Contractor Jarvis has conceded that its profit margin on rail maintenance work could be cut in the next 12 months.
Earlier this year, Building revealed that Jarvis, along with other rail maintenance contractors, would face pressure to reduce margins from Network Rail, as the body looked to slash costs (28 February, page 10).

Chief executive Kevin Hyde said at the group's annual results: "The margins for maintenance are coming down. Network Rail will have a new arrangement. There will be a transfer of risk [to Network Rail] for an element of the margin from 1 April next year."

The transfer of risk would mean that the contractor would be less likely to be liable for unforeseen problems occurring on the old rail network. Hyde added that some of the margin reductions might be offset as Jarvis employees were likely to be seconded to Network Rail to help oversee the changes, for which it would receive a fee.

Maintenance accounts for £150m of Jarvis' £600m rail business. The company's turnover for the year to 31 March was £1.1bn, up 22.2% on the previous 12 months. Pre-tax profit was up 36.9% to £62.7m.

In its results Jarvis also predicted that it would make £146m pre-tax profit in the first seven-and-a-half years of its London Underground PPP contract. Jarvis is part of the Tube Lines consortium.