The City source said that AWG had also looked at the firm. He said: "The deal is being wrapped up at the minute. A preferred bidder will be chosen in a matter of days."
He added that the purchase would be fruitful as Subterra was a subcontractor on the London Underground public-private partnership. Subterra's parent company, Thames Water, is a joint venture partner in the Metronet consortium. The source said: "The company is an interesting entrance point for those wanting to get into the infrastructure sector."
The source added that McAlpine was also considering buying multidisciplinary contractor TJ Brent of Bodmin, Cornwall.
Alfred McAlpine finance director Geoff Hume refused to be drawn. He said: "We look at lots of deals about lots of different things."
Part of the Thames Water group, the Subterra pipeline rehabilitation operation merged with three complementary sister businesses in September 1999 – Total Pipeline Solutions, Morgan Collis and complementary parts of Metro Rod – in order to consolidate its services and offer a comprehensive package.
Building revealed in January that Alfred McAlpine had amassed a £100m war chest and would not be returning it to shareholders as originally planned.
It is understood that McAlpine chief executive Oliver Whitehead intends to use the money to continue pursuing his aim of repositioning the firm as a support services company. The company has spent £170m doing this in recent years, mostly on the acquisition of firms in the services sector.
In March last year, Alfred McAlpine bought £100m-turnover facilities management company Steill for £85m in an attempt to strengthen its position in the PFI marketplace.