Building roads is a tough business - and even trickier when it’s a winding lane expansion running through a gorge on the edge of a national park. So it’s not a major surprise Costain (COST) and the Welsh government have been in a dispute since 2017 over who should bear the costs of redesign work on the Heads of the Valleys A456 project.
In the meantime, people living in the area south of the Brecon Beacons park have had to deal with the delays on the A456 stretching well after the original 2018 finish date, and the government has had to shell out more cash.
Last week, an arbitrator found in the government’s favour. This caused a major selloff and will see the company’s underlying profit for this financial year come in at £17-19m instead of the £38-42m already-revised guidance.
“The arbitration award effectively splits the responsibility for the design information between both parties,” Costain said. Having “responsibility for the design information” means paying for the extra work involved in the road expansion. Costain has previously told investors additional scope to the project would add to the cost. The Welsh government said last year the project, originally budgeted at £220m, would cost an extra £55m.
The construction company itself made clear the difficulty of the project before it began. In 2012, Costain said the road expansion took in an area including Wales’ “only substantial tract of ancient beechwood” and a major limestone cave system, as well as protected geological features and heritage industrial sites.
Despite the dispute, Costain has continued to sign new road-building contracts. In October, Lancashire County Council hired the company to build the Preston Western Distributor road project.
But the company has also signalled a strategy change. New chief executive Alex Vaughan said earlier this year higher-margin consulting work would be the way forward, although the ‘leading edge’ plan still includes doing major infrastructure work for “blue-chip” clients.
