Contractors demand 15% return

The Government will need to allow for a margin of at least 15% for contractors building privately funded schemes according to Alfred McAlpine chief executive Oliver Whitehead.

His comments support those of Wimpey's chief executive Joe Dwyer, who earlier this month made it clear that winning bidders would want big rewards for taking on private schemes.

Whitehead said at his company's interim results last week that he 'in fact wouldn't stop at 15%, I'd say the upper teens'.

'Remember the scale of the involvement,' he said. 'The jv has to borrow œ200 million, perhaps, to run a scheme for 25 years. You're not talking about adding 2% to cost here, it has got to be at least a 15% return.'

Whitehead said that the Treasury still has not fully accepted that if it wants to transfer the risk to the private partners undertaking a jv scheme, then it is going to have to pay more.

He said: 'The National Audit Office says that with the existing system of construction, final costs on roads are 28% higher than the figure planned for - that's because reality doesn't turn out to be quite what you expected.

'In future, that 28% won't disappear, it will go into the bids at the beginning because the contractor won't get it at the end - we'll have to price for what we'll deliver.'

Last week, Tarmac chief executive Neville Simms said that he expected the private finance initiative would produce good returns for the industry and was critical of contractors who doubted the potential of the initiative.