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Railtrack's demise raises non-payment fears

News

CONTRACTORS WORKING on UK railway projects last month expressed concern over non-payment after track operator Railtrack was put into administration.

Following the collapse of Railtrack at the beginning of October, Ernst & Young is now transforming the firm into a not-for-profit company limited by guarantee.

The accountancy firm will keep Railtrack running, collect subsidies and track access charges and pay contractors until Railtrack is handed over to a new owner.

But contractors warned that administrators only need honour contracts if it is in Railtrack's interest.

One top consultant feared that early auditing of where money was going would lead to contracts being reviewed and some being ditched. It added that the industry was already facing a downturn because no new contracts had come through, leading to fears that work had been frozen.

The Association of Consulting Engineers (ACE) has issued guidance to all its members, telling them to check their contracts. The ACE advised members to establish whether Railtrack is actually the client and, if it is, to take legal advice.

Railtrack insisted contracts would be honoured. It has sent out letters to worried suppliers saying it is business as usual. Senior Railtrack staff were reported to be phoning up main contractors urging them to pay their subcontractors.

Railtrack was forced into administration after transport secretary Stephen Byers withdrew government support, terminating an agreement to accelerate £1.5bn of subsidies.

One banking source close to the rail sector said several key issues had to be resolved before any new company could be set up. These included repaying Railtrack's £3.5bn debt. The government estimated it would take six months for administrators to sort out Railtrack's affairs, but industry insiders said this timescale was unrealistic.

Ernst & Young's first task was to ensure key engineering and safety staff remained on board to fulfil safety obligations, a spokesman said. The administrators stressed there will be no initial job losses.

Industry sources said keeping engineering expertise on the board of the new company was essential.

Failure to do so has been cited as a key reason for Railtrack's demise.

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