BALFOUR Beatty shares slumped today after the infrastructure services firm warned of a £35 million shortfall within part of its UK construction arm.

It now plans to review the size and area covered by its mechanical and electrical engineering operation, having seen a further deterioration in its performance.

Shares were more than 12% lower as the update spooked investors just two months after Balfour issued a profits warning as well as the departure of chief executive Andrew McNaughton.

Balfour blamed design changes, project delays, rework on projects and contractual disputes for the latest downturn in engineering services.

It plans to offset the shortfall through the proceeds of selling more of its public private partnership projects over the rest of this year.

The rest of Balfour is trading in line with expectations and the group said it remains on track for profits of between £145m and £160m.

A 12 to 18 month programme is working to restore the wider UK construction arm to a firmer footing, with the regional and major project businesses trading in line with hopes.

The troubled engineering services business, which is based in Cheadle, has worked on projects including Marks & Spencer's flagship store at Cheshire Oaks and the aquatics centre at the London 2012 Olympics site.

A new management team in engineering services has led to greater scrutiny of contract positions and contributed to the additional £35 million shortfall. Most of it relates to a small number of existing contracts, mainly in the London area.

Balfour said: "Given these issues, we are reviewing the size and geographic footprint of the business with the aim of ensuring a smaller, more focussed business."