector bid costs should be minimised.

Mason said Amec would continue to bid on Scottish hospital schemes as Scotland had a different payment mechanism.

Earlier this month, Amec expressed interest in a hospital scheme in north-east England but Mason said it would only continue if a pre-bidding agreement over bid costs could be reached.

Amec also made a post-tax write-down of £65m - £78m pre-tax - last week, adding to a £70m pre-tax hit announced in November.

However, Amec expects to make back at least £25m of the latest hit. Mason insisted that the company had been cautious in its accounting in light of last month's sale of Spie, its French services business, which gave the company an exceptional post-tax gain of £295m. He said a £15m write-down on a Middle East energy contract and £10m on construction contracts were the most likely to be recovered.

On Amec's reorganisation, in which the company has split into oil and process and UK infrastructure divisions, Mason said the board had yet to formally decide whether or not this would result in a demerger later in the year.

However, John Early, the UK infrastructure chairman who is currently heading up the division, will not be the division's chief executive as had been expected. Early will remain chairman, with both internal and external candidates considered for the chief executive post.

Mason added that the energy and process business will be the one to keep the Amec name if the demerger takes place, and will bear the brunt of the cost of any break-up. Analysts suggested that the demerger could cost as much as £10m.