Outsourcing company, Capita, has reportedly been stripped of a key contract running MoD military estates early as its first-half pre-tax profits fall by 26%.
Capita won the 10-year contract to run MoD infrastructure in 2014 and said today that the contract would end in June 2019.
It was a contract worth £400m, with Capita running infrastructure from airfields to training bases.
The National Audit Office (NAO) criticised its work last year and said the MoD's failure to invest sufficiently in much of its estate could jeopardise the delivery of new and existing military capabilities.
It also added that poor housing for service familieswas affecting morale and making it harder to recruit personnel.
The same report said that the private sector consortium run by Capita had failed to deliver the expected transformation in the way it was run, despite the group receiving £90 million in taxpayer funding.
The group reported on Thursday that its pre-tax profits sank by 26% to £28 million in the six months to the end of June, down from £37 million for 2016.
It was driven by an exit from its specialist recruitment arm and part of its Capita Europe business, while its events operation was shut down.
Investors took a dim view of the half-year update, with shares on the London Stock Exchange falling 13% in afternoon trading.
However, underlying pre-tax profits made for brighter reading, lifting 46% to £195 million thanks in part to a £16 million boost from reorganising a contract with the Ministry of Defence.
Underlying revenues eased back 3% to £2.1 billion, with weak real estate and the part-loss of a Civil Service Learning contract being offset by a new deal with Tesco Mobile and the expansion of Department for Work and Pensions PIP assessments.
Interim chief executive Nick Greatorex said: "In the first half of 2017, we made good progress on executing the plans laid out at the end of last year to reposition the group: we announced the sale of our asset services businesses, completed the disposal of our specialist recruitment business and commenced a number of cost initiatives.
"We remain confident that these actions are making Capita a simpler business, well positioned for the future under new leadership."
The FTSE 250 firm said the £888 million sale of its asset services business to Link Group was on track to be completed by the fourth quarter of this year.
It said efforts to drive down costs - including cutting staff, moving some IT operations abroad and making its property estate more efficient - would benefit the firm to the tune of £57 million by the end of next year.