W. & C. FRENCH (CONSTRUCTION) LTD. (Hansard, 31 July 1975)

§ Mr. Robert Taylor (Croydon, North-West)
I want to inquire deeply, but briefly, into the expenditure which we are asked to approve under Class VI Vote 1.
We are told in the sub-head detail to this proposal that the £1,000 for which approval is sought, is a token provision to make available a loan of up to £4.5 million to a single firm of civil engineers and building contractors as was announced to the House on 22nd May. Those of us with reasonable memories will recall that 22nd May was the eve of our recess for the referendum. If we turn up Hansard for that day we will find that the announcement was made by way of Written Answer, not in this Chamber.
2413 That is surprising because the announcement referred not only to the loan of £4½ million, but to ex gratia payments of £10 million to the same company. Therefore, under this heading we are looking at a total of £14½million being made available by way of ex-gratia payments and loans to one particular firm in the building industry.
I make no lengthy comment on the fact that it seems to be a negation of open government to announce the distribution of such substantial sums of money by way of Written Answer on the eve of a recess. But I understand that this money relates to fixed-price contracts for motorway work.
In answer to a subsequent Parliamentary Question which I put to the Minister for Transport I was told that the total sum involved was £87 million. Thus, if the Government have made £14 million available to this firm, it represents a 17 per cent. increase over the original tender figure.
It would seem that the firm concerned put in the lowest tender on a competitive basis for a substantial amount of motorway construction. Because it was unable to meet the figures upon which it based its tenders for one reason or another—they may have been very good reasons; inflation is certainly of great importance in this respect—the Government went to its assistance and offered these substantial sums of money.
In the original Written Answer on 22nd May the Minister said that this was the cheapest solution to the problem from the point of view of the public purse. I am not absolutely certain that that could be so in the long term. The Minister has in effect said to any future competitive tenderers in the construction industry on a fixed-price basis that they will take the lowest figure and, if the tenderer cannot complete at that figure, they will help him to fulfil his obligations.

§ Mr. Hal Miller (Bromsgrove and Redditchl)
Does my hon. Friend agree that this is destroying the whole basis of competitive tendering for motorway contracts? Does he agree that we ought to be told whether consideration was given to inviting other contractors to complete these works? Would not that have been the preferable way to proceed instead of 2414 handing out further grants to a yet unnumbered series of further contractors?

§ Mr. Taylor
I agree with my hon. Friend. I hope that the Minister will address himself to that point later. I certainly should have preferred the work to go to other tenderers rather than have companies feel that if they run into trouble on fixed-price contracts the Government will always be there to help them out.
In addition, it must be aggravating for other firms in the same industry which entered into fixed-price contracts at about the same time and completed their obligations without turning to the Government for assistance to know that out of the taxes on their profits they were contributing to making up deficits which their competitors had incurred.
I should like to know how much we are sanctioning by this Vote this morning. The sub-head states: Token provision is required to secure Parliamentary authority for this service. It does not say "this loan". It implies that there are other amounts which may subsequently come to light and be covered by this Vote which we are approving this morning.
I asked a Question of the Minister of Transport, who I am pleased to see here this morning, about this matter. My Question was: whether any ex-gratia payments or loans under the Highways Act 1959 other than those to W. & C. French (Construction) Ltd. are under consideration at the present time; and if so what is the maximum possible liability to public funds. The Minister's reply was A number of requests for assistance are currently under consideration but I cannot assess the amount, if any, of any grants or loans which may be made."—[Official Report, 4th July 1975; Vol. 894, c. 566.] I presume that when we approve this Supplementary Estimate, all these applications could be covered by the token sum of £1,000. The House should be given some idea of the precise sums likely to be involved.
By coincidence, there was a statement in The Times yesterday by the chairman of Bath and Portland Group when presenting the interim figures. He said: Two motorway contracts with an original value of £15 million have already incurred extra costs of some £4 million, exclusive of 2415 inflation, but the claims cannot be finalised until completion later this year. Is this yet another company that will have to receive assistance? The chairman does not say whether they are fixed price contracts. We should know or have some idea of the total sum to which we are being committed by this token sum of £1,000.

§ The Under-Secretary of State for the Environment (Mr. Neil Carmichael)
I must congratulate the hon. Member for Croydon, North-West (Mr. Taylor) on the assiduity which he has shown on this subject. In the last month, he has put down five Questions to my hon. Friend, the Minister of Transport, and has again raised the subject today.
Perhaps I should begin by explaining the background to the assistance which the Government are giving this company. This was explained by my right hon. Friend, the Secretary of State for Education and Science on 22nd May 1975 when, as Minister for Transport, he answered the Question in this House put down by my hon. Friend, the Member for Aberdare (Mr. Evans).
Following approaches from the company about the losses it was suffering on a number of motorway and other trunk road contracts, an examination of the company's financial situation and that of the group of companies of which it forms part confirmed that, without special assistance, the contractor would be unable to complete these contracts. Most of the 16 contracts involved are on a firm price or limited variation of price basis.
In view of the very large additional costs of having the contracts completed by other contractors, the Government decided in November 1974 to make an ex-gratia payment to the company of £3.5 million.
The information available at that time indicated that this amount was necessary and sufficient to ensure completion of the contracts. Unfortunately, however, subsequent forecasts revealed that more money was required. Interim additional payments of up to £3.75 million were made available to enable work on the contracts to proceed while a very full and detailed further examination of the company's situation and of the holding 2416 company French Kier Holdings Ltd., as well as its other subsidiary companies, was made. This examination was carried out by an independent firm of accountants and I can assure the House that it was exceedingly thorough. The examination showed that a further amount of up to £6.75 million might be required to ensure completion of the contracts.
On 1st March last, about £40 million worth of work, out of a total tender value of about £87 million remained to be done on the contracts. If the Government had given no further assistance and W. & C. French (Construction) Ltd. had ceased to trade, the costs of completing the contracts by bringing in other contractors would have been greatly in excess of the total amount of assistance of £14 million which is being made available. I stress that this is without taking into account the delays in completing the roads concerned and the economic loss and social disadvantages of those delays. There would have been delays of up to a year if we had had to bring in other contractors. In reaching the decision to continue to support the company, the Government took into account not only these compelling arguments, but also the total trading situation and prospects of the French Kier group of companies.
The Government's decision has of course been criticised. On the one hand all contractors who have also suffered losses on their highway contracts would have liked to receive assistance. We did look long and earnestly at the representations which the industry made for some general relief from the losses companies were suffering on trunk road contracts on a firm price and limited variation of price basis because of inflation and prolongation caused by the three-day week. But if such a concession had been made, similar concessions would have had to have been given on all other public sector contracts. The cost would have been prohibitive.
The Government therefore decided in the present situation of stringent control of public expenditure that they could not give general blanket assistance, but like successive Governments they have made clear that they are prepared to consider individual cases of real hardship on their merits under the normal ex-gratia rules. 2417 This is precisely what we did in the case of W. & C. French.
On the other hand there are those, with whom the hon. Member for Croy-don, North-West seems to associate him-self, who argue that a contract is a contract and that if a company cannot honour its obligations it should be allowed to go into liquidation. As a general principle the Government support the view that there should be no departure from the terms of a contract freely entered into by both parties other than in the most exceptional circumstances. But the Government, like any other responsible body, must have regard to their own interests and those of the tax-payer. As I have already said, had we not supported W. & C. French the company would have been unable to complete our motorway and trunk road contracts. The cost of getting them completed by other contractors in monetary terms alone would have been very much more than the assistance we are providing. In the face of this, Parliament and taxpayers would have had cause for justified grievance had we not acted as we have done.
In all we are providing up to £14 million in assistance to W. & C. French under the powers of the Highways Act 1959 to ensure completion of our con-tracts. £9.5 million is being made as an ex-gratia grant.
Thereafter the company can draw loan of up to a maximum of £4.5 million. We have, of course, imposed a number of conditions as part of our agreement to make this assistance available. Let me now set out the principal conditions. First, payment is being made in appropriate instalment on the basis of need. Second, loan payments will attract a rate of interest 1 per cent. higher than that charged to the company by its bankers. Third, my Department shall have the right to convert any amounts of loan outstanding after 31st December 1976 into shares in French Kier Holdings Ltd. and to nominate a director to the board of that company. Fourth, no funds can be transferred from W. & C. French (Construction) Ltd. or the holding company to other subsidiary companies in the group without the Department's consent. Fifth, the Department has the right, which it is, of course, exercising, to 2418 monitor closely the financial position of the holding company and its subsidiaries. Sixth, if the eventual loss on our contracts is less than the forecast loss, half the difference between the two amounts is repayable to the Department.
The seventh condition is that the company abandons a large volume of contractural claims against the Department. If they had been pursued they would have resulted in substantial payments to the company.
The action which the Government took in assisting this company was without any shadow of a doubt the right one. It was clearly in the interest of the taxpayers and of the economy as a whole. The nation needs these important roads as quickly as they can be constructed. What good would the very substantial amounts of capital already invested in them have been in the many months of delay which would inevitably have occurred had we said "No" to W. & C. French? Already five of the 16 contracts concerned have been completed. These are M23, Bletchingley to Pease Pottage; M18, Thorne to East Cowick; M23, Hooley to Merstham; A47 Kings Lynn bypass; and A108 (A19) Hylton Bridge. A section of the A45 Stowmarket to Claydon bypass will be opened in a week's time, and good progress is being made in completing the remaining work. This excellent progress alone justifies our decision.

§ Mr. Walter Harrison (Treasurer of Her Majesty's Household)
rose in his place and claimed to move, That the Question be now put.