Outlook: One of the areas that KPMG has been asked to scrutinise is Balfour’s 'contract value forecasting'

Balfour Beatty is beginning to look like the Tesco of the contracting world. Britain’s biggest builder unveiled its fifth profit warning in just two years yesterday, informing investors that 2014 earnings will be £75m lighter than previously thought. And, like the tottering supermarket giant, Balfour has called in some external number-crunchers to scrutinise its financial operations (although in Balfour’s case there is no suggestion of “creative accounting”).

The builder seems to be leaking profits right across its operations: £30m from engineering services, £20m from London building work, £15m from regional construction, plus £10m from big infrastructure jobs. Balfour sucked in £8.7bn of revenues in 2013 but, as this latest fiasco underlines, a relatively small number of contract blow-ups can cause a crisis when margins are slender. Balfour’s woes seem to be the legacy of some recklessly low bids for UK construction work made during the downturn. Weak delivery and indiscipline on costs have made matters worse.One of the areas that KPMG has been asked to scrutinise is Balfour’s “contract value forecasting”. As a Goldman Sachs analyst pointed out yesterday, valuing infrastructure deals is supposed to be a core skill of contractors like Balfour. If the board needs “reassurance” from KPMG about these estimates, that suggests something has gone very wrong at the heart of the business. Don’t they trust their own team?“It isn’t about trust, the problem is we have all been surprised,” insisted the executive chairman Steve Marshall in a call to analysts yesterday. Investors are likely to draw a different conclusion.A ship without a captain makes an unappealing voyage for shareholders. There has been no chief executive at Balfour since Andrew McNaughton stepped aside in May after profit warning number three. Mr Marshall is departing too. A new chief executive will be appointed “as soon as possible”, we are told. But why has it taken so long?

Maybe the board had trouble attracting suitable candidates, which wouldn’t be surprising given that whoever takes over will inherit a pre-set strategy. Balfour is still planning to complete the sale of its American design and engineering consultancy, Parsons Brinckerhoff, to Canada’s WSP Global for £820m next month. A huge amount is now riding on the sale. Around £200m of the proceeds have been earmarked for a special dividend for shareholders, which has lent some support to the share price in recent months. The rest will go to reducing Balfour’s £500m net debt pile. That’s probably sensible given that the company is more highly geared than rivals and the interest rate cycle is probably on the turn. But Mr Marshall refused to put an exact number on the cash return yesterday. And the final-year dividend will also be reviewed after the disposal. Not what the City wanted to hear.

The company’s medium-term future could also hinge on the deal’s aftermath. When Balfour’s board rejected a merger with Carillion earlier this year, it cited the need to carry on with the Parsons sale, which its rival wanted to halt. Balfour thinks the US business doesn’t fit with its focus on UK construction; Carillion apparently believes it offers useful earnings diversification. If Balfour turns out to be wrong, it may not be independent for long.

Balfour’s shares shed 15 per cent of their value yesterday, taking the market capitalisation down to just £1.3bn. Carillion could pick up its bigger competitor for much less than it budgeted for in May, when it made its first approach. Under the takeover rules, Carillion cannot come around for another go until February 2015. Just as well: it would probably have waited for the independent accountants to report first in any case. As with Tesco, the signs are that there is worse still to come.