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Contracting

ANALYSIS out

Who wants to be a civils contractor? Increasingly few, it would seem. Support services is the phrase of the Nineties, and some of the big names in construction are spending substantial amounts repositioning themselves with an eye to greater growth and rewards in the future.

Amey's announcement last week that it is buying secure support services specialist Comax might be one of the more radical moves in the sector to date. But it is right in line with current thinking among some contractors.

At a stroke, Amey has become one of the leading firms in providing specialist services to business, and at the more high tech and security conscious end of the sector at that. This is a growth area with high barriers to new entrants in which Comax has a clear advantage - it was once part of the Ministry of Defence's Defence Evaluation & Research Agency (still its biggest client).

Comax carries out a wide range of property, logistics, procurement, information and financial work for DERA, including provision of services to the Farnborough Aerodrome and its annual air show.

An important part of Comax's activities is to keep the MoD's IT systems safe from prying eyes and there is scope for capitalising on this experience. Secure provision of networks and communications are becoming essential to private business too with the growth in e-commerce and Internet trading.

At the same time as Amey's move on Comax, consultant KPMG is preparing a report for Laing, looking at systems and strategies to re-organise the firm ready for the next century. Laing wants to be a cradle-to-grave operator, with increased emphasis on front end aspects like value engineering, risk assessment and programming. It does not want to be stung again by anything on the scale of the £26M losses it suffered because of inadequate assessment of risk on the design and build contract for Cardiff's Millennium Stadium.

Amec too is trying to move further up the supply chain. The trend within the group is to look at the more profitable service related business, moving away from construction based work. Like Amey, it has been encouraging the City to think of it more as a service provider than a contractor, and judging by the healthy share price the message is getting through.

And Tarmac's split leaves the former contractor now seeking to be a services operator, under its new name Carillion.

Amey's stated strategy is to grow organically and by acquisition with a focus on premium, high-margin areas of the business. Construction is not one of them. Margins are far better in provision of high-tech services than the miserable couple of percent profit to be made in contracting. Only 9% of the firm's combined profit will come from construction, though there is no intention of seeing this cut to nothing. 'It is an important part of our activity,' maintains chief executive Brian Staples. 'Particularly with the PFI, it is important to have construction ability to be a serious player.'

For Amey, the Comax deal appears to make perfect sense. The two firms complement rather than compete; indeed they already work side by side on some projects.

They should be able to expand the services offered to the other's clients, and defence related PFI projects will be a clear target. 'Amey and Comax fit beautifully together - and produce a player of really serious scale,' says Amey chairman Neil Ashley. The combined firm will be of a similar scale to Serco, and moves Amey 'up' into the more IT based arena alongside Capita.

Amey isn't planning more acquisitions in the short term, although Staples could envisage bringing in something like a technology company. He also suggests Amey might get into areas such as the management of water, gas and electricity services where there is still scope for outsourcing, or hospitals where security and safety are key issues.

But few acquisition prospects hold the promise of a visit from the Red Arrows.

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