Is the Jarvis gravy train about to end?

The stock market decided yesterday that this was a mishap too far for the accident-prone Jarvis. Whatever the financial merits of the group as a whole, yet another allegation about its rail division was just too much to bear.

Shares in the company fell by more than 16 per cent, wiping almost £67m from its market valuation following news that Network Rail was investigating claims that the firm entered falsified documents over work supposedly undertaken between Macclesfield and Stoke-on-Trent.

It was the latest in a long line of incidents that led the company recently to abandon its rail maintenance contracts. The decision to walk away from day-to day track work was prompted by "reputational" issues, directors said.

Yesterday's news added fuel to the public relations fire. The company has been aware for some time that its exposure to the rail industry was something of a hostage to fortune. That view tragically hit home on 10 May last year when the fourth carriage of four-car express train on its way from London derailed just outside Potters Bar, "flew through the air" and ended up straddling two platforms at the station. The disaster, in which seven people lost their lives, ushered in a period in which the headlines about Jarvis have been unremittingly negative. Rail inspectors blamed management failure for the Potters Bar accident, although the company insists - amid widespread scepticism - that sabotage could have been to blame.

More recently The Independent revealed serious breaches of safety regulations at Milton Keynes. After work to renew the track at the Buckinghamshire station on 20 August, Jarvis left the line in such a state that debris blew on to the platform as a 100mph express passed, injuring two passengers. On the same day in Retford, Nottinghamshire, a Network Rail log disclosed that Jarvis failed to contact a signal box to halt trains after discovering a broken rail.

The incident that put paid to Jarvis's interests in rail maintenance, however, came on 16 October at King's Cross station in London. An express leaving the station with 150 people on board came off the racks because a 5ft length of rail was missing after overnight points repairs by the company. The incident overshadowed the official opening by the Prime Minister of Britain's first high-speed rail link from the Channel Tunnel to North West Kent.

In an attempt to reduce its dependence on the sector, Jarvis entered talks last year about a merger with the support services group W S Atkins. The plan would have been to hive off the Jarvis rail operations or sell them altogether. The merger talks collapsed after a profit warning from W S Atkins hit its share price. Then earlier this year, the Jarvis chairman Duncan McGowan died and Paris Moayedi, its founder and chief executive stepped up to the role, in defiance of good corporate governance standards.

A former Jarvis executive said, in his opinion: "Paris is an inspired businessman but he is also a dictator. He runs the business like his own personal fiefdom, not a publicly-quoted company. Moving him up to the role of chairman was exactly what the company should not have done. Jarvis needs to find a way of separating him from the day-to-day running of the business."

The executive said there was now clearly a problem with the Jarvis name which was affecting its ability to win new business. "There is a cloud hanging about them which it is going to be very difficult to get out of. They have a good support services business but they are always going to be up against the problem of this negative association with rail."

While City analysts feel that the adverse news surrounding Jarvis has been over-hyped - and that the company remains basically sound - they agree that the mud is sticking. Andrew Nussey at Altium Capital says of the latest allegations against Jarvis: "This is a further blow to the group. The poor news flow is likely to cause concerns among potential customers."

Howard Seymour at Bridgewell argues that it is important to separate issues that genuinely affect the company's reputation from events that hit the headlines.He plays down the group's failure to win the lucrative NHS information technology contract earlier this week. Mr Seymour says: "Companies are failing to win contracts all the time. People are inferring that this is because of their reputation, but I don't [agree]. Jarvis has hospital skills. Rail skills have got absolutely nothing to do with it."

Although the loss of the rail maintenance contract accounted for 15 per cent of group turnover, it is not seen as too serious a blow. Mr Seymour says: "They were not particularly good at it and it has had a detrimental effect on their reputation. I believe that they weren't pushed off the contract, they said they didn't want to do it anymore. This was a sensible move."

Nonetheless, Jarvis will suffer from the political backlash over private finance for public projects, particularly on London Underground. Jarvis is a member of the consortium responsible for track on the Northern Line at Camden Town where a train derailed last weekend, injuring seven people. Services on the Northern Line are not expected to return to normal until next week. Mr Seymour says: "Politically, a lot of people are bound to say it is Jarvis's fault. LU has suffered from under-funding for years so it is difficult to lay the blame."

Analysts believe Jarvis will come through the storm. Geoff Allum, of Investec, says: "I can't deny they have had a beating but the company remains pretty sound. Network Rail can't do without them. They have got all the best track renewal equipment in the country. Before Potters Bar, Jarvis was regarded as one of the best companies in the country. It was just recovering from the Potters Bar setback when all this happened."

Mr Seymour agrees: "There are very good businesses in Jarvis, particularly roads and accommodation. We have seen reputations attacked before in support services. At Serco and Capita people have latched on to problems and it is very difficult to shrug off the attacks."

Mr Nussey says: "We are strong supporters of the Jarvis business model." He says he hopes more positive news will emerge with interim results to be released on 25 November.

Perhaps a measure of the company's desperation over its image is its appointment of Jonathan Haslam as director of communications. Mr Haslam was press secretary to John Major in 1997 when the Conservative party suffered its worst ever defeat at the hands of Labour.