Balfour Beatty and Carillion, the UK construction groups, have won the £363m contract to extend the new East London rail line between Dalston Junction and West Croydon.

The project, scheduled for completion in late 2010, will play a key part in Transport for London’s vision of a revitalised transport system for the capital.

It will also transport people to and from the 2012 Olympic games.

The project award, announced yesterday, is the first of two phases. Phase two will take the line further west to Clapham Junction and connect to the north at Canonbury and Highbury & Islington and will run mostly on existing lines. The budget for Phase two is believed to be £74m.

Ian Tyler, Balfour chief executive, on Monday described the project as “the cornerstone of Transport for London and the mayor’s £10bn investment programme to give London a 21st century transport system.”

Andrew Gibb, analyst with Oriel Securities, said on Monday: “This is good in terms of sentiment but is not material enough to change forecasts. This [project] is part of a wider programme and so in terms of future flows, this win could be positive.”

The company beat off competition from E-Link, a consortium consisting of Laing O’Rourke, Amec Spie and Vinci.

The contract will involve track signalling, telecommunications and electrification works, as well as civil engineering works including the construction of two large new bridges, new stations and a new depot at New Cross Gate.

The East London line is part of a new “London Overground” system that will eventually form an orbital railway around London. It will join with the Silverlink service in North London which Transport for London – the body responsible for the city’s transport system – will take control of in November 2007.

The project will bring “underground levels of service and staffing” to London’s train services, says TFL. This will mean trains every 8 to 10 minutes and vastly increased levels of staffing and cleanliness at stations.

In London, Balfour shares were up 6¼p at 411¼p, while shares in Carillion rose 3½p to 374½p.

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