Sub-contractors left in the lurch as public procurement problems continue

Article

27 March, 2019

After the recent Seabourne Freight debacle, where a now infamous £13.8 million ferry service contract was awarded to the company even though it had no ships, public procurement is once again in the news for the wrong reasons.

The Dawnus Group has filed for administration following claims that subcontractors, including staff across several sites throughout the UK, refused to work due to the reported lack of payments. Workers have been sent home from several sites, including those working on the multi-million pound Kingsway development in Swansea and the Regent Road roadworks project in Manchester, due to the spiralling situation.

On Friday 15th March, Grant Thornton was appointed as joint administrators of the UK operations of Dawnus Group, which operates throughout the UK employing approximately 700 people across six regional offices and 44 construction sites.

The appointment covers Dawnus Group Ltd, Dawnus Construction Holdings Ltd, Dawnus Developments Ltd, Dawnus Southern Ltd, Churchfield Homes Ltd, Dawnus Ltd, Quantum Geotechnical Ltd, Ashbridge Construction Ltd and Legsun Ltd, although it does not extend over the groups international operations; Dawnus International Ltd, Dawnus Sierra Leone Ltd or Dawnus Liberia Ltd.

It has been reported that the directors called in the administrators after running into financial difficulties from a downturn across the construction industry.

Alistair Wardell, a restructuring partner from Grant Thornton, explained:

"The Dawnus Group has struggled with a wide variety of challenges and despite significant efforts to turn the business around, unfortunately it has not been possible to rescue the group. As a consequence, the future cash flows has meant that the business was not in a position to continue to operate, including completing existing work in progress."

The failure of the Dawnus Group highlights the knock-on risks to sub-contractors engaged by large construction companies, who will potentially bear the brunt of the losses from any insolvency. Current government policy, including the overhaul of the construction VAT regime from 1 October 2019, has been to prevent the practice commonly known as "subbie bashing". Going forward from these most recent failings, it is likely that we will see increased calls for the ring-fencing of sub-contractor money to be protected through the use of mechanisms such as project bank accounts (PBAs), calls which public bodies should be ready to act upon.

Forbes Solicitors regularly advise contracting authorities and economic operators alike on the application of procurement regulations, the running of compliant procurement procedures, and also on potential and actual procurement challenges. Contact Dan Crayford on 01254 222 451 or at dan.crayford@forbessolicitors.co.uk for more information.

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