Leeds City Council is to recover £450,000 from an insolvency bond it put in place last year before awarding a cycle route contract with collapsed contractor Carillion.
Carillion went into liquidation on 15 January with debts of £900m and a £587m pension deficit, just three months after Leeds awarded the firm a contract to build phase one of its Superhighway City Connect 2 scheme.
However, Leeds has limited its losses on the project by reclaiming the “on demand” bond, which it insisted on in order to guard against any financial failure of Carillion.
Leeds City Council chief executive, Tom Riordan, said: “As part of the original contract for work on the Superhighway City Connect contract we made sure that public funds were protected by making it a condition that a bond was woven into the Carillion contract in the event of the contractor becoming insolvent.
“Consequently, we are in contact with the bank, HSBC, who provided the bond to confirm that Leeds City Council are calling-in the payment of the guarantee.
“We are also contacting the Official Receiver to let them know that as Carillion Construction Ltd has had a winding up order made against it, Leeds City Council are terminating the contract with them.”
A spokesman for the council said that it has now received the £450,000 from the bond, which it put in place with HSBC.
However, the council has still lost money on the contract, with the spokesman saying: “We were around 17% of the way into the contract and this was reflected in the amount that had been spent.”
With the original contract value of £4.1m, this means the council is likely to be around £250,000 out of pocket on the works due to the collapse of the company.
The bond, wholly financed by Carillion, will now be used to run another procurement exercise to deliver the project.
The council’s highways and transportation’s direct labour force and term contractor have worked on making the uncompleted works safe and reopened closed parts of the public highway.
Another £7m contract for outer ring road improvements has been withdrawn from Carillion, which had been selected as preferred bidder.
Meanwhile, Local Government Pension Scheme Funds have been assessing the fall-out from the collapse of the contractor.
According to UNISON, the company had scheme members in thirteen local government pension funds: Croydon, Durham, Ealing, Greater Manchester, Harrow, Hounslow, Nottinghamshire, Oxfordshire, South Yorkshire, Teesside, Tyne and Wear, West Midlands and West Yorkshire.
In a statement, the union said: “Under agreements with these funds Carillion should have agreed cover for contributions and pension deficit payments in case the employer went into liquidation.”
Jeff Houston, head of pensions at the Local Government Association, told pensions magazine IPE: “We don’t have all the data yet but early indications are that in the majority of cases Carillion was fully funded.
“Unless something unexpected pops up we therefore do not expect to see local authorities having to pick up any significant deficits as a result of this event.”
