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"Buoyant but nervous," is how Ian Terry, director of Mace's Lisbon office, describes the state of the Portuguese construction industry. "There's a lot going on, but people are considering the future."

The 2004 European Football Championships, which Portugal is hosting, has prompted the spending of £2bn on stadiums and infrastructure. Six grounds are being built, four are being refurbished and new roads and car parks will follow. Housing and tourism are doing very well, although retail has slowed down slightly.

The infrastructure sector is particularly buoyant. Vast amounts of cash is coming in from the EU infrastructure fund, which is paying for schemes such as the £500m metro for Oporto, Portugal's second city. A total of £13.7bn has to be spent between now and 2006. These benefits have had a subsidiary effect on the general economy – retail and leisure facilities have been popping up all over the place. Architect ºÚ¶´ÉçÇø Design Partnership has completed several shopping centres in Portugal with one currently on site and two starting next year.

Ian Heavey, a QS who has worked in Portugal since 1994, recently set up his own company, Sarian Construction Management Consultants, to act as a stepping stone for UK developers hoping to invest in Portugal. He says UK companies must have a local presence. "It's a touchy-feely sort of place. Business is done face-to-face rather than by email or fax." He adds that Portuguese contractors "have it sewn up", the biggest local contractors being Somague, Soares da Costa and Teixeira Duarte. It is also hard for UK contractors to compete with Portugal's wage rate – half that of the European average.

The Portuguese construction process is very traditional, with the architect submitting the detailed design, then the whole package being put out to tender as a fixed price contract. Bigger projects such as roads, and the new airport proposed for Lisbon, are procured using a method called build-operate-transfer. This is similar to PFI: the consortiums that bid for projects have to finance and operate it, then hand it over to the government after a fixed period.

Stuart McLarty, architectural director of Aukett Europe, is impressed by Portuguese craft skills: "The thing that hits you is the quality of the finishes." Materials such as stone are cheap and are widely used, and wet trades are plentiful and skilled. Overall construction costs are only two-thirds of those in the UK.

Portugal is a popular place to work. McLarty says the Latin "let's do it tomorrow" attitude hasn't been a problem. "When people understand why they are doing it, the attitude is 'lets get on and do it'." Terry, who has been there 10 years, is more enthusiastic. "It's fantastic," he says. "I've no intention of going back to the UK. All the clichés are true; the superb weather, food and beaches on our doorstep. The people are friendlier and life is more important than work."