Firm shells out £17m in legal fees on problem contract

More problem contracts overseas sent group profit at Laing O’Rourke tumbling with the firm’s Australia business racking up a near £76m bill on one scheme which has seen it fork out an eye-watering £17m in legal bills alone.

The company also confirmed in its latest report and accounts that cumulative losses on a PFI hospital scheme in Canada had gone up again – to more than £219m – meaning that between them the two jobs, including lawyers’ fees, have cost the company more than £300m.

The job in Australia is not named but the firm said it related to a contract terminated during its 2017 financial year.


Business in Australia topped £1bn last year but a problem contract sent it into the red

Previously, O’Rourke has referenced a pay dispute with its Japanese partner on a huge gas station job in northern Australia. It was building four cryogenic tanks at the LNG Tanks Project in Darwin for lead construction partner Kawasaki Heavy Industries before its contract was ended in 2017.

It said the £75.7m exceptional item was made up of legal costs of £6.1m – meaning the firm has racked up a £17m legal bill on the dispute in the past four years – and a £69.6m “adjustment to the value of a contract asset in respect of a contract terminated during the 2017 financial year”.

Revenue from its Australia business in the year to March 2022 was up 27% to £1.1bn but the exceptionals helped send the division to a £6.2m pre-tax loss from a £27m profit last time.

> Also read: Executive brought in to replace Ray O’Rourke goes after less than a year

Income at its Europe hub, which includes the UK, Canada and the Middle East, was up 13% to £1.8bn although pre-tax profit slipped 3.5% to £56.3m.

Group turnover was at its highest level for four years at £2.9bn but the yo-yo performance of its profit over the same period – which climbed to £45.5m in 2020 – continued with Laing O’Rourke posting a pre-tax profit of just £2.7m giving it a pre-tax margin of less than 0.5%.

It said that its group order book at the year-end was up 14% to £9bn with £6.1bn of that coming from Europe, although the figure was flat on last year’s number. But upcoming workloads at Australia were up 81% to £2.9bn.

The firm said the average number of employees every month was close to 10,300, from the near 9,900 employed in 2021.

It also picked up a £4.8m R&D tax credit, while it made a £5.7m profit on the sale of its share in two joint ventures with the bulk coming from the disposal of its stake in a scheme to build a justice centre in Australia’s capital Canberra.

In the accounts, the business said a £35m revolving credit facility with sole lender HSBC was extended by six months to April 2024 while a £13m property loan was also extended to the same date.

Last year Ray O’Rourke, the firm’s chief executive, and younger brother Des, its group deputy chairman, agreed to allow £58.3m of loans to be turned into equity – although the £13m figure the pair handed the business through the property loan was retained.