Massive loss incurred by UK arm of Japanese contracting giant adds to PFI ‘stigma’ in build-up to election

The UK arm of Japanese contractor Kajima is set to make a massive £80m loss because of problems on its PFI schools contracts.

Building has learned that the company will report the loss in mid-May, when it announces its annual results for the year to 31 March 2005.

The news comes at a sensitive time for the government, given the importance that education is likely to play in the election campaign. Senior industry sources this week said that work on PFI schools was becoming a “stigma”.

Kajima, like support services contractor Jarvis, is thought to be suffering as a result of underpricing bids for schools projects that it subsequently won.

However, Kajima in the UK has the protection of its Japanese parent, which has a turnover in excess of £5.8bn, and is therefore unlikely to suffer the fate of Jarvis, which has been forced to sell off most of its business. Kajima’s UK business is run by ex-Jarvis man David Evans and has a turnover of about £100m.

A spokesperson for Kajima Europe, which predominantly undertakes PFI work in the UK, confirmed that losses on PFI schools would be in the region of £80m, but would not disclose details of specific schemes.

A statement from the company said: “Kajima Corporation, Tokyo, will report the consolidated profits and losses in mid-May as usual, but there will be some losses reported due to issues within the UK construction arm of the company, including difficulties with some of the PFI schools contracts.”

The statement added that Kajima Europe would review the company’s structure and selection process over the next year.

It said: “Kajima Europe – both in terms of construction and other business units – has already begun a process of streamlining, which will involve strengthening and reinforcing the quality of our teams in the next 12 months.

“The company has already begun a process of being selective about the appropriate size and scope of projects we bid for. We are committed to getting on with the projects in hand.”

Kajima Europe has already begun a process of streamlining

Kajima statement

Kajima’s PFI schools portfolio includes the £19m Haverstock school in Camden, north London, Darlington council’s £27m Grouped Schools Project, and Wooldale Centre for Learning in Northampton.

The company remained upbeat about the PFI procurement route.

It said: “PFI is still a relatively new concept and while there have been some teething problems, financially, we are confident we can solve these issues going forward. PFI is an exciting yet complex sector and we have learned lessons that we are already applying to current and future bids and projects.”

Laing O’Rourke boss quits

Laing O'Rourke staff were notified by email last Friday that managing director Brian Cheshire will leave the firm after more than 30 years.

In a statement, Laing O’Rourke said: “Brian Cheshire, business leader of Laing O’Rourke Midlands, has decided to leave the organisation at the end of April. The board was unable to persuade him to perform an alternative role within the group and therefore regrettably accepted his decision. Brian’s involvement with Laing and latterly Laing O’Rourke spans 32 years. He has led the Midlands business through recent years and has made Laing O’Rourke the major constructor in the region.”

One company source said: “Brian is a very well-liked manager, a real people person. He’s an old Laing man so people will be watching the nature of his departure with interest and it could spark further departures.” It is not yet clear who the replacement will be.

In a separate development, Andrew Lezala, Jarvis’ chief operating officer, was this week the latest in a string of senior management to quit the company. He will leave Jarvis in June, when he will take up his new role as chief executive of London Underground company Metronet. Jarvis said in a statement that it had started to look for a replacement.