Staff start to circulate CVs as contractor takes £70m profit hit and pulls out of £90m Scottish schools contract

Mowlem chief executive Simon Vivian blamed problem contracts for many of the firm’s difficulties when he announced that it was cutting its expected profit for the year by £70m.

The disclosure comes as it emerged that Mowlem had dropped its bid for a £90m PPP schools project in Falkirk, Scotland.

This setback follows on the heels of the firm’s failure to hand over five schools in Exeter for the start of the autumn term. Vivian said delays stemmed from client changes to the design.

Vivian added that the contracts that will be affected by the £70m cut in profit were all related to building, infrastructure and engineering, and that some of were PFI jobs. None are support services contracts.

Mowlem’s most high-profile difficulties have been at Bath Spa. Vivian noted that Mowlem’s difficulties had not altered its determination to institute legal proceedings against Bath and North East Somerset council over the Bath Spa project, which is five years late and £27m over budget (see below).

Mowlem withdrew from the project earlier this year and is pursuing the council for time and cost overruns. The sums being sought by both sides are understood to be in at least six figures.

Vivian said simply: “We are very confident of our position.”

According to sources at rival contractors, news of Mowlem's losses has led many staff to circulate their CVs in anticipation of future job losses.

Questioned over whether Mowlem might sell on other projects, Vivian said: “We are looking at a range of alternatives and we wouldn’t rule anything out.”

He hinted that Mowlem might also have to review its position on Procure 21, the framework scheme for PFI health work. Mowlem, which is part of a consortium on the framework that also includes Amec and Costain, has received little work from Procure 21.

He said: “There is not much happening, the whole programme seems a bit stalled so it is something we’ll have to look at.”

However, Vivian confirmed that Mowlem is still committed to the £4bn Allenby & Connaught MoD accommodation project for the army.

We are looking at a range of alternatives and we wouldn’t rule anything out

Mowlem boss Simon Vivian

Mowlem had been bidding for a £90m Scottish schools contract in Falkirk as part of a consortium headed by consultant Cyril Sweett, which is up against a consortium of local firms called Gateway PFI and another consortium headed by Skanska.

Mowlem chief executive Simon Vivian said that the firm had pulled out of the Falkirk deal because it did not like the contract terms. He said: “It is expensive to bid when you’re up against four or five others.”

The council recently received approval from the Scottish executive to set up a “non-profit distribution organisation” in place of the expected PPP contract. Under the terms of the contract, all profit made by the winning consortium must be reinvested in the schools and the local community. At the end of the contract, ownership of the buildings passes to the council.

A spokesperson for Falkirk council said that it was waiting for Cyril Sweett to appoint a replacement and would evaluate the situation when it did.

n Consultant Capita Symonds, which took over the running of Bath Spa after Mowlem was thrown off the scheme earlier this year, has published a £1.3m catalogue of jobs that need to be done on the ill-fated project.

Jonathan Goring, Capital’s project director, said some of the faults had “come as a surprise to us and to the council”.

The main problems that will have to be rectified include defective panes in the glass surround wall.

Leaks in the floors have proved to be worse than first anticipated. As more flooring came up the scale of the problem has grown.

Other problems are that there are a number of areas where galvanized steel was used instead of stainless steel.

The wiring does not match the wiring diagram.

However, Goring said the news would not affect the planned opening date of April next year.