Update on the A465 contract

Costain Group PLC

("Costain" or "the Group" or "the Company")

Update on the A465 contract

3 September 2020

Further to the announcement on 17 August 2020, Costain received yesterday the latest arbitration decision in relation to the Group's contract with the Welsh Government for the construction of the A465 Heads of the Valley road which was entered into in 2015 (the "Contract").

As previously announced, the Welsh Government had escalated a specific matter under the dispute resolution mechanism in the Contract relating to the responsibility for design information for a specific retaining wall and whether it qualified as a compensation event. This issue was decided in the Company's favour by way of previous adjudication awards. However, the arbitrator's decision found that responsibility for the design information rests with Costain and, consequently, the additional costs associated with the building of the retaining wall is not a compensation event under the Contract. Costain is disappointed by the arbitration award which reverses the ruling of previous adjudication awards. The arbitration award, which determines a matter of principle only, and not quantum, is non-appealable.

Although the arbitration award relates to the liability for the additional costs associated with the building of a specific retaining wall under the Contract, it has implications for the responsibility for design information under the whole contract and therefore Costain's ability to recover these costs.

Costain is in ongoing discussions with the Welsh Government to reach agreement on a final financial settlement and to seek recovery of costs under the Contract.  However, on the basis of the uncertainty of recovery of such costs following yesterday's arbitration award, and subject to reaching a final settlement, the Group's half year results for the period to 30 June 2020 will include a charge to the income statement of c.£45 million to adjust the revenue recognised based on the level of cash received to date under the Contract. Costain will continue to fulfil the Company's obligations under the Contract, with completion scheduled in 2021.

The Group will announce its half year results on 14 September 2020, as scheduled.

This announcement contains inside information.

The person who arranged for the release of this announcement on behalf of the Company was Tony Bickerstaff, Chief Financial Officer.

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Notes to Editors

Costain helps to improve people's lives with integrated, leading edge, smart infrastructure solutions across the UK's transportation, water, energy and defence markets. We help our clients improve their business performance by increasing capacity, improving customer service, safeguarding security, enhancing resilience, decarbonising and delivering increased efficiency. Our vision is to be the UK's leading smart infrastructure solutions company. We will achieve this by focusing on blue chip clients whose major spending plans are underpinned by strategic national needs, regulatory commitments, legislation or essential performance requirements. We offer our clients leading edge solutions that are digitally optimised through the following five services which cover the whole lifecycle of their assets: future-shaping strategic consultancy; consultancy and advisory; digital technology solutions; asset optimisation and complex programme delivery. Our culture and values underpin everything we do.

For more information visit www.costain.com