‘Cautious’ Costain writes down £50m

Costain has made a £50m writedown after revealing problem contracts in its building, coal and gas divisions.

Costain has refused to name all the disputed contracts, but Building understands that they include the Channel Tunnel Rail Link extension at King’s Cross. Costain has admitted to cost overruns at a $150m (£77m) nitrogen rejection plant in Mexico.

Tony Bickerstaff, Costain’s group finance director, told Building: “We said we wouldn’t shy away from the difficult decisions and this announcement is very much that strategy coming into play.”

However industry sources have said that, because of the recent loss of senior staff, the new management team has taken an extremely cautious decision.

A senior industry source said: “Costain lost a few senior guys, so when the management begins to look at money owed on its existing contracts it will be difficult to say exactly how much it will recoup. But a £50m writedown still looks like a very safe figure. It could be a way of being able to demonstrate a much healthier position next year.”

A source close to Costain questioned the cautious accounting approach, and said they were “quite amazed” by the statement. The source said that, although it is dangerous to assume that a contractor will retrieve all the claims it has with clients that make changes to the brief, it is “equally bad to indulge in over-pessimism, as it will only cause results to leap up and down, providing an unrealistic view of the business’ health.”

A city analyst was more open in his criticism. He said: “My view is very jaundiced. I think it is very poor to come out with this so soon after they reviewed the situation earlier this year.”

Costain has made a £36m writedown against disputes in which it does not expect to get its money back. The contractor has made a £5m provision against disputed contracts in its building division, a £6m provision for the closure of its international division and £3m for the Mexico project.