Legal advice sought over Newtown housing contractors compensation

The exact legal position of whether Powys County Council should pay compensation or not to sub-contractors who lost out when a developer of a council housing project in Newtown went bust has been requested.

It follows a plea at the council’s Governance and Audit committee’s meeting on Thursday. April 18 for sub-contractors to be compensated by the council.

The housing development on the former Red Dragon public house and Maesyrhandir Youth Centre site in Newtown was opened last year.

But in February 2023, Old Colwyn-based firm R L Davies and Son who were building the homes, went into administration.

Cllr Peter Lewington, who represents Newtown West, brought up the problems with the project which prompted the probe.

The report by internal auditors SWAP was brought before the committee for discussion.

Conservative Cllr Lewington asked for clarity around the payments made by the council to RL Davies for the scheme.

He pointed out that the SWAP report showed that the final total to be £3.674 million while it had been previously said that the cost had been £3.54 million.

Cllr Lewington said: “There are two different payment figures – which is correct.

“It’s important to know that figure.”

He wondered whether the council would need to pay any invoices sent after February 6, 2023, when the firm went into administration.

Director of corporate services Jane Thomas explained that the difference in the figures is specific to the contract itself as there were additional payments made to cover rising project costs.

Ms Thomas said: “The difference is about £143,000.

“When the council make any payment, they are based on goods supplied and work provided, so the timing of the invoice doesn’t dictate that.

“In term of the council’s liability, our responsibility of payment is to the main contractor.”

“Unfortunately, that means we have no liability for the payment of sub-contractors as they are not supplying us but the contractor.

“They would put forward any claims through the administration process.”

Cllr Lewington said that he was pleased to see that the audit review had had brought up lessons to be learned which are being worked on to ensure these: “failings don’t happen again.”

Cllr Lewington said: “However, I really do think we need to reflect on the financial damage that has been done to the subcontractors involved in this development.

“The report confirms the council’s main concern was getting control of the asset and completing the development – there does not appear to be much thought about the sub-contractors.”

He believed that if a project bank account had been put in place as the sub-contractors were “led to believe” this would have meant the money paid by the council to the contractor would have been “ring fenced.”

Cllr Lewington: “Consequently I ask the council to consider reimbursing all of the sub-contractors who are now thousands of pounds out of pocket.”

“They cannot be expected to pay for the council’s multiple failings – we really need to do the right thing here.”

Committee chairwoman and lay member Lynne Hamilton said: “What I’m going to do is ask for is a paper to come to committee to explain in detail the council’s response about compensation – just so we know exactly where we are on that.”

“I think it’s worth setting out for the record the limitations of our powers and why, if we cannot pay compensation exactly why legally we cannot.”

A further question brought up by Ms Hamilton is whether there’s a risk the sub-contractors would use the SWAP report to mount a legal challenge against the council.

The committee agreed on the proposal for the compensation legal position report.

By Elgan Hearn, Local Democracy Reporting Service