The group is to close one office and has brought in a new managing director to stem the losses, which were blamed on several large contracts in Yorkshire.
The losses contributed to a steep drop in pre-tax profit, which plummeted 95% from £10m to £540 000 for the six months to 1 October. Turnover rose £1m to £171.5m. Shares in Allen, which are listed on the support services sector of the stock exchange, fell 13% to 213p.
Chief executive Ken Fox described the construction losses as "extremely disappointing". He said one was on a £10m contract and would affect Allen's 2001/2 results. He said: "This is not a five-minute job to get things right."
Fox said Nick Davies, the Mansell man who has been appointed managing director, was tightening audit procedures. He said: "You cannot blame the problems on the market. We got it wrong. Some of it must be down to management, which cannot have got the risk pricing right."
Fox emphasised that the other regions in construction were profitable. The £2m losses in Yorkshire were offset by a £900 000 profit for the rest of the division.
This is the first time in the group's 54-year history that the group had recorded construction losses.
The Allenbuild Projects Keighley office, largely responsible for the loss-making contracts, is to be wound up with the loss of 12 management posts. Allen will maintain its Allenbuild Yorkshire local office.
You cannot blame the problems on the market. We got it wrong. Some of it must go down to the management
Ken Fox, Allen Chief Executive
Fox said the firm was intending to spin-off its Speedy tool hire arm into a separate quoted company by the end of the financial year in March.
He said this would leave a construction and utility group worth about £200m, and which would still be quoted. Allen's Utility arm also has a new boss – Mike Rowan joined as managing director from Balfour Beatty in September.
Fox said the spin-off plan followed a 15% rise in sales in the six-month period, leading to the group claiming it was the second largest player in the tool hire sector in the UK.
Speedy has agreed a supply contract with Mowlem and Tilbury Douglas and Fox predicted that more would come as clients consolidate the number of preferred suppliers.
This week's announcements caps a hectic year for the group, which sold its housing arm to North-west housebuilder Morris Group for £23.8m in August. It also sold its scaffolding subsidiary to a management buyout and its sheet piling stake.
The month after, the firm said it would sell or close its civil engineering subsidiary G Pearce. This week the group said it was in discussions to sell the firm.