Subcontractors to make millions from M25 road deal

Roads contractors can look forward to a bonanza of work following the signing of the £6.2bn deal to upgrade and maintain the M25, according to the chief of the joint venture tasked with completing the work.

Tim Jones, chief executive of Connect Plus, a joint venture between Atkins, Balfour Beatty, Egis and Skanska, said 35 multi-million pound jobs would be let as part of the £1.2bn build cost of the road widening, along with hundreds of smaller contracts.

These would be for a raft of different jobs, from piling and road lighting to providing the safety fencing, he said. The £1bn construction job at the heart of the PFI deal will see large sections of the orbital motorway widened, and the Hatfield Tunnel on the A1(M) rebuilt, employing 4,500-5,000 people at peak.

In addition, Jones said Connect Plus was also about to start tendering a series of subcontracts for the operations and maintenance of the motorway for the initial two-year period of the PFI contract. He said selection of the main subcontractors would start in June with a suppliers day and be completed by the middle of August. Work on the repairs and maintenance will start in October.

In total the £6.2bn deal runs for 30 years, and has been achieved by the agreeing of £1.3bn in start-up finance for the project. The £6.2bn figure, which is the cost of the fees payable by the Highways Agency to Connect Plus over the 30 year period, is £1bn more than the initial estimate. It includes the capital build programme, the ongoing operations and maintenance, and any major road renewals which might be needed in the period.

It’s recognised PFI is still the right way to go

Tim Jones, Connect Plus

Jones said the cost of the deal to the public purse had risen simply because of the difficulty in securing bank lending in the current financial environment. He said: “In the current climate the banks want to ensure their pricing is robust and covers the risk they’re taking on. Therefore the price has gone up.”

The rising figure was to do with the “overall pricing” of the bank debt, he said, but added it was still the most cost-effective procurement method, even in the current lending climate. “It’s recognised PFI is still the right way to go,” he said. “You can rely on it being at least 10% cheaper than standard forms of procurement, which also sit on the government’s balance sheet.”

He added: “Pulling off this deal in this market has been quite remarkable. No-one involved could remember such a complex deal.”

In total 16 banks have provided £925m of debt for the project, with the European Investment Bank providing £185m. The four joint venture partners have supplied £200m of equity. In initial discussions before the credit crunch, just four or five banks were expected to be involved in the deal.

Pulling off this deal in this market has been quite remarkable. No-one involved could remember such a complex deal

Tim Jones, Connect Plus

At one stage it appeared a government bail-out would be needed to make the deal stack up, but last month the banks announced they were able to supply all of the funding themselves.

Balfour Beatty and Skanska have both committed £80m each of equity to the project, and have a 40% share in the joint venture, with Atkins and Egis each committing £20m for a 10% share.

Under the contract the M25 will be widened to four lanes between Junctions 16 and 23 and between Junctions 27 and 30, and the Hatfield Tunnel will be refurbished. It also includes operation and maintenance of the M25 and the Dartford Crossing for a 30 year period. Preparatory work on widening between Junctions 16 and 23 started yesterday.

Keith Clarke, chief executive of Atkins said he was delighted on reaching financial close on the project which was the biggest single highways contract Atkins has ever won. He said: “It is critical to London's transport infrastructure and builds upon Atkins core design expertise employed recently on similar schemes such as the M1 widening programme, and the M74 expansion in Scotland.”

Balfour Beatty Chief Executive, Ian Tyler, said: “This landmark contract is critical in supporting London and, more widely, the UK's transport network. We look forward to transforming the M25 into a world-class motorway with the highest levels of safety and reliability.”