Legal action threat over (pounds) 43m PPP schools debacle

Edinburgh investment bank Noble & Co and Lloyds TSB are facing the threat of legal action after construction work on the (pounds) 43 million East Lothian schools PPP project was abandoned with the collapse of the Ballast building and services group into administration.

The banks are part of the Innovate consortium, which is charged with delivering the contract by August next year. But there are fears that the deadline will not be met after Deloitte & Touche moved into Ballast's UK offices last week following its Dutch parent's decision to withdraw funding.

East Lothian Council has raised the prospect of activating compensation clauses in the contract if the crisis causes long-term disruption to the project.

Councillor John Ross, convener of the council's education committee, said: "The council's PPP contract is with the Innovate consortium and so we look to Innovate to manage and deliver the project on the council's behalf.

"Innovate are well aware of their obligations to their contract with the council and are working quickly to find a suitable alternative contractor.

"We naturally have concerns about the overall effect of this on the construction timetable but we will be doing our utmost to ensure that work starts on all sites as soon as possible."

Noble & Co, which is providing the risk capital for the project, has been trying to arrange a meeting with the administrators for early this week. Rory Christie, a director of Noble and Innovate, who was speaking for the consortium, said: "We have been looking at our position in some detail and have some idea of how we would like to take things forward. But there's not much we can say until after we have spoken to the administrators."

He said there were safeguards for the council built into the contract but was unable to state what length of delay was required to activate legal action. He added that the merchant bank had not been deterred from investing in PPP projects despite the latest debacle.

Innovate, with Ballast as a leading partner, had been in the running to win the (pounds) 142m contract to build and maintain new schools in Renfrewshire. The Ballast crisis could open the way for a consortium called Renfrewshire Schools Partnership involving Amey, the support services firm, and the Bank of Scotland. Amey, which was lead contractor in the Glasgow schools PPP project, was bought in April this year by Grupo Ferrovial, the Spanish construction company, after overstretching itself on key projects.

Six schools are being refurbished under the East Lothian PPP deal and a community learning centre in Musselburgh and a swimming pool in Prestonpans are also being built.

The administration order covers Ballast, Ballast Wiltshier Investments Ltd and Wiltshier Facilities Management. Nick Edwards, a partner at Deloitte, said he was confident the group could emerge from administration as a viable business as it held an enviable position in the PFI market.

Ballast has said it was disappointed by the decision of its Dutch parent, Ballast Nedam, to discontinue funding. It hopes the East Lothian project will continue on time and on budget as a special account controlled by the whole consortium had been established at the start of the contract and a corporate guarantee is held by Ballast Nedam.

Two weeks ago, sub-contractors employed by Ballast walked off six building sites, claiming they had not been paid. More strikes were held last week and one of the sub-contractors threatened legal action, which is believed to be part of the reason why Ballast Nedam decided to sever ties with its UK subsidiaries.

The UK division cut its losses to (pounds) 10.5m in the first half of the year, down from (pounds) 35.8m a year earlier, and reduced its workforce by a third to 1000. But the parent company's board said it found it unacceptable to continue to provide additional financing.

Copyright 2003 SMG Sunday Newspapers Ltd.
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