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’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.