class action likely,

The chances of Forge Group facing class actions from shareholders have strengthened after the engineering firm admitted management became aware of project problems a month before they were revealed.

Forge's share price has fallen more than 80 per cent since it resumed trading last week with news of a $127 million profit writedown and bank bailout.

The company first disclosed there were potential losses on two power station projects when it went into a trading halt on November 4.

Forge yesterday told the Australian Securities Exchange that project review meetings in late September had identified a risk of "significant margin erosions" on the Diamantina and West Angelas power stations because of cost over-runs and delays

It said management took about a month to re-forecast the cost and complete complex project negotiations. The board was briefed on possible writedowns in late October.

The contractor argued to the ASX that it was not clear the projects would suffer losses until mediation with client Diaman- tina Power Station and a subcontractor was completed.

"Throughout this process, management remained of the view there was a reasonable likelihood that a material writedown of the projects would not be necessary," company secretary Glen Smith said in a letter to the ASX.

Mr Smith said after mediation ended late on Friday, November 1, the leadership concluded the DPS project in Queensland would lose money but could not yet determine the size of the blowout. The board decided over that weekend to put the stock in a trading halt.

The shares closed at $4.18 on November 1. They finished yesterday at 64.5¢, up 14 per cent for the day.