Big two shun huge Thames AMP5 project

Competition on Thames Water's AMP5 water framework is so fierce that two of the biggest contractors in the UK have decided not to join the race.

CJ understands that Balfour Beatty has not prequalified for either Lot A (infrastructure) or Lot B (non-infrastructure) of the massive deal. Each lot is worth around £1bn.

And Skanska Utilities is thought to have withdrawn from the hunt, having previously returned tender documents.

One industry expert said: "Tendering in the water industry has changed massively recently and working for Thames Water is a lot different now than to a few years ago.

"It's owned by Australian bank Macquarie and they are in the business of making money for their shareholders. It's not a happy-clappy world of partnering deals anymore - it's all about lump sums and the cheapest price.

"A firm like Balfour Beatty probably thought that it had enough work on in other areas and didn't need to get involved in the current bids considering the way the market is changing."

"I think Skanska have had their troubles on other jobs and might have found it difficult to match some of the prices being talked about by other firms."

Earlier this year, Skanska Utilities (formerly known as Skanska McNicholas) reported a £6.5m loss for the year for 2008, despite an increase in turnover to £242.2m.

The company blamed the loss on a number of "underperforming contracts". In its directors' report, it said that it incurred a loss on its massive Thames Water Victorian Mains Replacement contract, owing to "a combination of very competitive rates and challenging targets".

The source added: "A lot of the smaller contractors have no choice but to work with Thames because it represent such a large chunk of their income. Thames is a lot more commercially aggressive now and knows it can be like that because there are a lot of hungry contractors out there at the moment."

Another source said: "It's surprising not to see Balfour Beatty going for Lots A & B. You see it tendering for almost every big project out there. But perhaps it just doesn't feel the need to go for this one, given how competitive it is."

Barhale, Clancy Docwra, Costain, Galliford Try, Holleran, Laing O'Rourke, Morrison Utility Services, McNicholas and Murphy are all thought to be bidding for Lot A.

And CJ has previously reported that BAM Nuttall, Black & Veatch, Costain, Galliford/Biwater, Interserve and Laing O'Rourke are all in the running for Lot B.

Each lot is split into three geographical areas: Thames Valley, North London, and South London. Each lot could involve up to 350 individual works packages and the total value of individual contracts could climb as high as £350m.

A Balfour Beatty spokeswoman said: "When deciding on which contracts to pursue, Balfour Beatty considers a number of factors before making a decision."

A Thames Water spokeswoman said: ""We’ve really listened to our contractors, and the most important thing they’ve told us is they want us to help them be more efficient by providing them with a longer-term programme of works.

"We’ve taken the bold step of procuring more than £1bn of work upfront of Ofwat’s Final Determination, so that our contractors have the greatest opportunity to deliver real efficiency.

"We are totally commercially focused and passionate about delivering the best possible value for our customers.

"As a result, we are developing excellent relations with forward thinking contractors who are as hungry as we are to deliver fantastic service at the best possible value."

Skanska was unavailable for comment.