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Oxford council in talks on whether to retain Carillion contract

* Oxfordshire in talks over Carillion management contract

* Council ended large chunk of up to 700 mln pound contract

* Carillion hit by profit warning, CEO departure last week

* Carillion shares down 3.9 pct, after Tuesday bounce

July 19 (Reuters) - Oxfordshire County Council, which last week ended much of a 10-year 500 million pound ($652 million) contract with Carillion, is now debating the future of a facilities management deal with the crisis-hit British construction firm.

"What we've discussed with Carillion is that we're going to review what's best," Alexandra Bailey, director of property, assets & investment at the council, told Reuters.

The council terminated portions of its Carillion contract relating to strategic asset management services and design and construction on July 11, however it kept the company on for facilities services such as catering and in-house cleaning.

Carillion revealed a 845 million pound writedown on July 10, prompting a profit warning and the exit of its chief executive.

The company last week defended its ability to keep servicing customers and said it would engage in discussions with key clients. It won three government contracts this week, including two slots of work for Britain's High Speed 2 railway.

Carillion's problems echo those of Balfour Beatty, which went head-to-head with competitors to take on projects at wafer-thin margins during the recession. It later failed to meet savings targets or budget forecasts.

The company had held high hopes for the Oxfordshire contract, saying in September that it had put forward extremely competitive prices to bid for the work and expected that the council would use the contract wherever possible.

Carillion, which has been increasing its exposure to support services, originally had an option to extend the contract to 20 years and potentially secure work from other councils and bodies within Oxfordshire worth up to 200 million pounds.

COMMERCIAL SENSE

However, the council said last week that it would exit a large part of its Carillion contract -- expected to be worth up to 500 million pounds over its 10-year tenure -- as the deal made less commercial sense now than when it was awarded in 2012.

The council estimated that the contract was worth 50 to 60 million pounds each year, implying Carillion may miss out on over 300 million pounds if it loses all the business.

It will cease carrying out strategic asset management services, which includes deciding what to retain and what to sell from county assets such as libraries, fire stations and children centres and services such as IT delivery, from Aug. 1 and stop carrying out design and construction from September.

"We looked at our Carillion contract and to be honest for now it doesn't quite fit," said Councillor Lorraine Lindsay-Gale, the cabinet member for property of the council, which did not incur any cost in ending the arrangement early.

A spokesman for Carillion declined to comment on Wednesday on the contract, saying the company could not talk about existing customers. The contract was the largest of its kind in the UK when it was awarded.

The council said that it had begun looking at the contract nine months ago, before the problems at Carillion surfaced.

"I suspect what you will see throughout the public sector is more and more people moving into positions like ours as they watch their policies in some of their markets," Councillor Lorraine Lindsay-Gale, the cabinet member responsible for property at the council, said. ($1 = 0.7673 pounds) (Reporting by Esha Vaish in Bengaluru; editing by Alexander Smith)