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Majors have learnt to ride the cycle

FINANCE City Site

INTEREST rates may be set to rise this week but most of the larger contractors seem to be having little problem in finding sources of new contracts at home and abroad which will provide a reliable source of income if the UK economy does slow.

This week Carillion and Alfred McAlpine both unveiled significant new contract wins and Skanska UK reported a healthy order book secured against a strong market background. Even if higher rates do affect the viability of some industrial and commercial projects, the volume of work coming from PFI schemes, the utilities and increasingly overseas, suggests the upbeat tone of many of the recent result statements seems to be justified.

Skanska has clearly enjoyed a strong year in the UK with a healthy improvement in profits. But it has also achieved a spectacular 75 per cent growth in its order backlog to £2.1 billion, thanks to a series of PFI projects reaching financial close and a large contract to upgrade the National Grid's transmission network.

Continuing projects running over years will inevitably flatter the size of an order book but they do increasingly distance large contractors from the vagaries of what used to be a cyclical indust ry.

In a similar vein, the £50 million of infrastructure support work announced at Alfred McAlpine this week - through two contract renewals - highlights the value to be had from cultivating good relationships with local authorities and utilities, now that outsourcing has become the norm.

Its £65 million facilities management contracts for the Royal Bank of Scotland and Unilever may offer limited margins but it will be a resilient source of income if the building market does slow.

Meanwhile the £200 million residential contract in Dubai won by Carillion's Middle East joint venture reinforces its strong position in one of the world's most lucrative construction markets. It also appears to be a form of repeat business for the developer, Union Properties PJSC, with which it has already worked.