Stuart Doughty, chief executive of Costain, said: "The constitutions of the businesses are being put together at the moment. The businesses will have their own internal management and marketing. What we were not doing before was actively looking for work together."
The first operation has been launched in Pretoria, South Africa, where Costain has started working with Al-Kharafi.
Between them, Al-Kharafi and United Engineers have a shareholding of about 60% in Costain. Because of this major stake they have representatives on Costain's board.
Costain has previously worked with Al-Kharafi on a £30m roads project in Tanzania and in the petrochemical market in Bahrain. With United Engineers, it is planning to bid for water infrastructure jobs in Malaysia.
The moves into lucrative overseas markets could help drive up the contractor's profit margin. Finance director Charles McCole is aiming to increase the group's margin to 3% by 2005/06.
Writing in the Construction Finance report published by Building this week, Hook said: "The industry should not be afraid to invest, but must demand better margins."
His argument was sparked by PwC research that showed the profit margin of major contractors averaged 2.4% in 2003, almost identical to the previous year. Housebuilders' average margin was up 1.5% to 17.1%.
Return on capital employed among contractors dropped dramatically, from 166% to 112%, partly caused by the increased bid costs of the PFI.