Amey could be in hot water with Birmingham City Council following accusations that it is failing to repair roads and pavements effectively.
Councillors for the local authority say they have been inundated with complaints from residents about potholes and damaged surfaces.
The Labour-led council is now considering enforcing penalty clauses in the 25-year, £2.7bn PPP contract, potentially punishing Amey with fines.
The council also wants to cut £2.8M from the amount in pays the contractor each year by 2017/18. Currently it pays out £42.5M annually.
Amey said it has met all milestone targets for highways improvements since the contract began in June 2010.
The dispute emerged when Labour cabinet member, councillor Tahir Ali, appeared before the city’s transport scrutiny committee.
He said: “The performance is not at the level it should be. Currently we are in a dispute resolution process, we’re at the arbitration stage.
“That arbitration process has started. Both sides are around the table with a huge amount of documents.
“There are huge issues, we know about them, they have been raised. Has work been done to the standard as laid out in the contract? On occasion not. Has work been missed? Absolutely.”
The contract, which began in June 2010, was front-loaded for the first five years with major infrastructure investment in roads, including the recent Queensway tunnel upgrades, and new LED street light installation.
The rest of the contract concerns maintenance of Birmingham’s 2,400km roads for the next 20 years.
A Birmingham City Council spokesman said: “We are currently in dialogue with Amey about the way the contract is managed and run and will hopefully come to an agreement in due course. We clearly therefore can’t go into any details.”
An Amey spokesman said: “Amey is committed to providing a high-quality, effective and efficient service to Birmingham City Council and those using the highways network in the city.
“Since the service began in 2010, Amey has met the required criteria for all milestone targets for highways improvements.
“We hold regular dialogue sessions with Birmingham City Council to identify continuous improvements to the service to ensure we meet the needs of the travelling public.”