HC Deb 24 November 1975 vol 901 cc625-38

10.18 p.m.

Mr. Edward du Cann (Taunton)

I am grateful for this opportunity to discuss the non-payment of moneys due to several contractors, that is to say, plant hire companies, working on that section of the M5 motorway lying between Huntworth and Blackbrook in Somerset, Contract No. 14, and certain other matters arising out of the contract.

I say at the outset that this debate has nothing to do with the allegations of overpayment in respect of that section of the M5 in Gloucestershire on which we are awaiting a report. I hope that the report will be available shortly so that the good name of the consulting engineers who have been too often mentioned in this regard—the brilliant and inventive engineers, Freeman Fox and Partners—can be protected and confirmed.

A part of the section of the M5 motorway is in my own constituency and the remainder is in the constituency of my hon. Friend the Member for Bridgwater (Mr. King). Certain of the sub-contractors and their employees are my constituents. Most of the others come from neighbouring constituencies such as that of my right hon. Friend the Member for Yeovil (Mr. Peyton) or from further afield.

First, I give the facts. This is a seven-mile section of road. Its cost is about £6 million. The main contractor, to which the contract for its construction was let, is A. Monk and Company Limited. The firm was co-operative when I asked for information. I am very grateful for the help that it is currently giving me and, I hope, will continue to give me in the future. This is part of the 316-mile stretch of continuous motorway between Carlisle and the South-West. This stretch of road construction has been much delayed. There have been three extensions of time, as my hon. Friend the Member for Bridgwater will remember since he played a prominent part in the agitation to get it completed.

However, that is not my complaint this evening. Nor am I blaming Monk. I have no doubt that that firm has completed its work before the due time and I have no complaint about it. The firm's behaviour, so far as I know, has been entirely honourable.

I welcome the fact that the road is now almost entirely open and I know that my hon. Friends who represent constituencies in the South-West will agree with me that we should do all we can to improve any road in the South-West. Roads are a lifeline to the peninsula where we live.

I am glad that I have been associated in the campaign for better roads in the South-West, and I pay tribute to the work of my right hon. Friend the Member for Yeovil during his time as Minister of Transport.

There is, as the Minister will know, much more work to be done. There are two urgent needs in our part of the world. The first is the North Devon spur and the other is bypasses for smaller places in the South-West that are urgently needed if their life as entities is to be preserved. I refer to Preston Bowyer, Hatch Beauchamp and Wiveliscombe, and Norton Fitzwarren in my constituency. The Minister may be assured that we shall encourage him and support him in what he is trying to do in building roads in our area. Roads are an investment in Britain's economic prosperity.

The more I have inquired into this matter, the more concerned I have become. Therefore, I am grateful to the Under-Secretary of State for his presence this evening and his readiness to answer this short debate.

My intention, as part of what I am sure needs to be and therefore will be a continuing inquiry, is to put certain questions and proposals to the Minister. I have no wish—nor, I am sure, have my hon. Friends who represent the area—to make party political points. I am not here in that spirit. I repeat that as long as the Minister and his colleagues are partisans of a better transport system they will have my support and, I am sure, that of my right hon. and hon. Friends. For success in this regard, however, we need a healthy industry in every way, and I do not believe that that is happening at present. My first question to the Minister is to ask him to comment on that assertion.

I believe that what has gone wrong with the strategy of the M5 between Hunt-worth and Blackbrook is perhaps symptomatic of something else that may be wrong in the relationship at present between industry and the Government, and it is my simple objective to improve that situation.

Incidentally I make no criticism, either express or implied, of the County Surveyor of Somerset, Mr. Johnson, who has been responsible for the design of bridges on the M5 and for supervision of work, nor of the head of the Road Construction Unit in the South-West based on Taunton, Mr. Lyth. I know both gentlemen and have seen their work at first hand. They are admirable, conscientious and competent public servants and are well supported by their staffs. My questions relate to the systems and practices.

My second question is to ask how it is that not one but two firms of earth-moving contractors, appointed by Monk and endorsed by the Department of the En vironment, have gone into liquidation. What are the reasons for that?

My third question is whether the Minister is able to say what examination or inquiry his Department has made into the matter. What conclusions has he drawn about these extraordinary circumstances? What lessons have been learned?

This is not a merely parochial matter. The whole House is interested in the outcome. It is unprecedented that there have been two liquidations at the time of one single contract, inquiries were made by the Department into the suitability of firms for the work they were asked to undertake.

My fourth question—one of a series of questions—is to ask whether the Minister is aware that £200,000 is owed by the firm of Peirce and the firm of Cransford Baldwin to other small companies which deal mainly in plant hire. To whom can those companies look for settlement in this matter?

Firms cannot suddenly go into liquidation. The assumption must be that either they were unsuited ab initio, in which cahe they should never have been appointed, or after their appointment it should have been apparent what was going to happen. The second firm went into liquidation a mere four months after its appointment.

As regards the smaller firms of sub-contractors, the plant hire companies, surely they could reasonably assume the financial soundness of the earth-moving companies, because presumably Monk would not have appointed them originally if they were not financially viable and equipped to do the work, nor would the Department have approved their appointment.

It seems, therefore, that there is a moral obligation on the Department to pay part of these losses, if not all of them. It is not the job of small plant hire companies to finance motorway construction. The situation must be that either Monk or the taxpayer has obtained value for no payment. That surely would be quite wrong

My case is that Monk has lost money on this contract, and as far as I can see from inquiries that I have made Monk has been very helpful. Indeed, the firm has been generous financially. As regards Cransford Baldwin, the second firm that went into liquidation, Monk financed it in extra form to the extent of £30,000. So far as Peirce is concerned, I understand that Monk's estimated loss was no less than £200,000. If Monk has not made a profit at the expense of all these people, it must be the taxpayer, the State or the Department which has done so.

I put my fifth question plainly to the hon. Gentleman: will the Department make an ex gratia payment to which, after all, have found themselves in great difficulties through no fault of their own in circumstances that are unique? They are in difficulties because they carried out works in good faith.

I turn now to another matter, and that is the Department's promptness in making due payment. I do not know whether the hon. Gentleman has seen local Press cuttings relating to this matter. I am referring in particular to the Western Daily Press and the fine job of inquiry that Mr. David Tanner has done. I select the cuttings at random.

The first cutting is dated 15th October. It is an account of Cransford Baldwin going into voluntary liquidation with an estimated deficiency of no less than £447,767, four months after being appointed earth-moving sub-contractors on this job. That seems a terrible sum.

There was a meeting of the firm's creditors in London on 14th October, and there it was said that the firm had lost no less than £250,000 as a direct result of its work on road projects at Mere in Wiltshire and at North Petherton. It was stated as a matter of fact, not of speculation, that at least half that money was still owing to the firm for extra work done on Department of Environment contracts.

A spokesman for the well-known London firm of accountants Cork and Gully—it is, I suppose, a firm with more experience in liquidations and receiverships than any other firm in London and it has a brilliant reputation—said: The attitude of the Environment Department in the way it pays its bills has certainly not helped the firm. The past nine months on Government contracts have been its downfall. The workings of the Ministry seem to be a complete botch-up, because this is not the first instance we have come across of firms having their fingers burned on Government contracts. If what Cransford Baldwin has been through has been experienced by other firms, I do not know what sort of industry will be left to do other work for the Government. It seems—I do not know how accurate this is—that if the Government have paid all the sums due to Monk, and thereby to the sub-contractors, they should see that these small plant hire companies get paid in their turn.

I turn to the second quotation, which is dated 16th October. This is a different matter. Here is a statement from a man called Cameron, who was a director of the earth-moving firm of Peirce. He said that his firm was still trying to obtain no less than £2 million for work done on Department projects—King's Lynn bypass, Meath bypass, Camborne bypass and the M27 at Southampton. They stretch out negotiations"— he said, speaking of the Government— over legitimate claims and let you go broke in the meantime. My next quotation is from the Western Daily Press of 11th October. It states: Company director Mr. Tony Barron…says the Environment Department owes the sub-contractors £4 million for work carried out on its projects….His own earth-moving firm, Dick Hamptons, is owed £250,000 on road contracts going back to 1971. That is a fact which was apparently admitted by the spokesman for the Department.

I want to make it clear to the House that the assertions made in those Press cuttings have been confirmed to me, and I have no doubt that my hon. Friend the Member for Petersfield (Mr. Mates) will have something to say about the position of Hamptons should he succeed in catching the eye of the Chair.

Nor are those the only cases. I could quote from the annual reports of the Monk company for 1971 to 1975 which show that that company is owed money.

In reply to my hon. Friend the Member for Bristol, West (Mr. Cooke) on 16th October, it was revealed that no less than £90 million was owed. The Minister for Transport said that ordinarily no more than one-third of what was claimed was paid. That is a shocking figure.

I move on to other questions. I have a series of them. How many earth-moving or other contracting firms have gone into liquidation or out of business in, say, the last five years? What are the reasons? How many plant hire companies have been affected down the line in their turn? Has the system adopted by the Government for payments to their contractors made any contribution to the situation?

Is the Minister quite satisfied that payment is invariably made as promptly as possible? I am aware of the instructions given by Ministers. There was, in particular, a circular of 21st December 1970 saying that payment must always be made promptly, but are those instructions always carried out? What comparisons have been made with the payment methods employed in the private sector? Are the Government always as prompt as a non-nationalised company would be? If not—I know that the answer is that the Government are not as prompt—why not? How much money is owing on motorway contracts? Is it £90 million? For how long has it been outstanding? When will the outstanding moneys be paid?

Was the contract with Monk a fixed-price contract? Was that the reason for the problems with the earth-moving companies? Has Monk lost money on this contract? If so, what bearing does this have on the situation of the earth-moving sub-contractors and the plant hire companies? If this was a fixed-price contract, I believe that the moral obligation on the Government to make an ex gratia payment to the plant hire companies is enhanced as a result.

It may be thought, as it occurred to me when I was preparing the notes for this speech, that if it is possible and necessary for me to ask two dozen questions, or whatever the total number may be, the anxiety which others besides myself have expressed is only too well founded.

There are two ancillary matters. As my hon. Friend the Member for Bridgwater knows, there are a number of spoil tips up and down this stretch of motorway. I have seen a full report from Monk about them. The local landowners and farmers have been reasonable and helpful in regard to the public interest in these matters. I hope that the Minister can give an assurance that the spoil tips will certainly be cleared away promptly.

Secondly, there have been payments for compensation for land taken, and interest is paid if the payments are delayed. When those payments are received, the recipient is taxed as if it was a receipt for one single year of merit. In other words, the recipient may well be paying a higher tax rate than if the payments were spread over a period. I do not think that is fair. It is a matter which causes great irritation. I have taken it up with the Treasury. I hope that the hon. Gentleman will lend the Department's support to securing that the rules are changed for the fairer.

May I summarise my main points? There has been much public interest in these plant hire companies. My right hon. Friend the Member for Yeovil and my hon. Friends the Members for Bridgwater, for Petersfield and for Cirencester and Tewkesbury (Mr. Ridley) and I have expressed it. What about an examination of the procedures for contracts and payment? Has that been undertaken? If not, it should be. The Secretary of State should make a statement about it and say whether they are the most satisfactory procedures that we can find and whether they are an encouragement to industry. I think that there is prima facie evidence that that is not so at present, and that is not satisfactory.

Secondly, I hope that the Under-Secretary will make a statement about the state of the industry and what can be done to improve it.

Thirdly, he must, if he has not already done so, set in train an inquiry into this matter, how it comes about that two firms of earth movers have gone into voluntary liquidation and where the responsibility lies. I hope that the findings will be published. Finally, but not least, I hope that the hon. Gentleman will authorise ex gratia payments to those who have suffered, and suffered unfairly and grievously—namely, the plant hire companies—from this situation.

10.35 p.m.

Mr. Tom King (Bridgwater)

I am grateful for the opportunity to intervene briefly in the debate so ably and sensibly initiated by my right hon. Friend the Member for Taunton (Mr. du Cann). It is significant that it is being held on the day before this section of the M5 is fully opened.

This is the end of a sad fiasco in the construction of this section of the M5. The Minister has been involved over the amount of public money spent, including the waste of £200,000, which could well have been spent on bypasses such as those my right hon. Friend mentioned in his constituency. I have in mind the village of Washford, in my constituency, where a ramp which was constructed on this section of the M5 had to be demolished three months later to enable the whole of the M5 to be opened. I also subscribe to what my right hon. Friend said about the plant hire contractors.

I also stress another point my right hon. Friend made. There are 13 heaps of spoil which farmers in our constituencies agreed to allow to be placed on their land. They entered into contract with Pierce at the time. The spoil was deposited on the understanding that the land would be made good subsequently. Pierce has now gone into liquidation and these farmers are left with the spoil heaps. One in my constituency has a heap 11,000 cubic yards in size standing on grade one agricultural land, which is quite unusable at present.

The Minister should bear in mind that the farmer agreed very reluctantly to having a spoil heap on his land. He agreed only because this was a national motorway scheme and there was considerable concern that the North Petherton road should go through to relieve the local community of traffic. He is stuck with this spoil with no recourse to having the land put back to proper agricultural use because the contractor has gone bust.

The Department says that it has no legal or contractual obligation because this was a contract entered into by our constituents with the contractor, that it was not with the main contractor and that the Department does not allow a contract to be sub-contracted without written permission. But I have here a copy of the terms of contract, which says that the Contractor shall not sub-let any part of the Works without the written consent of the Employer". That means that the Department approved the sub-contractor. Therefore, there is a moral, if not a technical, legal or contractual obligation to my constituents to see that those who entered into contracts with approved sub-contractors of the Deparment are not left in the situation in which they now find themselves.

10.39 p.m.

Mr. Michael Mates (Petersfield)

I am grateful to the Minister for allowing me a moment to make a small constituency point. Without going into the rest of the argument so ably deployed by my right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Bridgwater (Mr. King), I want to ask one simple question. Why does an earth-moving firm of the substance of Dick Hamptons, whose headquarters are in my constituency, go out of business because it is owed almost £500,000 by the Department of the Environment, a debt which goes back to and grows gradually from 1971?

I do not have the figures because I have just handed the Minister the letter so that he might get guidance and help from his officials, but is it not wrong that the Department can allow by default a firm which operates nation-wide completely to draw its horns in over a problem which is not of its own making in any way but is purely a problem of bureaucracy and delay and other problems of which my constituent has complained both to me and to the Department?

Secondly, when it became an absolute crisis on 5th December, I wrote to the Secretary of State saying that there was one paragraph in a long and complicated letter to which I wanted an answer within a day or so. It was a simple question: is the fact that £500,000 is owed correct? I have not yet had so much as an acknowledgment.

I believe that a Back Bencher ought to be able to put these two questions to a Minister and get straight answers.

10.41 p.m.

The Under-Secretary of State for the Environment (Mr. Neil Carmichael)

I congratulate the right hon. Member for Taunton (Mr. du Cann) for putting the case of his constituents and other subcontractors so eloquently and forcefully.

First, I should like to take up the point regarding what has appeared in the Press over the weekend and this morning concerning the allegation of malpractices on the M5. The report of the independent investigation into these matters will be published within the next few days. Hon. Members must await publication of the report to learn the detailed findings. It will cover many aspects of this extremely complicated subject. However, I should make it clear that the investigation has not revealed any evidence of corruption or fraudulent practice by the consulting engineers concerned. I hope that I may leave the matter there until the report is published, when the House may want to discuss it.

I share the concern of the right hon. Gentleman and of other hon. Members who have intervened in the debate about the problems facing a number of companies and men who depend on them for their livelihoods caused by the collapse in quick succession of two earth-moving sub-contractors on the Huntworth to Blackbrook section of the M5 motorway. This has led to misguided and unfounded statements that the Department is responsible. That is not so.

I want to be brief, because a lot of the time has already been taken up, but in order that the House may fully appreciate the true facts of the situation it is necessary first to understand how the construction of major contracts is organised. Construction contracts in this country and in many other countries are normally let to one main contractor who has the necessary financial standing and technical and management abilities. Highway contracts are no exception. The main contractor can, if he wishes, undertake all the work himself using his own resources.

As many hon. Members will know, however, the construction industry includes a great many specialist contractors, and generally main contractors sublet at least some section of their work to these specialists. This is an important point. The decision to sublet and the choice of sub-contractor are those of the main contractor. A sub-contractor may in turn decide to sub-contract some of his obligations or need to obtain supplies of materials or to hire plant. He makes his own arrangements to do so. He does not need the consent of the Department as to which contractor he will use. All he needs the Department's consent for is whether he is entitled to sublet this part of the work. To whom he sublets contracts is his business. He draws up his own contracts with his sub-contractors.

At each stage there is what is called privity of contract between the two parties directly concerned. There is first a contract between the Department and the main contractor, then there is a contract between the main contractor and each of his sub-contractors and then there are contracts between the sub-contractor and his suppliers or plant hire firms and so on. The important thing to understand, however, is that there is no contractual link between the various stages; the Department has no contractual relationship with the main contractor's sub-contractors or with the latter's suppliers or plant hire firms.

It is alleged that, because the Department approved the two earth-moving subcontractors who have gone into receivership on this contract, it has a moral responsibility to the companies which are owed money. I am afraid that again this argument is mistaken. It is true that in the case of the M5 contract which we are currently debating the main contractor obtained the consent of the Director of the South-Western Road Construction Unit, as engineer to the contract, to its subletting the earthworks. But the Director did not approve, and had no part in the choice of, the sub-contractors whom the main contractor chose to employ.

Neither the engineer nor the Department has any power to require the main contractor to obtain their approval to the employment of a particular firm of sub-contractors. It has been suggested that the Department should ensure that the payments it makes to its main contractors are passed right down the line so that such companies receive payment. This would be quite impracticable.

The Department is not told, and has no right to know, the terms of the agreement between the main contractor and his subcontractors and those of the other agreements down the line.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Does the Department enter into contractual obligations to pay its main contractor at certain periods? That is what has gone wrong here, and my constituents are involved as well.

Mr. Carmichael

I am coming to that. I am sure that the hon. Member, of all people, will appreciate the background to this type of work.

The most damaging allegation which has been made, however, is that the Department owes large sums of money to earth-moving sub-contractors. The Department is being unfairly accused and I welcome this opportunity to put the record straight.

As I have already explained, the Department has no contractual or legal responsibility whatsoever to make payments to sub-contractors. Its obligation is to pay the main contractor in accordance with the terms of his contract with the Department for work executed. Contractors tell us that we pay more quickly than most other clients. Sub-contractors may have claims against main contractors, but because there is no contract between sub-contractors and the Department we can deal only with claims made by main contractors under the terms of their contracts with us. It does not, of course, follow that because a sub-contractor may have a claim against the main contractor the latter has a valid claim against the Department.

As regards the road we are discussing, claims relating to earth-moving operations which have been substantiated by the main contractor have been paid at the appropriate rates—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twelve minutes to Eleven o'clock.