EDITORIAL COMMENT

When construction's chattering classes have talked about rationalisation they have generally meant cutting capacity. If a few contractors would just oblige everyone else by going bust, merging or being taken over then the survivors would have more breathing space on tender lists and more hope of decent margins.

Until as recently as 1996, the industry was convinced of that argument. With some exceptions, so was the City. But not any more.

As our analysis opposite confirms, the industry is awash with takeover and merger speculation. Yet the City's reaction is 'So what?' Few brokers seem to believe that contractors can do much more than add 1 per cent to their meagre profit margins. Hardly anything to get excited about.

Nor, it seems, are contractors much more confident of their abilities. That is why the likes of Laing and P&O are looking to get out (indeed, most of the majors would like to ditch some, if not all, of their contracting business).

Why should this be? Well, for one thing everyone is realising that cutting capacity is one part of the answer for construction. It is a means and not an end, the first step of the journey and not the destination.

The industry needs more than rationalisation to move forward, it needs radicalisation.

For two decades contractors have showed themselves capable technicians and inadequate businessmen. Now they need to develop their services and business ideas to improve their returns. They need to encourage thinking at every level of their operations - an alien and radical concept indeed.

That is the change that needs to take place. Without it, the industry will be forever mired in low profitability.