More than 20 jobs are at risk as the contractor has run-up losses during its first year of 25 on the job.
A letter to staff – seen by the Sheffield Star – said although Amey is meeting targets to resurface and repair roads across city, “the costs incurred are significantly greater” than projected.
The letter said: “This means that projected losses are expected at £540,000 for the end of the first financial year. In real terms, this could potentially remove 21.7 jobs, to be cut from highway maintenance.
“The current arrangements are financially unsustainable over the lifetime of the contract and are currently presenting a major financial risk.”
Amey said it hoped to reduce costs by making “significant changes” to working practices.
Highway maintenance teams will bear the brunt of the changes with employees reduced from 75 to 62. But staff are set to be given the chance of redeployment elsewhere within the firm.
Staff being redeployed will have their pay protected for two years, Amey said.
Coun Jack Scott, Sheffield Council cabinet member for environment, said: “We understand there will be no compulsory redundancies.”