Babcock is to axe 25% of the workforce at its rail construction and renewals business.
The firm blamed the Office of Rail Regulation (ORR) for agreeing a reduced settlement of £28.5bn with Network Rail for Control Period 4 covering 1 April 2009 to 31 March 2014.
Babcock said it anticipates £22bn will be spent on infrastructure renewals and upgrades, but that Network Rail will need to identify and implement savings in project delivery costs of over 20%, including changes to core track renewals.
The firm has restructured its rail business at a cost of £4m, and is reducing headcount in the 1,600-strong division by 25% during the second quarter of 2010. The number of operating locations across the North West are being rationalised.
The news will come as a blow to workers from rival Jarvis, who were laid off when it went into administration but were hoping to find employment with other rail contractors.
Overall, Babcock's rail division made a £1.2m operating loss during 2009 (2008: £6.4m), and saw revenue drop to £150.7m (2008: £228.9m).
“This was mainly due to our withdrawal from the multi-disciplinary contract market but also due to the loss of the High Output Track Renewals contract that we had successfully operated for Network Rail for five years through our SB Rail joint venture with Swietelsky,” Babcock said in a statement.
The firm added: “Our framework contracts in track, signalling and telecoms continue to provide a stable platform for the business.
“In support of Network Rail's cost reduction targets we are discussing a move to a single incentive-based contract for track renewals in North West England and Scotland replacing the separate contracts which existed previously.
“We have also recently secured one of only three telecoms framework contracts for the next 12-18 months positioning us strongly for the next long-term contract which we anticipate should be awarded before the end of this financial year.”
Babcock's statement concluded: “Although Network Rail's spend will reduce we believe there are a number of significant opportunities available to us. However, our key imperative will continue to be the ongoing transformation of the business to deliver reduced costs, improved operational performance and increased safety.”