A long-running legal dispute between Birmingham City Council and its highway contractor Amey has contributed to a plunge in the company’s profits.

Amey has set aside £55 million to cover the potential costs of an ongoing dispute over the quality of its highway repairs.

The firm has a £2.7 billion contract to repair and maintain Birmingham’s roads and pavements until 2035 but has been locked in two legal disputes with the city council since 2014.

The city council claims the repairs and resurfacing work is not up to scratch while Amey has lodged a counter-claim that the highway network it inherited from the council in 2010 was in a worse condition than it expected.

According to the firm’s annual financial report: “Cash collections in the local government sector have proved to be particularly challenging this year, a position which has been exacerbated by the ongoing litigation on the Birmingham contract.”

Its local government contracts division has recorded a £41 million loss in 2015, compared with a £56 million profit the year before.

The city council is attempting to invoke penalty clauses in the contract and if successful would be due a payout.

The contract, the largest in local government history, is also undergoing a renegotiation following council cuts and the change of council leadership last December.

Labour cabinet member for contracts Coun Majid Mahmood (Hodge Hill) said: “We do not have an accurate value for the dispute but it is certainly in the tens of millions of pounds.

“The dispute concerns the extent of the core investment works that Amey has carried out, particularly on footways.

“We considered it is insufficient and referred the matter to adjudication under the dispute resolution procedure in the contract in May 2015.

Cllr Majid Mahmood

“The adjudicator found significantly in the council’s favour.

“Amey referred the matter to the High Court and it was heard in February this year.”

He said the result was expected soon.

“Once we receive the judgement, it will need to be reviewed before we determine our position. It is likely to be complex,” Coun Mahmood added.

The dispute arose in 2014 as councillors and officials became increasingly frustrated by what they saw as a fall in the standard of service from the highways firm.

They complained standards had slipped since the start of the contract in 2010.

But Amey has insisted its work had remained of the same level since the start of the contract.

Both parties have stated that they aim to make the partnership work despite the legal wrangles.

Watch below: Major potholes in Birmingham

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