Balfour Beatty has announced the extent of financial problems affecting its construction arm, claiming a trading loss of £391 million for 2014. This dreadful slump has had a significant knock on effect on Balfour Beatty as a whole, resulting in a £59 million loss on the company’s £8.4 billion turnover last year.

Under new management

The troubled construction wing is now under new management, steered by Balfour Beatty chief executive Leo Quinn, a former civil engineer. Quinn has cancelled dividends for 2015 and claims blame for the branch’s current distress lies “in the sins of our fathers.

Who’s to blame?

The fundamental issues, he claims, are the result of “silly, not very businesslike decisions” which were made by the firm following the UK’s economic recession. These decisions have left Balfour Beatty with a substantial number of problem contracts, which resulted in a £70 million write down in January 2015, followed by a £118 million write down on problem contracts in recent weeks.

Over-expansion, over-complexity

Prior to the recession, Balfour Beatty’s construction wing undertook a fast, fourfold expansion, which led to an messy, problematic system, plagued by inefficiency while struggling to control costs and project bidding. When the downturn hit, the knock-on effect on the UK’s construction sector led to significant restructuring, turning many of Balfour Beatty’s contracts into loss-making problem contracts.

The two year plan

But Quinn is taking a tough stance on the troubled division. Not only has the chief executive cancelled final dividends, he has also implemented a challenging two year “Built to Last” initiative, which will see the group’s property portfolio streamlined, non-front line delivery functions consolidated, duplication eradicated and efficiency championed.

The challenge may loom large, but the approach has won the confidence of The City, as Balfour Beatty’s shares rose 6% following Quinn’s statement.

What do you make of Balfour Beatty’s track record in construction? Was this loss avoidable? Will it have a knock-on effect on your work? Share your experiences and opinions with other readers below.