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21st century contracting

This week is a significant one for the UK civils contracting business. The two largest players, Balfour Beatty and Kvaerner Construction, emerged as the focus of groups largely shorn of loss making businesses (see News and Analysis). Furthermore, there is talk of Balfour Beatty linking up with the demerged Tarmac Construction (the third largest civils contractor) or the newly floated Bovis (number four).

In the same week Jarvis - the biggest success story in civils contracting - issued a profits warning. Brokers reacted by tipping the shares. A week earlier, Costain announced that it had made a profit!

It has taken long enough, but civils contracting finally seems to be getting its house in order. There are still problems of course. With honourable exceptions, margins are still pitiful even for contractors: only Kvaerner and Bovis can really regard themselves as players in the premier overseas league and there is an over reliance on the UK rail sector.

But much of the sector's overcapacity has been whittled away. There are few overvalued housing land banks or spurious property ventures of the sort that cut the legs from under firms in the early 90s. Partnered and negotiated work is much more widespread.

Of course, the last few years have been relatively good ones for contracting and good performance is to be expected. But unlike the late 80s, the sector has used this period to tackle structural inadequacies.

When (or if) a significant downturn comes, contractors will be much better placed to cope with it without massive bloodletting and the wholesale closure of businesses and regional offices. For an industry in which uncertainty of employment has always been a bar to attracting the best staff, this can only

be a good thing.

But the leaders of the UK's civils contractors should not rest on their laurels. Now is the time to further transform their businesses into those which have high value services as their core rather than the occasional add on.

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