The fallout from the collapsed Connaught deal started to emerge last night with fears that dozens of Norfolk sub-contractors could be left tens of thousands of pounds out of pocket and work to install new kitchens and double glazing in homes across Norwich put on hold.
Hundreds of staff have been left in limbo after the company which carries out work for Norwich City Council went into administration yesterday in one of the biggest corporate collapses of its kind.
Connaught employs around 10,000 staff in all its divisions across the country and yesterday administrators KPMG warned that there could be job losses in the wake of the collapse, but said it was seeking to transfer contracts and was working with councils and housing associations to “minimise disruption to the public”.
Meanwhile, council chiefs in Norwich pledged to bring in other firms to carry out any emergency work needed in the city in the aftermath of the collapse with priority given to the most vulnerable tenants and residents. Senior council officers were also seeking urgent talks with the administrator to discuss the best way of providing continuity of services and minimising disruption.
City Hall signed a deal with the now stricken firm in February largely because it was substantially cheaper than its nearest rivals Morrison, parent company of previous contractor CityCare. But the deal has been beset with complaints about missed appointments and delays and Connaught was thrown into turmoil after warning in June that Government spending cuts could blow a £200m hole in revenues over this year and next. Crunch talks with its lenders, led by taxpayer-backed Royal Bank of Scotland, and other potential financiers in a bid to keep the company afloat.
The Evening News understands that 50 kitchen upgrades in Norwich have been put on hold, and work to install double glazing have also been stopped. Plant hire equipment is also due to be returned to by the end of next week and vans are also being collected by rental companies and with spare stock running out there are questions about whether further work can be carried out. One worried subcontractor, who did not want to be named, said he was owned tens of thousands of pounds by the firm for work he had carried out, with little sign of getting it back.
“People seem to be forgetting about the sub-contractors.,” he said. “There are a lot of small and family run companies in Norwich who are owed thousands of pounds. What seems to happen when the administrators come in is the debts are stripped clear and we are still asked to do the work.
“As far as Connaught's workers are concerned something is going to happen, and I would imagine their jobs are going to be safe because the service has still got to be provided,” he added.
“The only people who are out of pocket are the subcontractors - we'll be lucky if we get 2p back in every pound. I'm hoping whether it's through the council or whoever takes it on to be able to carry on with the work.
“It's got a huge impact on sub-contractors who paid up front. I've been paying my staff weekly for the last couple of months, which is going to be true of a lot of sub contractors.”
The city council said it was closely monitoring any outstanding emergency work and is putting in place plans to see that Connaught has the materials to respond to those situations. It said if Connaught is unable to carry out emergency repairs the council will arrange for another contractor to step in and carry out this work, particularly in the case of its most vulnerable tenants and residents. Steve Morphew, council leader, said:
“Our expectation is that bins will continue to be collected, streets cleaned and grass cut, and plans are in place to see that genuine emergency housing work is prioritised.
I have ensured that quick and appropriate measures have been taken to make sure emergency work continues to be carried out and our vulnerable tenants and residents are protected. We have asked our staff and councillors to be our eyes and ears and alert us to any genuine emergencies that need immediate attention. Clearly this is a difficult situation and I would ask residents to be patient and bear with us as we identify the best solutions.”
Chris Williams, partner at Norwich-based insolvency experts McTear, Williams & Wood, warned that with councils due to cut back on spending the Connaught collapse could be the start of greater problems for many firms in the area.
“Unfortunately, with the pending public sector cuts, we can expect many more companies to become insolvent,” Mr Williams said. “When orders are in short supply it is tempting for companies putting in competitive bids to under-quote just to get some work in to keep busy, even though they know the work is not profitable in the long term. As a result, many of these businesses have already drawn heavily on their reserves to service these contracts with the hope of surviving the recession, and won't withstand the financial blow of having a contract terminated.”
In a statement KPMG said: “The administrators are hopeful that the majority of staff will be transferred to alternative providers. However, to the extent that alternative providers do not take on employees then redundancies will need to be made. Decisions regarding redundancies will be announced as soon as possible.''
Experts believe that the city council will have little difficulty finding other firms to step in and take on the work done byConnaught. But what is not yet certain is how much the authority, which faces the prospects of massive cuts in the wake of the government's squeeze on public spending will be left out of pocket by the collapse as it looks to re-let the contracts and pay for any work in the short term to be done.
And with voters going to the polls in the city today, it is also not clear what the political fallout from the collapse will be.
Eastern Daily Press
9 September 2010