Points error led to the end of the line for Jarvis

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The end of the line for Jarvis as Britain's biggest rail maintenance contractor came not yesterday but one morning last month as Tony Blair travelled to Kent to open the first phase of the high-speed Channel tunnel rail link to central London.

The occasion was to be a celebration of British transport engineering and that the £5bn project was on time and on budget. In the event, it was overshadowed by something that had happened earlier in the day.

As the first GNER inter-city express chugged slowly away from platform 4 at King's Cross station on its way to Glasgow, the driver ran out of track and the train came off the rails, causing chaos for several days. A contractor doing overnight line repairs had failed to reset the points to prevent trains using that track. The contractor was Jarvis.

Mr Blair was not best pleased. "Jarvis rained on the Prime Minister's parade," as one observer put it. But Alistair Darling, Secretary of State for Transport, who was at Waterloo for the Channel tunnel link celebrations, was even angrier, and immediately ordered Network Rail to investigate.

What alarmed Network Rail was that it was a carbon copy of an incident this year in Rotherham. It began a special audit of Jarvis's rail maintenance, covering a quarter of the network, to establish whether there was a "systemic" problem. This involved walking every mile of track maintained by the company and inspecting every job. "We were looking over their shoulder as they worked," a Network Rail executive said.

At the same time, Jarvis made its own business review of its rail maintenance contracts, which account for 15 per cent of the group's £1.2bn turnover and £12m of profits a year, and concluded they were too low in profit and too high in risk.

Last Monday, Paris Moayedi, the company's chairman, and Steven Norris, a former Conservative transport minister who acts as Jarvis's senior independent director, went to Network Rail's headquarters in Euston to "hand back the keys". They found themselves pushing at an open door.

As one Network Rail source puts it: "It was clear the way the audit was going. If I had to sum it up I would say Jarvis jumped before they were pushed. Let's put it this way; we did not make any effort to persuade them to stay in rail maintenance."

Network Rail says the taxpayer will be a winner because it will no longer have to pay Jarvis a profit margin. And yesterday, at least, Jarvis's investors were also winners. The company's share price rose 5 per cent after the City decided it is better off out of rail maintenance, where every incident attracts unfavourable banner headlines.

Longer term, the fallout could hurt Jarvis, which generates half its total profits from the privatised railways. It is also the country's biggest track renewal contractor and a member of the Tube Lines consortium which has taken over part of London Underground. As King's Cross showed, the risks can easily outweigh the rewards.