Birmingham City Council has rejected a £245m payoff offer from Amey in order to settle a long-running dispute over a 25-year PFI contract for the city's roads and bridges, according to reports.
The standoff with the local authority could put the security of Amey's future at risk.
Some have speculated that the situation could also interfere with the delivery of the Commonwealth Games although the council has denied this.
Reports have suggested parent company Ferrovial could remove support and financial backing from the troubled contractor.
The Spanish giant is trying to sell Amey and recently slashed the asking price by £660m leaving it valued at £88m.
As well as the Birmingham debacle that saw Amey lose a costly legal case over its interpretation of the contract, it also looks set to part ways with Trafford Council on its 23-year joint venture contract.
A council scrutiny committee has found a series of problems with the contract, including poor performance, failure of the self-monitoring aspects and poor communication. It recommended the council ‘consider alternative models of service delivery... with a view to ending the contract with Amey’.
Amey is also involved in a dispute in Sheffield with subcontractor Aggregate Industries - over difficulties in its PFI in Sheffield. According to report, Aggregate Industries initially made legal claims amounting to £32m.
A Birmingham City Council spokesperson said: 'We take contract management very seriously and where a contractor is found to be underperforming then appropriate action will be taken. We remain in discussions with Amey to find the best way forward and this current position will not impact on the delivery of the Birmingham 2022 Commonwealth Games.'
An Amey spokesperson said: 'As we have said before, the ongoing dispute in relation to the Birmingham Highways PFI deal remains. We are committed to reaching a resolution which is in the best interests of all sides, and importantly delivers for the people of Birmingham as they look forward to hosting the Commonwealth Games in 2022.
'We have worked hard with a range of stakeholders to achieve this but so far have not been able to reach agreement. If we do not reach a settlement we will continue to meet our obligations under the contract for the remainder of its term to 2035.'