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City Site - Brisk outlook suits choosy firms

FINANCE

THE SPECTACULAR losses notched up by some major contractors recently have largely been due to firms finding themselves exposed to rapidly rising costs that they have been unable to pass on.

Unsurprisingly, some companies are wearying of this process. According to a survey from EC Harris, contractors are growing less willing to take on all the risks involved with single stage tenders and lump sum bids, particularly on larger projects.

The upshot, according to EC Harris, is that building tender prices are set to rise by 4.8 per cent in the coming year, and 5.7 per cent in London.

Skills and management shortages across the industry are also affecting contractors' appetite for larger schemes, as is the cost of tendering. And beyond next year, the Olympic effect is set to kick in, helping lift tender prices by 5.3 per cent in London and 3.4 per cent nationally in 2007.

The impression from the EC Harris survey is of an industry still running at full stretch, with contractors becoming ncreasingly choosy as enquiries stay buoyant and order books fill up. Indeed, Henry Boot said last week that 50 per cent of its order book for 2006 had already been secured.

This busy picture is also consistent with the sparkling results unveiled this week by the structural steel fabricator SeverfieldRowen. These showed not only a 40 per cent increase in prof its and improving margins but also a reduction in its earlier reliance on Heathrow T5, now just £10 million of its £158 million order book. The variety of projects under way at Severfield ? which owns the largest structural steel production unit in the UK ? also highlights the continuing buoyancy of the major projects market across the industrial, leisure and retail sectors.

Worries about the housing market, fragile consumer spending and rising oil prices may be plaguing other sectors but business for the larger building contractors seems set to remain brisk.