The contractor had expected 2019 full year underlying operating profit to be between £38m and £42m.
That has now been cut to between £17m and £19m.
The contractor issued a trading statement today detailing latest developments on its design dispute with the Welsh Government over its A465 Heads of the Valleys road project.
Initial adjudication proceedings ruled in Costain’s favour.
But an arbitration hearing apportioned blame equally between both parties forcing the contractor to rewrite its financial forecasts.
The trading statement said: “Costain has assessed the implications of this determination and is engaged in discussions with the Welsh Government to reach agreement on a financial settlement.
“As a result, the Group now expects FY19 underlying operating profit to be in the range of £17 million – £19 million and the year-end net cash position to be c£20 million, with the net cash position being impacted by c£40 million of cash currently withheld on the A465 Contract.
“We continue to fulfil our obligations under the A465 Contract, with completion scheduled in H1 2021.”
Costain said the rest of the business was performing in line with expectations.
Alex Vaughan, Chief Executive Officer, said: “Clearly the situation regarding the A465 contract is disappointing.
“Elsewhere, the business is performing in line with expectations. We have secured a number of new contracts to maintain our healthy order book.
“We have also made good progress with our Leading Edge strategy, accelerating the deployment of higher margin services to our blue chip client base.
“We are confident this strategy will enhance our offer to clients, deliver higher margins and generate long term shareholder value.”
Costain’s share price dropped by 19% in early trading this morning.