Leeds council signed collapsed Carillion despite warnings because it ‘did not want to trigger firm’s going bust’

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LEEDS City Council has today admitted it went ahead with hiring doomed contractor Carillion for a major infrastructure project - despite concerns about its finances months ago - because it didn’t want to be the one to trigger the firm’s downfall.

The YEP reported earlier that the authority is “calling in” contingency measures it had put into place to protect public funds in the event of the collapse of the contractor, which had won a competitive tender for the first phase of the city centre cycle Superhighway City Connect 2 contract in October last year.

An emergency meeting at Leeds Civic Hall this morning (Wednesday) has heard that the council was first alerted to problems at the firm in summer last year and it immediately undertook “due diligence” work on “mitigation” it could put in place if the company went bust.

However the “procurement process” for major contracts as it stands meant the authority had to award the contract to the winning tenderer, it was claimed.

The council is demanding back a £450,000 bond it had put in place with HSBC bank in relation to the company’s £4m contract for work on the first phase of the Leeds cycle superhighway project.

A cross-party panel was told today that the contract has now been cancelled. The authority aims to hire a new contractor, and have them back on site in a month, the meeting heard, and small firms who lost out from the cancelled Carillion contract could also be compensated from the bond.

Councillors heard safeguards were put in place for another major highways contract, for the East Leeds Orbital Road (ELOR), but the agreement was never signed and no contract ever awarded even though the firm won the tender.

Martin Farrington, Leeds City Council’s director of City Development, told the panel that he took the decision on Monday to “draw down” the bond for the cycle superhighway project and the contract has been cancelled.

“We were mindful that if we didn’t award [the contract] there would be a challenge,” he said of the contracting process.

The authority had to handle things with “delicacy” as any Leeds council action could “pre-empt” the liquidation, he added.

Oliver Priestley, manager of engineering projects at Leeds City Council, told councillors that “as of today we will take a step back and consider our procurement options going forward in terms of ELOR”.

He added that the council is now in discussions with Carillion’s liquidator PWC in terms of helping “the small scale suppliers who have been left out of pocket to see if we can step in and use some of the bond money to pay some of those bills”.

Councillor Peter Gruen, a councillor in Cross Gates, who has championed the ELOR project, said it was “incredible “ that restrictions and rules in the “procurement” process for major contracts had effectively “forced” the council to “accept Carillion as a legitimate tenderer” despite the known risk,

Mr Farrington admitted there was a “delicate balance of considerations that we had to take”, adding the council did not want to “precipitate” the collapse.

The firm had “pre-qualified” and had won the tender through a legitimate “evaluation process”, he said,

It was also revealed that discussions have already started with another firm to take over the stalled cycle superhighway works and work will restart “one month from now”. Ex Carillion staff could also be brought in to finish the work.

CARILLION AND LEEDS CITY COUNCIL

At the time of Carillion’s entering insolvency on January 15 this year, Carillion Construction Ltd was employed as the main contractor for the city centre phase of the City Connect 2 cycling superhighway. Funded by the West Yorkshire Combined Authority, tenders were invited in March 2017, and the award of a £4.1m contract to Carillion was made in October 2017.

Carillion Construction Ltd was also the preferred tenderer, in a consortium bid with the consultant Ove Arup, to build the first phase of works relating to the East Leeds Orbital Road (ELOR).

Recently, Carillion Construction Ltd has also completed a number of civil engineering contracts for Leeds City Council: the Inner Ring Road A58(M) tunnel repair and refurbishment, and both park and rides at Elland Road (Phase 2) and Temple Green. All of these contracts were delivered to time and within budget, the council says.