Allen has put the arm up for sale and admitted that it would have to put more money into the struggling division to attract buyers.
Finance director Neil O'Brien said: "We're not expecting to make any money from this disposal. In fact, we'll have to put some in." The sale comes as part of a radical restructuring process that also involves Allen selling its utilities division Ryan and taking on the name of its equipment hire business, Speedy Hire.
Allen's chief executive Ken Fox and chairman Ron Greenhalgh have quit to launch a bid for the building arm.
Allen's share price fell 18%, from 431.5p to 366.5p, within an hour of the news of the losses and the announcement of the restructuring plans. Analysts believe that the share price may fall further. The firm was expected to make a loss, but of only £2m.
All of Allen's building losses were at the York-based building subsidiary Turners after it won larger projects not usually taken up by the group.
Peel Hunt analyst Stephen Rawlinson said: "It's a real mess.
Poor tendering and poor management were behind the losses
Neil O’Brien, finance director, Allen Group
This is a company that just needs rescuing. Looking at it, there's obviously a problem with management." O'Brien refused to say how much Allen expected to pump into the building division to make it a saleable commodity. But he noted: "There was poor tendering and poor management involved [at Turners] and these were behind the losses." Ryan is also expected to lose £1.5m. In addition, Allen lost another £8m during the sale of its Allen Homes and Pearce civil engineering businesses last year.
Allen aims to turn the group round by concentrating on the equipment hire business.
O'Brien said Allen expected to sell the building division by July – about the time the new Speedy Hire name would come into effect.
Ryan is one of two companies, along with privately owned firm Kennedy Group, tipped to be a target for Alfred McAlpine.
O'Brien said Ryan was performing above market expectations and was on track to record a profit of £17m.