The contractor is now reviewing the future of the division which will be slimmed-down.

Balfour confirmed a “further worsening” in the Engineering Services division which amounts to a further £35m profit shortfall.

The firm unveiled a £30m profit warning earlier this year with £20m blamed on Engineering Services.

Balfour Beatty Engineering Services managing director Phil McGuire left the business following the original announcement.

Balfour said its overall profits will be unchanged with the new M&E shortfall offset by by disposal gains on PPP operations.

But today’s news will stun the City following a string of revelations over problem contracts at the UK’s largest contractor.

The latest shortfall has come to light following the appointment of a new management team who have been examining existing contracts.

Balfour said: “As a consequence we have identified a further £35 million profit shortfall within Engineering Services.

“£30 million of this relates to a small number of existing contracts, predominantly in the London area: £20 million from a further deterioration in the projects previously highlighted, and £10 million due to issues identified on other contracts.

“A number of factors have contributed to this further deterioration. These include design changes, project delays, rework on projects and contractual disputes on a number of projects.”Balfour said new orders are slowing down and the whole M&E business is under review.”

It added: “Given these issues, we are reviewing the size and geographic footprint of the business with the aim of ensuring a smaller, more focussed business.

“In central London, Engineering Services will only be working with Group companies where it can influence design and add value for customers.”

Balfour’s share price fell 13% in early trading this morning.