Jarvis' share price has plunged in the past year

Norfolk County Council said it had taken the decision as Jarvis had failed to secure the services of a local contractor to carry out the work.

Jarvis had been taken on to improve buildings at 37 schools.

The news came as a trading update showed Jarvis was still racking up losses, sending shares into a tailspin that knocked off half their value.

Shares in the group - which saw its losses for the year to March soar to �255m - sank 53%, or 17.7p, to 15.5p after the announcement.

The contract with Norfolk is part of the UK's Private Finance Initiative (PFI)

Under PFI, businesses are awarded contracts to build and oversee facilities over a thirty-year period, with the public sector paying every year to use them.

Financial health worries

Jarvis blamed the loss of a contract in its roads division during the second half of the year for the warning.

It also revealed that delays in getting cash from the sale of businesses, as well as the adverse trading results, had meant that activity was reduced considerably on construction sites.

SCHOOL TROUBLES AT JARVIS NOVEMBER 2004 - stripped of �92m contract in Norfolk AUGUST 2004 - axed from �174m PFI schools contract in Fife FEBRUARY 2004 - Brighton - �105m contract to redevelop and manage four schools - council brands work "unacceptable" NOVEMBER 2003 - Wirral - �55m project to build and maintain nine schools - four sites unable to open on time Check the Jarvis share price

As a result, the company said it would be using the proceeds of its disposals programme to finance day-to-day running costs rather than paying off its debts.

"Having completed an urgent review of the group's operational and financial status in the three weeks since my appointment as chief executive, it is clear that the restoration of the group to financial health will take longer than previously indicated," chief executive Alan Lovell said.

"We remain in discussion with our lenders and other stakeholders to ensure their continuing support through this challenging period."

The loss of the Norfolk schools contract, which it secured preferred bidder status for in December last year, is sure to add to the firm's woes.

The council said it was unhappy with uncertainty surrounding the group since it had decided to sell off its bidding arm - which tenders for school construction projects - to the Vinci group for an undisclosed price.

"We are very disappointed that we are unable to continue with Jarvis and Vinci but in the event they have not been able to provide the necessary assurances we were seeking," Alison King, leader of the council, said.

Work delayed

The council added that neither company was able to confirm it would deliver the project by its September 2006 deadline.

More cash would also have been required from the council for the job, it added.

"Our priority throughout has been to get the best deal for Norfolk - and this has not changed," Ms King added.

Schools in the Caister, Gorleston, Great Yarmouth, Loddon, Long Stratton, Martham Stalham and Swaffham areas are affected by the delay.

"We are disappointed but we will do all we can to help Norfolk in these circumstances," a Jarvis spokesman said.

The council has said it will now look for a new company to take over the project.

But as a result of the problems it now expects the work to be delayed by two-years until September 2008.

It is the latest blow to come from private finance initative contracts for the troubled contractor.