Jarvis back on the defensive as new problems emerge

Jarvis, a controversial player in the private finance initiative arena, was on the defensive again last night after evidence emerged of late payment, trouble with key contracts and new question marks over its accounts.

Shares in the support services group now chaired by London mayoral hopeful Stephen Norris, plunged 24% to 139p as the City feared a profit warning and rights issue could be on the way.

The Specialist Engineering Contractors Group (SECG), which represents 8,000 engineering groups, said it had received a spate of complaints by members about Jarvis.

One company is reported to have waited five months for £90,000 while it emerged that schools in Wirral, Kirklees and Haringey were in dispute with Jarvis over delays or other problems with PFI contracts.

The company's public relations department - which has trebled in size over the past two months - dismissed the furore saying it was a storm in a tea cup.

"We have had 12 complaints by members of the SECG out of thousands of sub-contractors we use," said Jonathan Haslam, a Jarvis public relations adviser who formerly worked for John Major when he was prime minister.

"Like any other company with a turnover of £1.2bn we have had a few issues with some projects but anyone in construction knows there will always be a few problems and they are all being dealt with."

Jarvis said £80,000 of the £90,000 was to be released, but only after 12 months subject to the contractor making good any defects. This was only part of the normal practice of "retentions" in the building trade, it added.

The company also claimed to have now handed over a new sports complex at Fortismere school in Haringey - while the difficulties at the Wirral and Kirklees were being sorted out.

Jarvis is already engulfed in a series of well-known problems, being asked to hand over rail maintenance contracts and missing out on a series of new PFI deals in the health sector.

City analysts raised a host of other issues such as potential changes in VAT rules and unanswered queries about the first-half results.

The most damaging was a note from ABN Amro analyst Mark Howson which warned Jarvis could potentially break its banking covenants in March next year if it does not recover £24m it says it is owed by Network Rail.

"We believe there is a risk that some of this may not be recoverable. We are also concerned that investors may interpret these issues as a repeat of the accounting problems that were identified in the court case Jarvis v PwC," said Mr Howson.

But he was not the only one to express alarm. Another analyst who did not want to be named said Jarvis was facing a real squeeze with contractors wanting earlier payments while the company was having difficulty winning new contracts because its reputation had been soiled by Potters Bar and other issues.

Jarvis dismissed the VAT issue as "irrelevant" but refused to comment on the potential for a profit warning or rights issues.