“Big red flag” should have been flown in 2018

By Elgan Hearn, Local Democracy Reporter

A “big red flag” should have been flying in July 2018 when Powys County Council was first alerted to the fact that a company it soon appointed to build Welshpool’s two new primary schools was in financial trouble.

A special meeting was held by the Audit Committee to find out how and why contracts were given to Dawnus to build three schools and another firm, Jistcourt, to build flats, when they were on the verge of collapse.

Councillors looked at Dawnus first.

In March, Dawnus (Welsh for talented) went bust leaving the two new primary school projects, and another in Machynlleth, high and dry.

Head of finance, Jane Thomas, who was not part of the contracts process, said: “Any procurement exercise has to be defined at the outset. We tell them right at the start, this is how we will assess your company and then we are bound in terms of making sure we work in that way and treat all companies the same.

“There are shortcomings in that you are looking at historical data. We don’t know what situation a company may be in tomorrow or next week or next month.”

The vetting procedures into Dawnus started in February 2018.

The assessment had been made – using data for accounts from 2015 and 2016 – which would have given PCC no inkling of what would happen.

PCC said that the rumours about Dawnus reached them in July 2018 and at this point they asked for the 2017 group accounts.

Vice chairman of the Audit Committee and independent member, John Brautigam, believes that this is when a “big red flag” should have been put up and that the team should have delved deeper.

Mr Brautigam said: “The 2017 accounts had zero money left in the bank and tremendous amounts of debtors and creditors, profit had become a loss.

“In addition to that, Dawnus had taken out a debenture with HSBC and the Welsh Government for £7 million, part of that was a chattels mortgage where they rented 20 pages of heavy equipment that should have thrown up another problem.

“I just can’t conceive how, given that background, we actually signed off (the contract in late July 2018).”

Treasury manager Ann Owen said that it wasn’t unusual for a big construction company to post a loss, as they could have been investing in the company.

Ms Owen added: “But when you mention the Welsh Government, none of that information was shared. If we had that information we would have looked at it differently.”

Mr Brautigam added: “They have said the reason was commercial confidentiality, but this report says we were aware, why not pick up the phone and ask?”

Vincent Hanly, interim commercial services lead, replied: “From a Welsh Government point of view, had they made that information known, I think they would have immediately fallen over.

“Had they made that known to all their clients in Wales then this company would not have won a contract from anyone and would not have survived.”

Mr Hanly added: “We did speak to colleagues at Welsh Government and the only information they had was that they were being supportive.”

Llansantffraid Councillor, Gwynfor Thomas, said: “I’m concerned and worried. Are Welsh Government silent on this? Is the authority banging the drum?

“Is the chief executive, (Caroline Turner) in conversations with the Welsh Government and saying: look we’ve done everything in our procurement process and yet we feel you let us down.

“This is reputational risk and a cost to the council.”

In March, when Dawnus went bust, the 360-pupil English-medium primary school in Welshpool (pictured) was partly built.

It had been expected that the staff and pupils would move there for the new school year in September but the delay will take at least a year as PCC goes through a new tendering process.

The last two projects, the Welsh medium school in Welshpool and a new building for an all-through primary and secondary school in Machynlleth, are still at the planning stage.

Changes to come be made to process

After investigating the demise of both Dawnus and Jistcourt, the Audit committee recommended several changes be implemented.

This is so that PCC is not caught out again by construction companies going bust.

Audit committee chairman, Cllr John Morris, said: “What we wanted to do here today (Wednesday) was understand the process around Dawnus and Jistcourt and how we got to where we are with it.

“We need to understand that any change to procurement or vetting process is sound, so that we are as happy as we can be with the contracts we have.”

Cllr Morris added that this was vital as the council will have more building projects in future, especially as part of the 21st Centuries schools’ projects.

The committee agreed:

·      That new advice issued by the Welsh Government in July ‘Assessing the Economic and Financial Standing of Suppliers’ will be used to
review current practice and approach.

·      Ongoing monitoring for all of its major or high risk contracts will now be done.

·      Investigate whether analytic companies can provide software that monitor companies and alert PCC if there are changes.

·      Include terms in its contract which require companies to provide annual confirmation of compliance and notify the council of changes classed as financial distress.

·      Firms would also need to provide other tools and sureties to provide
assurances to the council on the financial health of all of its key suppliers.

·      The council will also need to review its procurement documentation to ensure that a changes to the approaches are incorporated into pass/ fail mechanisms within documentation.