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Stars that burned far too brightly

AGENDA

IN THE '90s, Jarvis and Amey shot to prominence as the new kids on the construction block.As ambitious upstarts they shared much in common. Charismatic men, driven to make their fortunes after 20 or more years working for main contractors, ran both businesses at breakneck speed.

Both fixed their sights on sexy growth markets like rail, road maintenance and the Private Finance Initiative, where the prizes offered were of multimillion pound contracts promising steady work over many years.

Overnight they became the darlings of the City, enjoying stellar ratings on the back of fast-growing profits.

But the current picture could not be more different.The original founders of both firms are long gone, along with the glamour.Amey has fallen into the hands of Spanish contracting giant Ferrovial after mounting debts of £190 million forced the old management to court offers of a bail-out last year.

In what looks like a repeat performance Jarvis is now fighting for its life after admitting debts have ballooned to £230 million.

What went wrong? It seems both are guilty of overoptimism in growth forecasts. Paper profits may have grown but cash flows didn't.Amey and Jarvis may have spent years plucking work from under the noses of more cautious rivals like Amec, Balfour Beatty and Carillion - but at what longterm cost?

Counting on rapidly rising turnover is a recipe for disaster.

Managers are drawn to accept higher risks to win more work and payment periods have a worrying habit of extending, upsetting subcontractors.

Whatever the future holds for Jarvis, there is a salutary lesson for all contractors in this woeful tale: it is always better to plod away at delivering steady cash and profits than courting flattery and admiration for fast-paced turnover growth.