Contractor claims former shareholders of Eastern Contracting Holdings duped it into paying double its value.

Alfred McAlpine is suing the former shareholders of subsidiary Eastern Contracting Holdings, claiming it was duped into paying £5m too much for the company.

Alfred McAlpine claims that the shareholders provided false and misleading warranties and overstated profit when it bought Eastern Contracting Holdings in 2002. It has issued a High Court writ against five former ECH shareholders, claiming the £10.2m it paid for the company was double its true worth.

News of the dispute comes at a bad time for McAlpine, after it last week revealed a £27m loss associated with its utilities business and two construction contracts.

The writ, issued by Alfred McAlpine Utility Services Group, claims that five ECH shareholders provided false, inaccurate and incomplete warranties when McAlpine’s acquisition of ECH took place, and overstated the company’s gross profit. The shareholders named in the writ are Michael Dodson, Andrew Smith, Mark Jones, Andrew Mayes and Alan Ward.

A source in the City said that although McAlpine had done well in securing the warranties (a relatively uncommon process), it seemed the firm had been fooled. Some have called into question the rigour of due diligence undertaken by McAlpine.

The writ states that £300,000 had to be written off after the acquisition and that there were more than 3000 missing time sheets. It also claims a pension surplus adjustment had not been made and accountancy costs were not included in ECH’s estimate. McAlpine is also suing over mileage claims, hire charges, rent and obsolete stock.

An Alfred McAlpine spokesperson said that ECH had performed below expectations since the acquisition, although he denied this had had a big impact on group performance.

The spokesperson added that McAlpine was continuing discussions with the shareholders in the hope of reaching an amicable settlement.