Bailiwick Express reported that:
" Local companies involved in the £75m project to transform Jersey’s sewage treatment works will be left fighting for their money after the UK firm acting as main contractor went bust. NMCN, which was the Government’s highest paid contractor last year, collapsed into administration yesterday after a refinancing of the business fell through. It's understood that contractors based at Bellozanne have left the site. More than £200,000 of local firms’ money is believed to be at stake, and Express understands that they are urgently seeking clarity from Government officers on whether there are contractual protections for island companies. Questions are also being raised about what action was taken by Government given repeated red flags."
It isn't the first time this has happened. It reminded me of the Queen's Valley saga where it was the Waterworks company rather than the States who faced calamity, and which also impacted local contractors.
Also below I take a look at Harcourt who were removed from the Waterfront development because of a failure to meet an insurance bond - this was to cover eventualities such as their being unable (for whatever reason) to complete the work. Philip Ozouf, then Treasury Minister, was canny enough to insist on this - as well as pre-lets - as a safeguard.
It would be interesting to know if any such bond was required for the Bellozane development, or whether any such bond is required for the hospital, to ensure that if a contractor goes bust, local firms will not be impacted by this, or at least will have the collapse mitigated.
Queen's Valley and the Collapse of Shepherd Hill
By the late 1980’s the proposed construction of any new large dam in the UK had become politically very difficult. This was also the case in Jersey where permission to construct Queens Valley reservoir had been hard fought over many years despite a water supply situation on the Island that was becoming increasingly precarious.
When construction eventually did get underway in 1989, the problems for client Jersey New Waterworks Company were far from over as, in November 1990, with construction about 40% complete, Main Contractor Shepherd Hill went into administration.
M J Gleeson was invited to step in to complete the project and Steve Miller was shipped out to the Island at short notice to act as Project Manager for the remaining works – facing the challenges of taking over a half completed project, de-motivated workforce and a very anxious client.
The States Minutes of 4th December, 1990 record this:
Queen's Valley and the Collapse of Shepherd Hill
By the late 1980’s the proposed construction of any new large dam in the UK had become politically very difficult. This was also the case in Jersey where permission to construct Queens Valley reservoir had been hard fought over many years despite a water supply situation on the Island that was becoming increasingly precarious.
When construction eventually did get underway in 1989, the problems for client Jersey New Waterworks Company were far from over as, in November 1990, with construction about 40% complete, Main Contractor Shepherd Hill went into administration.
M J Gleeson was invited to step in to complete the project and Steve Miller was shipped out to the Island at short notice to act as Project Manager for the remaining works – facing the challenges of taking over a half completed project, de-motivated workforce and a very anxious client.
The States Minutes of 4th December, 1990 record this:
Shephard Hill and Company Limited -Queen's Valley reservoir. Statement Senator John William Ellis, States Director and Deputy Chairman of the Jersey New Waterworks Company Limited made a statement in the following terms -
``On Monday, 26th November the Jersey New Waterworks Company was informed that Barclays Bank Plc., in England had appointed an administrative receiver of Shephard Hill and Company Limited, on that day. Press reports suggest that the financial difficulties of Shephard Hill were triggered by the insolvency of a Swedish Bank.
The directors immediately put in hand two plans of action which were pursued hour by hour with the utmost urgency. Firstly the Company sought a meeting with the receiver. The Company's preferred option was that Shephard Hill would complete the contract that it had concluded with the Company.
Secondly the Company sought other contractors who would continue the work in the event of the receiver abandoning the contract.
The Chairman, the managing director and I together with other directors and our professional advisers met the receiver at 3.15 p.m. on Thursday, 29th November and he informed us that Shephard Hill had served redundancy notices on the employees and that they would not continue the contract. As required by the contract the Company gave immediate notice to Shephard Hill that they would after seven days enter upon the site and expel Shephard Hill.
The Company immediately put into effect its contingency plan. Two senior executives of M.J. Gleeson Group Plc., flew to Jersey during the evening of Thursday, 29th November to implement the contingency plan previously agreed at a meeting which I had attended with other directors and our professional advisers.
Apart from Shephard Hill, M.J. Gleeson had submitted the lowest tender for the original contract and have therefore detailed knowledge of the work. They are a large firm of civil engineering contractors and the company and it advisers are confident that they can complete the work on the reservoir. The work will be carried out on a cost plus basis until 31st December and a new contract will be negotiated during December with M.J. Gleeson.
The results of these arrangements will be that the momentum will not be lost and any delay should be limited. In accordance with normal practice the Company has taken out a performance bond for £1.245 million being 10 per cent of the contract price. The Company hopes and believes that this bond, and the value of the work in progress, will contain, or substantially contain, the additional costs that will inevitably be incurred.
Much was achieved last week
Unfortunately I have another development to report. On Saturday, 1st December a small number of principal suppliers who are creditors of Shephard Hill informed the Company that one or possibly more of them would not supply Gleesons unless Jersey Waterworks paid the amounts due to them by Shephard Hill. The Company hopes that this attitude is limited to one or two or a very small number of the principal creditors.
The creditors of Shephard Hill are not entitled to be paid anything by Jersey Waterworks in law or in equity. They have a claim against the receiver. If the directors made these payments they would have to pay all the creditors and they would be in breach of their fiduciary responsibilities. These substantial additional costs would have to be provided by the water consumers and this also is an arrangement which cannot be contemplated.
Waterfront Enterprise and Harcourt: The Insurance Bond
Harcourt had to put up £95m bond to ensure that if they were unable to complete the Waterfront development, the States would not be left footing the bill. Senator Ozouf extended their deadline for raising the bond twice, but they were still unable to raise it.
Philip Ozouf told the States:
“One of the fundamental provisions of the Heads of Terms is that the funding of the infrastructure works and the payments to W.E.B. should be backed by a bond to be issued by a bank or insurance company acceptable to W.E.B. in the sum of at least £95 million. I have previously advised Members that W.E.B. have been seeking appropriate confirmations from Harcourt and its funders that such a bond can and will be provided. While letters of comfort have been provided to W.E.B. by 2 potential funders they are not expressed in terms which provide W.E.B. with the level of commitment that W.E.B. is seeking.”
“Effectively, it is the amount of money required in order to deliver the infrastructure areas for the underground car park, the road, et cetera, to ensure that the States’ position is safeguarded so that it would not be in a position that the developer could walk away without having completed the development without any money.”
``On Monday, 26th November the Jersey New Waterworks Company was informed that Barclays Bank Plc., in England had appointed an administrative receiver of Shephard Hill and Company Limited, on that day. Press reports suggest that the financial difficulties of Shephard Hill were triggered by the insolvency of a Swedish Bank.
The directors immediately put in hand two plans of action which were pursued hour by hour with the utmost urgency. Firstly the Company sought a meeting with the receiver. The Company's preferred option was that Shephard Hill would complete the contract that it had concluded with the Company.
Secondly the Company sought other contractors who would continue the work in the event of the receiver abandoning the contract.
The Chairman, the managing director and I together with other directors and our professional advisers met the receiver at 3.15 p.m. on Thursday, 29th November and he informed us that Shephard Hill had served redundancy notices on the employees and that they would not continue the contract. As required by the contract the Company gave immediate notice to Shephard Hill that they would after seven days enter upon the site and expel Shephard Hill.
The Company immediately put into effect its contingency plan. Two senior executives of M.J. Gleeson Group Plc., flew to Jersey during the evening of Thursday, 29th November to implement the contingency plan previously agreed at a meeting which I had attended with other directors and our professional advisers.
Apart from Shephard Hill, M.J. Gleeson had submitted the lowest tender for the original contract and have therefore detailed knowledge of the work. They are a large firm of civil engineering contractors and the company and it advisers are confident that they can complete the work on the reservoir. The work will be carried out on a cost plus basis until 31st December and a new contract will be negotiated during December with M.J. Gleeson.
The results of these arrangements will be that the momentum will not be lost and any delay should be limited. In accordance with normal practice the Company has taken out a performance bond for £1.245 million being 10 per cent of the contract price. The Company hopes and believes that this bond, and the value of the work in progress, will contain, or substantially contain, the additional costs that will inevitably be incurred.
Much was achieved last week
Unfortunately I have another development to report. On Saturday, 1st December a small number of principal suppliers who are creditors of Shephard Hill informed the Company that one or possibly more of them would not supply Gleesons unless Jersey Waterworks paid the amounts due to them by Shephard Hill. The Company hopes that this attitude is limited to one or two or a very small number of the principal creditors.
The creditors of Shephard Hill are not entitled to be paid anything by Jersey Waterworks in law or in equity. They have a claim against the receiver. If the directors made these payments they would have to pay all the creditors and they would be in breach of their fiduciary responsibilities. These substantial additional costs would have to be provided by the water consumers and this also is an arrangement which cannot be contemplated.
Waterfront Enterprise and Harcourt: The Insurance Bond
Harcourt had to put up £95m bond to ensure that if they were unable to complete the Waterfront development, the States would not be left footing the bill. Senator Ozouf extended their deadline for raising the bond twice, but they were still unable to raise it.
Philip Ozouf told the States:
“One of the fundamental provisions of the Heads of Terms is that the funding of the infrastructure works and the payments to W.E.B. should be backed by a bond to be issued by a bank or insurance company acceptable to W.E.B. in the sum of at least £95 million. I have previously advised Members that W.E.B. have been seeking appropriate confirmations from Harcourt and its funders that such a bond can and will be provided. While letters of comfort have been provided to W.E.B. by 2 potential funders they are not expressed in terms which provide W.E.B. with the level of commitment that W.E.B. is seeking.”
“Effectively, it is the amount of money required in order to deliver the infrastructure areas for the underground car park, the road, et cetera, to ensure that the States’ position is safeguarded so that it would not be in a position that the developer could walk away without having completed the development without any money.”
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