Banking giant HSBC is facing a demand for cash from Leeds City Council after Carillion’s collapse left a cycle highway project unfinished.
The council said it would finish the work on the first phase of the Superhighway City Connect 2 (CS2 Superhighway) itself. The £4M contract, which was awarded to Carillion last October, included the condition that the council would receive an “on demand bond” from a bank, in this case HSBC, if Carillion became insolvent. This was to enable the council to recover losses or damages.
The council’s own staff and sub-contractors will complete the extension of the route from Seacroft to Leeds city centre. About 20% of the work was completed when Carillion went into liquidation on Monday last week, the council said.
The council had also named Carillion as preferred bidder for the East Leeds Orbital Road scheme the week before its collapse, in a deal worth up to £120M. Contingency plans were not required in this case as the contract had not been signed.
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. The council is arranging to use our own staff and sub-contractors to make the site safe and do any necessary work.”
Councils and the government have been criticised for handing multi-million-pound contracts to the struggling construction group in the months leading up to its collapse. The government said it had contingency measures in place, such as only awarding work on joint venture contracts.
Kier confirmed it would take on Carillion’s share of the work in its HS2 joint venture and on its shared Highways England contracts.