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City Site - Building boosts contractors'profits

FINANCE

THE STRENGTH of the UK building market is emerging as a key force behind the continuing improvement in results from major quoted contractors' construction operations.

At its interims last week, Carillion said its UK building business had continued to make solid progress and its UK building volumes, together with international work, had moved firmly ahead to offset falls in UK civils and PPP work.

The firm won new building contracts worth over £300 million in the first half, including mixed-use and high-rise developments in Manchester, Birmingham and London together worth over £100 million and retail projects in the Midlands and south-east worth over £90 million.

Meanwhile, the five PPP projects, worth £1.7 billion, where Carillion is preferred bidder, involve hospitals, social housing projects and schools, which all imply a strong building workload.

Mowlem, which improved its underlying construction margin to 2 per cent in the first half, said last week that a softening in some infrastructure markets had been compensated for by an increase in business from its building operation.

The firm's focus on health and education in the PFI market, where it is preferred bidder on projects worth £2.7 billion, suggests its building business will remain busy.

As quoted contractors strive to avoid risk, they are focusing on negotiated building contracts with a smaller pool of clients. At its interims Costain said it expected its building division to win orders worth £315 million this year, a 50 per cent increase on 2003.But around three quarters of these will come from a handful of key clients in retail, residential and healthcare.

Galliford Try is also taking advantage of the strong building market. In health and education, the firm seems to be carving out a niche in collaborative frameworks covering many medium-sized projects, notably NHS Lift schemes.Moreover, the firm said it was on course to reach its 2 per cent target for construction margins by mid-2006.