Network Rail and HSE investigations combine with falls in shares and profit to push contractor off the rails.
Jarvis is considering leaving the rail maintenance sector after client Network Rail last week singled it out for special scrutiny.

A source close to the firm said it was considering two main options – to gradually hand over the division to Network Rail or to sell it. The first option is understood to be favoured by the client.

The source said the scrutiny was hurting the contractor's share price and reputation. "A company of this calibre and size has to safeguard its share price. The price is getting hammered whenever the issue of rail maintenance comes up."

The company declined to comment on whether it was considering a move out of the maintenance sector.

Last week, Network Rail said it was launching a special inquiry into the way Jarvis manages maintenance. The firm is also facing an investigation into last month's derailment at King's Cross.

The contractor was at the centre of investigations into the Potters Bar crash last year, which killed seven people. An interim report released by the Health and Safety Executive last month pointed to maintenance as the most likely cause of the disaster.

Firms involved in rail maintenance are concerned about the long-term prospects for the sector. Network Rail has recently decided to take over the management of three contract areas in the past year.

The share price is getting hammered whenever the issue of rail maintenance comes up

Source close to Jarvis

A Network Rail source said the company would be unlikely to refuse the offer of Jarvis' maintenance operations if it were made. The source said: "We would not say no, no, no to that."

Rail maintenance is worth £180m to Jarvis, 15% of its turnover. However, Building revealed in February that the firm's margins on rail maintenance would be cut by up to 50% next year.

Jarvis will continue to bid for track renewal work.

A Network Rail spokesperson said the body was unaware that Jarvis was considering discontinuing maintenance. He said: "It's nothing they have flagged up to us at this point in time."

The spokesperson said an interim report into the King's Cross derailment would be complete by the end of November. He added that John Armitt, the chief executive of Network Rail, was "not going to make any knee-jerk reactions" until that report was completed.

  • Jarvis said turnover and operating profit for the first half of 2003/04 would be "substantially ahead" of the first half of the previous year.

    The firm said this uplift was largely the result of work coming through on its London Underground PPP contract. Jarvis is part of the Tube Lines consortium, which took over one-third of the Tube system.