Amey posted an £18.3m loss for 2001 when the City had been expecting profit of more than £50m. Amey’s 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: “They needed to do something because they had been too aggressive when accounting for bid costs, but this is pretty radical and I’m not sure if it is necessary.”
The group said it is now writing off bid costs – which totalled £28.5m last year – 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’s 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 £28.5m for last year, £7.8m for 2000 and £9.8m for 1999. Amey has also decided to defer income totalling £17.1m. This will appear on the group’s bottom line as projects mature and risks lessen.
As a result, the group has posted a pre-tax loss of £18.3m for the year to 31 December 2001. Under its old procedures, Amey posted a £27.3m pre-tax profit for 2000 but this has fallen to £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: “We now bid almost exclusively for very large and complex projects, many of which have long gestation periods, with PFI and public–private partnerships being the longest of them all.” 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.