Interserve today said it was putting together a cash and shares deal for Mouchel and has been given access to due diligence materials.

It said: “Interserve’s strategic rationale for the proposed transaction is to create an enlarged group that is a fully integrated market leader in consultancy and support services, particularly in key business process outsourcing and infrastructure markets.”

It added that a formal offer would be conditional on the Mouchel board’s full approval.

Interserve’s approach will be a bitter blow to Costain, which has being trying to coax the Mouchel board into a deal since late last year.

Yesterday Costain revealed that it had made four approaches to Mouchel, each time steadily upping its offer.

The latest on the 17 February failed to convince the Mouchel board, which yesterday revealed it was in advanced talks with another suitor, expected to lead to a takeover offer.

A deal between Interserve and Mouchel would create one of the UK’s biggest public outsourcing contractors and create a company with a combined turnover of more than £2.5bn.

Mouchel is attractive at several levels to Interserve as it would bolt on top-level consulting skills, highways maintenance and a valuable business process outsourcing capability, thought attractive to cash-strapped local authorities.

Several contractors are  jostling to restructure their businesses to help secure potentially lucrative outsourced Government and local authority work.

Last week Carillion unveiled plans to buy renewable energy company Eaga for £306.5m, which will allow it to tap into an expected surge in energy efficiency retrofit work for housing and local authority buildings.

Kier and May Gurney are also tailoring their businesses to offer local authorities a complete suite of services from rubbish collection to highways services.