HC Deb 20 May 1992 vol 208 cc471-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Nicholas Baker].

7.40 am
Mr. John McFall (Dumbarton)

I have waited for a long time to make my speech. I never thought that I would do so at breakfast time. As a very willing and, perhaps, active member of the Select Committee on Sittings of the House—which recommended that all—night sittings should cease and that the next Parliament should deal with such matters—I think it ironic that I should now be embarking on a speech at 7.40 am.

First, let me welcome the Minister to the Dispatch Box. He has been a Back Bencher for many years; I have admired him ever since I first entered the House and I think that his promotion is well deserved. I wish him well in his new office.

I want to discuss the progress of the Trident construction project in my constituency and the failure of the Property Services Agency and the Ministry of Defence to acknowledge the plight of companies—mainly small companies—working on the project. Numerous com— panies have gone bust and perhaps thousands of people have become unemployed because of the shambles of that project. The scheme has constantly been hit by delay—so much so that the MOD brought in Bovis to do an external audit. That audit has been undertaken, but, sadly—despite the recommendations of the Select Committee on Defenceand others—it has not been made public. Why has it beenkept secret? I think that it would help everyone to find out exactly what was happening.

Although I have maintained regular contact with MOD and the PSA and have spoken about the matter in aprevious Adjournment debate and a Royal Navy debate, I feel that little progress has been made. Contractors havebeen waiting for years to receive money owed to them; a sizeable number have had to fold because of that prolonged wait. To date, the MOD has said that it isnothing to do with them—that it is a matter for the Property Services Agency.

With that in mind, I ask the Minister to turn his attention to the matter. In his Budget speech the Chancellor said: I want to see the Government's good record on the payment of bills extended to firms which win Government contracts. From next month, those successfully negotiating a contract with a Government Department will be required to include clauses in their own contracts with subcontractors which provide for the prompt payment of bills, ordinarily within 30 days of receiving a valid invoice. I believe that Government have set a good example, and I hope that large companies will follow."—[0? cial Report, 10 March 1992; Vol. 205 c. 753.] Manifestly, the Government have not set a goodexample; at the Trident development contractors are waiting for years for payments. I ask the Minister to convince me—and others—that what the Chancellor said was not empty rhetoric but principled comment, so that we can get something done for small business people. Judgment will be made on the basis of the outcome of this debate.

There is a history of problems with the Trident project. I have been trying—through my membership of the Select Committee on Defence and my role as constituency Member of Parliament—to uncover the real problem. I well remember, in the Select Committee, questioning David Heyhoe, assistant Under-Secretary of State, Fleet Support. The reference is House of Commons 337.

I asked Mr. Heyhoe why there had been such enormous problems and delays and whether it was because of fast track planning. He answered: I am not quite sure whether 'fast track' is a term of art and whether, strictly speaking, this is fast track, but I understand your point. It is the case with these projects, principally because of the time factor relating to the programme of the submarines, we proceeded with construction before designs were completed. That is certainly the case. That is what the problem is all about.

Is it, as the MoD has said, contractor-subcontractor relationship and nothing to do with the Ministry? In some cases it is contractor-subcontractor, but in other cases it is not. I will provide the Minister with three examples.

The first concerns a contractor-subcontractor relationship and is the case of G. and G. Wilkie Reinforcements, which undertook steel fixing work on the construction project. The company has been owed over £700,000 by Tarmac, the main contractor. Mr. Wilkie, in a telephone call to me, said: The exact figure is 002,433.47. It is a figure that is engraved on my heart. It still haunts me. And well it should. Last October, he wrote to the Prime Minister, forwarding his claims to the PSA, which sent them on to Tarmac; only after this did Tarmac offer him £4,000 plus retention. That is a ridiculous sum. Mr. Wilkie is now unemployed and cannot even draw social security benefit. He can support his claim that Tarmac will not even give him the breakdown in tonnage payments and daywork hours. His company was sequestrated on 28 November last year, on the instructions of the Inland Revenue, and now his house is threatened. That should not have happened.

The second case also involves contractor versus sub, sub, subcontractor, and an individual who stays in my constituency, Tom Douglas, who owns Douglas Diving Services. His company was contracted by Roxby Engineering to do diving services. Roxby was subcontracted by Babcox, which in turn was subcontracted by Cementation. As a sub, sub, subcontractor, he had no relationship with the MOD or PSA. He said that that was a large part of the problem. He sued for £200,000 but was offered £13,000 by Roxby. In a telephone call to Babcox Construction Ltd., which he tells me that he has on tape, the company says that it has paid the money to Roxby, but Roxby is not giving him his money. He quite rightly said that the PSA management teams on the site could ascertain why Roxby has not paid him. I ask the Minister to turn his attention to that.

The third and most recent complaint is not a contractor-subcontractor problem. In this case, the main contractor is Trafalgar House, and the subcontractor is W. H. McKay and Sons, structural engineers and steel fabricators of Ross-shire. Both companies are owed money by PSA. This is where we get near the kernel of the problem, beyond the contractor-subcontractor relationship, and where we fall into the black hole of project mismanagement.

Mr. McKay's company, formed in 1973 with 150 employees, had an annual turnover of £9 million in 1989, having traded successfully. Then it became involved in the contract at Faslane. Now it has been turned from a highly liquid company to one that has an overdraft of £1.5 million to £2 million. That gentleman was in my home on Friday, spending two to three hours explaining what his difficulties are. He has had to put £500,000 of his own money, his pension fund and possessions, into the company to keep it going. He is involved in a life and death struggle. He tells me that Trafalgar House, the main contractor, has not kept any money back from him, but it can afford to hold out because it is a big company. However, he cannot afford to do so. His case is quite detailed and I will provide copies of the letters that he sent to me so that the Minister can look at the details.

Let us consider Mr. McKay's case globally. He is owed £3.87 million in direct costs, £2.47 million in overhead costs, £2.5 million in prolongation costs, and £625,000 in non-productive costs—a total of £9.5 million. The PSA has already paid him £4.6 million, leaving a total shortfall of £4.9 million. To date, he has been paid some money on account, but that has been used as a carrot by the PSA. For the purposes of this debate I shall look at one project, the northern test development facility, which incorporates the mast and periscope building, for which his company subcontracted for the structural steelwork.

The original start date was 5 December 1989, with completion of the work 15 weeks later on 31 March 1990. Eventually, the firm started work on 10 May 1990. However, 123 weeks later it is still involved in structural steelwork variations. To date, there have been 475 variations to the original contract as a result of late design information. Is that due to the design team's imcompetence or to indecision by the Ministry of Defence regarding the ultimate needs? Whatever the reason, a duty of care should exist towards such firms. That duty, however, clearly does not exist.

The design team's architects for the mast and periscope building, Crouch Hall, put out incomplete drawings for that building. The firm had been under strict instructions to get them out. The first drawing, however, did not show the tower for the periscope—the very heart of the building. There was a blank space for it and it was said that the drawing for the tower was to follow. The tower was not designed until nine months after the award of the contract. That is what I call fast tracking.

I realise that drawings can be changed a number of times, whether at tender stage or at drawing stage. However, one needs a construction issue to construct works according to the drawings. In some instances it did not arrive on the desk until well after completion. Why did that happen? There are supervising order instructions. I am informed that up to 60,000 have been put forward at nil value. if they arc put forward at nil value, there is nothing to pay the contractors and subcontractors who are at the end of the line. People get into trouble as they progressively make their way down the line.

In the case of W. H. McKay, who has a BS5750 certificate, that was waived several times for the repositioning of the cladding rails on the mast and periscope building. The company was told, on such a sensitive project, to go ahead with the cladding rails, using unapproved drawings. That is clear evidence of panic and an indication of the chaotic state of that project. That has implications for quality and also for peace of mind, particularly when one realises that this applies to the Trident submarines. It is not reassuring. It is still less reassuring to find that a fire broke out last July in the mast and periscope building. It completely engulfed the building. The fire was caused by a breather membrane that was used between the aluminium steel plates encompassing the building. It is a type of insulation called Sisalkraft. It caught fire and the entire building was engulfed within half an hour.

That is bad enough in any building, but the consequences are unimaginable in a building that is to house the Trident submarines and ancillary products. According to my information, Sisalkraft is present in all the other buildings used for the Trident development. I have been told that when a match is put to Sisalkraft in the open it burns just like an ordinary piece of paper. The implications are enormous. If construction could go wrong anywhere, it could certainly go horrendously wrong in this case. That situation must be corrected, irrespective of cost.

I am looking for an undertaking from the Minister on the safety point, but I am also looking for an undertaking that the Ministry of Defence will cease the Pontius Pilate approach to the project and will show genuine interest in the plight of those subcontractors—small businesses which the Chancellor called the engine of the economy. I am looking for the Minister to take a personal interest, keep me and the subcontrators informed, and get the mess sorted out.

I conclude by referring to George Younger, a recent former Secretary of State for Defence, who is quoted in Construction Weekly of 2 October 1991. He certainly speaks for me and others in saying: The general principle must be that if delays take place that are the fault of no particular contractor, it is up to the PSA to ensure that these contractors do not suffer. I am looking to the Minister to address the case of the contractors and the safety implications. I am looking for genuine interest on the Minister's part so that we can follow up the case and get the mess sorted out for those small business people.

7.55 am
Mr. George Robertson (Hamilton)

I am grateful for the opportunity to intervene in this Adjournment debate. I strongly support my hon. Friend the Member for Dumbarton (Mr. McFall), who spoke with considerable diligence and authority. We look forward to hearing from the Minister.

I am interested in the case because some subcontractors employed people in my constituency. They drew my attention to the fact that they were dismissed because the company was in deep trouble and latterly went into liquidation, again as a result of a failure by the main contractor to pay subcontractors. The more that I dig into the matter the more I come to the same conclusion as did my hon. Friend.

There is something seriously wrong in a system whereby public money is given to a main contractor for work that has been done and has been satisfactorily completed, but that public money is not passed on to the subcontractors. Millions of pounds of public money are involved. Companies are going bust and people are being intimidated into not making the row that they should.

The scandal and the misuse of public money are not coming to the surface simply because those subcontractors will need future contracts. They are told that if they would like to sue, they can, but because of the enormous legal costs involved, they cannot afford to do so. Of course, in future, even with new company names, they will be looking for work from the contractors. The human casualties are our constituents, who are thrown out of work when the money is available and should be paid. The more that I examine the matter the more I think that there is something wrong with the system.

The Chancellor is right to say that the Government will use good practice. We hope that, further down the chain, that good practice will be continued. Perhaps we should examine some European Community countries and their legal systems. Such matters should be subject to the criminal law so that public authorities could take action on behalf of the subcontractors. There is a scandal and something needs to be done about it. The Ministry of Defence is in charge of the contracts and it should take some responsibility. I look forward, as I am sure my hon. Friend does, to hearing from the Minister some reassurance for the innocent victims of a very sick system.

7.58 am
The Minister of State for Defence Procurement (Mr. Jonathan Aitken)

Even after a sleepless all-night sitting lasting until the abnormal parliamentary hour of 7.58 am, the House should be grateful to the hon. Member for Dumbarton (Mr. McFall) for raising the subject of the problems that have been faced by small firms in relation to the Trident programme. The hon. Gentleman has been a tenacious champion of the interests of small firms in his constituency and elsewhere for some time now and I salute his persistence and his eloquence on the subject.

I also thank him for his kind words of welcome. I am a ministerial debutant. However, after 18 years on the Back Benches, and as the veteran of many Adjournment debates, some of which I initiated, at this early stage in my career, I have a great deal of sympathy with any hon. Member who raises a serious matter in the way that the hon. Member for Dumbarton raised his subject today. The hon. Gentleman brought along a formidable Front-Bench reinforcement in the shape of the hon. Member for Hamilton (Mr. Robertson), who made his second speech of the morning. Although I cannot follow his interesting deviations into Community law and procedures in the matter, I thank the hon. Gentleman for his contribution to this short debate.

I hope today to be able to say something helpful about the McKay problem and, more generally, about Government policy on all new defence contracts, including the Trident programme. I want first to refer more broadly to the Trident programme and its civil construction element.

As the hon. Member for Dumbarton is aware from his regular and welcome visits to the Clyde submarine base, there has been remarkable progress on the ground in physical terms. The new 85,000 tonnes explosives handling jetty at Coulport and the roads surrounding it have been described as one of the modern wonders of the civil engineering world. A range of new facilities are being built at Faslane, largely for our future strategic nuclear deterrent, but also for the long-term support of the other submarines that will be based there.

All that has constituted an enormous technical challenge to which Scottish and British companies of all sizes have responded splendidly. At its peak, 3,500 construction jobs were created at Faslane and Coulport and more than 1,000 businesses directly or indirectly benefited from the Trident programme. Most of those companies have operated successfully and well. The problem, which I admit exists, should be seen in the context of those wider and much more satisfactory arrangements.

Not only does the project confer immediate benefits in terms of wages, salaries and profits, but it challenges the technical skills of companies and employees alike. The project has helped to develop a strong technological base of excellence for the future and that must augur well for the reputation and future economic prospects of the Scottish and British construction industry.

Inevitably with a project of that magnitude, there will be problems from time to time. I readily acknowledge that the construction element of the Trident programme has proved to be considerably more complicated, expensive and difficult than we at the Ministry of Defence and our project managers—PSA Projects—had hoped. However, I must emphasise that the problems that we have heard about are not special to that programme or to Faslane or Coulport. They seem to be endemic to virtually all mega projects in the construction industry.

Claims of late payment or underpayment are commonplace in the construction industry. It is not an industry for the faint hearted. The gaps between claims submitted and the payment that the client thinks is justified may be enormous. For example, in my constituency near where the channel tunnel is under construction, the newspapers report that contractors' claims are well over £ I billion and that project has nothing directly to do with the Government.

I am happy to say that claims for the Trident programme are nowhere near that figure. The point is that claims, counter-claims and a confrontational atmosphere in which strong allegations and strong rebuttals are often made, are all part of the culture in the world of big construction projects.

In such a culture, it is a regrettable fact of life that smaller subcontractors can sometimes get squeezed for a variety of reasons, some of which are unfair reasons. We heard today of the sad story of the Wilkie company and the Douglas Diving Services company. The Government regret any such happenings in the industry and, above all, the practice sometimes known as "subbie-bashing" or subcontractor bashing. Where the Government have a locus standi in the matter, both my Department and the PSA will do everything we can to eliminate, or at least diminish, those practices.

However, I must make the point that for most past or existing contracts neither we nor the PSA are in a position to see, let alone interfere with, the commercial arrangements that have been made between main contractors and their subcontractors. Nor, indeed, can we see arrangements made between subcontractors and those who are contracted to them still further down the line.

In a moment, I will set out our policy on future contracts. As the hon. Gentleman rightly acknowledged, that policy has been influenced by the Budget statement of my right hon. Friend the Chancellor of the Exchequer. But first may I turn to some of the specific items that were raised in the debate. The hon. Member for Dumbarton was good enough to give me some notice of the McKay case. I listened attentively and sympathetically to the points and pleas that he made. It would not be right for me to comment on the exceedingly complicated matters of detail that appear to lie behind the saga or, indeed, on any matters of fact that were raised in the case.

However, in response to the entreaties of the hon. Member for Dumbarton, I can say that although the PSA is not directly involved in the subcontractual arrangements, it will discuss the case as a matter of urgency with the main contractor Trafalgar House and, with its agreement, with W. H. McKay direct. The PSA will endeavour to be helpful to both parties in resolving disputed matters and will play the role of honest broker. In addition the PSA will examine claims from the contractors. I shall write to the hon. Member for Dumbarton with a full report as soon as possible. I hope that he will accept that those moves are intended to be helpful and that they will prove to be so.

May I also deal with the serious matter that the hon. Member for Dumbarton raised about the Sisalkraft material? He queried whether the material was a serious fire risk. I gladly give him the undertaking for which he asked, which was to have the matter seriously investigated. Safety is always paramount in Ministry of Defence projects, particularly on one of this strategic and security importance. We shall certainly examine the serious points that he raised on Sisalkraft.

Lastly, I emphasise that Departments and agencies are required to pay their bills promptly. Both the Ministry of Defence and PSA pay their bills to their contractors promptly. For the future, the subcontractors who have been the main subject of the debate should be helped by the measures that were announced in the Budget this year to help with the problems of late and delayed payments.

One measure will, I am sure, be welcomed by the hon. Gentleman and the House. On all future contracts let by my Department, including any covering Coulport or Faslane, there will be a requirement on the prime or main contractor to pay his subcontractors within a reasonable period. That period may vary, but typically it will be within 30 days of completion of the agreed work or submission to the contractor of a valid invoice. That requirement will be legally enforceable by the subcontractor. In addition, in considering the award of future contracts, my Department will take account of each contractor's track record in this respect. I hope that that announcement will serve as an important amber light and warning to any contractors who have been less than fair to their subcontractors in those respects.

Although it should help, I do not pretend that this measure alone will lead to the end of subbie-bashing on the Trident development project at Faslane and Coulport. As I have explained, we have to live with existing contracts. Unfortunately it will not be possible to introduce the new measure to existing contracts because to do so would involve renegotiation, which would be a difficult and undoubtedly expensive business, since contractors would insist on extra payments for contractual changes.

What is required is a more businesslike and far-sighted commercial approach by those relatively few contractors who abuse the system. I will encourage my officials and our project managers, PSA Projects, to press home to all contractors that their reputation, as well as their effective performance, depend on their treating their subcontractors fairly and honourably. We have a three-pronged approach of practical help in resolving disputes, firm contractual requirements to enforce timely payments and bringing home to contractors the true results of their actions. I am convinced that that is the surest way to clamp down on the sort of problems and subbie-bashing that the hon. Gentleman has raised with such eloquence.

I hope that the hon. Gentleman feels that the Ministry of Defence does not have a Pontius Pilate approach, even though often we cannot become directly involved in the contractual and subcontractual arrangements of contracts already in place. I hope that the hon. Gentleman will feel that I have pointed to various ways in which we can be helpful to him on the important points that he made in this early-morning debate.

Question put and agreed to

Adjourned accordingly at nine minutes past Eight o'clock.