The £12m was a provision against possible losses on Railtrack maintenance and renewal contracts. However, the contractor said it was confident that it could recoup the money within three months, once negotiations with Railtrack had finished.
The reassurance did little to stop the company's shares tumbling, and, at the close of trading on Tuesday, they had dropped 35% from 494p to 322.5p.
In a presentation to analysts, Jarvis said a large amount of the money under dispute was for repairs to tracks that were damaged because of an increase in the number of trains running. Negotiations over Jarvis' fees for the extra work had "unexpectedly faltered" in the days before the contractor was due to announce its annual results.
Chief executive Paris Moayedi said: "This has given us a lot of embarrassment because we have failed to live up to the expectations of the City, which had expected £12m more profit." Analysts said they now had doubts over whether Jarvis could continue to win the high-margin work it had thrived on in recent years.
Moayedi disagreed: "If the emphasis of Railtrack's procurement is on margins, they can get someone cheaper, but if it is on productivity and reliability – as we expect with them – we won't have a problem." Railtrack said Jarvis was "a consistently high performer", adding that its relationship with the contractor remained "strong". It is also holding "detailed discussions" with Jarvis over work on the West Coast Main Line project.
Jarvis' pre-tax profit before goodwill fell 13% to £41.6m for the year to 31 March 1999, even though turnover rose 76% to £627.9m.
The £12m in dispute contributed to total losses of £40m in turnover and £21m in operating profit.
Jarvis said industrial action and Railtrack's decision to defer renewal activities were responsible for the rest of the losses.
Moayedi said Jarvis had performed well despite the problems, reducing train delays by 24% above the industry average. He also said the group had been rated first in nine of Railtrack's last 13 monthly reviews of contractor performance.
Because of the way its contracts are reviewed, the dispute came at a particularly bad time for Jarvis. It has two types of annually negotiated contract with Railtrack: one for infrastructure maintenance (RT1A), the other for track renewals (RT16). Whereas maintenance contracts are reviewed every year from 1 April, RT16 contracts are not renewed until 1 June.
A source close to Jarvis said that, two weeks ago, when the parties were nearing agreement on a figure for maintenance work, Railtrack pressured the contractor to rush through a lump-sum deal to include the track renewal figures. But because the year had only just ended on that contract, Jarvis did not have time to make thorough calculations and so refused to sign. This meant that it had to make a generous provision of £12m.
