The Lowdown: Mowlem's knight rides into battle

Sir John Gains says sorry to Clayton Hirst but remains unapologetic when crusading against PFI red tape and European directives
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The Independent Online

'Sorry, sorry, sorry, sorry, sorry, sorry, I'm so sorry..." Sir John Gains leaps out of his seat and charges, mid-apology, towards the boardroom door.

The chief executive of Mowlem, the construction and services company, has been trying to contact his chairman all morning, and a nod from his secretary indicates that Charles Fisher is ready for a meeting.

Ten minutes later Sir John bursts breathlessly back into the boardroom to resume the interview. "Sorry, sorry, sorry. I'm really sorry about that. Now where were we?"

Sir John is an unusual mixture of old-school construction industry bluff and skilful diplomacy - honed during nearly four years as president of the Construction Confederation. When he wants to get something off his chest he speaks his mind, but is terribly polite about it.

The 59-year-old is a Mowlem lifer, having worked for the company for 38 years and been chief executive for the past nine. He is credited with shifting Mowlem's focus away from pure construction; today you are just as likely to see it running a hospital as building an office block. Boy, he must be pleased he made that decision. A slowdown in the commercial property sector has reduced the flow of private construction contracts to a trickle, but companies such as Mowlem have kept their heads above water thanks to the burgeoning public sector. Mowlem's order book is now at a record £2.65bn, swelled by Private Finance Initiative-type work.

But Sir John, knighted last June, warns that this rich seam of work could be undermined - by red tape. "PFI is extremely time-consuming and requires companies to make very heavy decisions. It does not go fast enough, so the procurement process is extremely expensive," he says.

The result, he says, is that companies are turning their backs on bidding for some PFI projects. "The problem is that every school and hospital programme starts from scratch. It starts with a new hospital trust or a brand-new board of governors. We're not getting people with previous experience of these deals."

The Government has had a couple of stabs at addressing this problem. First it created the Treasury Task Force, headed by troubleshooter Adrian Montague, to fast-track important PFI schemes. Then it set up Partnerships UK, a sort of public-private partnership headed by banker turned corporate governance guru Derek Higgs, to advise local authorities on the PFI process. But critics say that such measures failed to have an impact. "We are seeing some improvement, but not enough," Sir John says bluntly.

He is also worried about new European rules. A proposed directive would make it illegal for the Government or local authorities to enter exclusive negotiations with one company in the final stages of the PFI process. The Department of Trade and Industry and the Confederation of British Industry have lobbied to have the proposal removed, and there are signs that the European Commission is beginning to listen. But Sir John says that if the directive were ratified unchanged, it would be a catastrophe for the industry: "We would find the PFI process almost impossible."

Pulling out of the PFI would hit Mowlem hard. Public-sector work makes up around 30 per cent of its order book, and it has £2.4bn of PFI work in the pipeline. Notably, it has won a £4bn contract to upgrade accommodation and provide services to the Army at its barracks at Aldershot and on Salisbury Plain. In a joint venture with Kellogg Brown & Root of the US, Mowlem will run the project for 30 years.

Meanwhile, the outlook for commercial construction is not good. "Over the past 18 months the balance has migrated steadily from public to private," says Sir John. The downturn in the commercial market is "very severe, especially in the South-east and I don't think it will pick up for a while," he warns.

While other construction companies have struggled, Mowlem has held up relatively well in the economic slowdown, with its share price on an upward trajectory for the past year. It was different story when Sir John took the reins in 1995. The company had just been forced into a £63m rights issue, largely as a result of its disastrous investment in London City Airport. Mowlem had been one of the first construction companies to take an equity stake in one of its own projects; but the development took so long that Mowlem was dragged deep into debt. Sir John says: "The company had a vision about City Airport which was probably 10 to 20 years ahead of its time. As sometimes happens with projects of this type, the initial owner - the initiator, the one with the vision - is unable to live with it."

Sir John's promotion was greeted with scepticism by some in the City, who were worried he would bring with him too much company baggage. But he proved his doubters wrong and set about reshaping Mowlem, selling its commercial property business and its German construction subsidiary, and floating off its scaffolding operation, SGB. Spotting the growth potential in the PFI, he built up Mowlem's support services arm.

Mowlem is also exploring opportunities in Iraq. On Thursday it made a joint bid with Kellogg Brown & Root for $1.5bn (£820m) worth of water contracts. But Sir John won't be taking any big risks. "I am very anxious it doesn't become a distraction to our main business," he says.

Diplomacy, treading the fine line between commercial and political awareness, will be the key to Mowlem's continued success. With that in mind, few would bet against Sir John.