Could the shadow of Grenfell trigger more Ardmore-style collapses?

Last month, on 28 August, almost exactly 51 years to the day since its incorporation, £313m-turnover contractor Ardmore Construction Ltd (ACL) was put into administration.

In the half-century of its operation, the business – set up by brothers Cormac and Patrick Byrne in Catford, south-east London – has been responsible for building tens of thousands of homes, many of them high-rise projects for housebuilders, and made them one of the richest families in the UK.

But, in the wake of the tragedy at Grenfell Tower and the subsequent Building Safety Act (BSA), ACL’s huge construction achievement became a giant millstone around its neck. Post Grenfell, it quickly became apparent that common industry build practices on high-rise homes had not been safe enough, and ACL appears to have been no exception to this.

Six claims for remediation works have been launched against the firm in the past year alone, valued at more than £150m.

Ultimately, while the wider construction group has survived, ACL’s future became untenable. The question many in the sector are asking is whether other firms are similarly affected.

This is particularly the case given that recent legal judgments appear to have confirmed that contractors are firmly on the hook for remediation costs. As one very senior contractor CEO says: “My concern is that we’re going to see many more situations like this.” So, how widespread is the issue and how bad could this get?

Fundamentally changed

Martyn Horne, development director at Ardmore Construction Group, says that, for most of its 50 years prior to administration, ACL had been the sole contracting entity for construction projects within the Ardmore group.

After the Grenfell fire in 2017, however, it became clear the business carried a series of historic liabilities to improve the fire safety of previously built projects. Other group companies were set up to take on new-build work, which continue to this day, while, from 2021, ACL stopped taking on new work in order to focus on dealing with legacy remediation.

Rather than seek to avoid its responsibilities, Horne says, ACL spent £85m remediating schemes such as Greenwich Peninsula and Parkside Lewisham, taking what he says was “a proactive and responsible approach to historic issues”, including setting up Landmark Facades, a dedicated recladding business.

However, the idea of a slow and orderly wind down as remediation works were completed was “fundamentally changed”, says Horne, when the passing of BSA extended the statute of limitation for claims from 12 to 30 years. This, he says, “significantly increased ACL’s exposure”.

Recent claims registered in the Technology and Construction Court against ACL include two by the housebuilder Barratt Redrow, one for £14.5m and another regarding five separate developments for “in the order of £85m”. Another housebuilder, Bellway, has claimed for £4.7m over its Equinox development in Poplar, east London, while volume builder Taylor Wimpey registered a £48m claim regarding its Morea Mews scheme in Highbury, north London.

>> See also Is the government’s Building Safety Regulator shake-up enough to fix the delays?

>> See also How landmark Supreme Court ruling clarifies liability and limitation on building safety

Begbies Traynor, ACL’s administrator, declined to answer questions for this piece. However, Building understands from a source that ACL’s liabilities for remediation work sat at around £100m prior to the passing of the Building Safety Act.

Horne says that, at the time it went under, ACL had no employees and no live projects, with all schemes novated, “ensuring that cashflow to the remainder of the group remained unaffected”. He adds: “The remaining entities within Ardmore Construction Group Limited are unaffected and are still trading as going concerns.”

Indeed, the wider Ardmore Group is forecasting a £2.5m profit for the current year, and says turnover will top £400m in 2026.

Special case

Of all the builders to work in the market for high-rise residential over the past 25 years, Ardmore was by many accounts one of the most prolific, particularly with volume housebuilders.

For some, this provides comfort. Roger Arnold, partner at London-based QS firm Martin Arnold, says ACL was seen as unique in its level of exposure.

“I don’t think there are many more in that type of arena to go,” he says. “ACL’s exposure to housebuilders was very large. There isn’t much fear that there are others in a similar situation.”

Likewise, Alex Hyams, director at consultant Turner & Townsend Alinea, says: “There aren’t that many contractors that do that volume with housebuilders. There’s not so many others with such a huge backlog of work to deal with.”

It appears to be the case that no other single contractor has faced the volume of claims against it that Ardmore has, and there is no specific reason to suggest any other particular firm is in difficulty. But many of the others in the same market – firms such as Durkan, Higgins, Midgard, Willmott Dixon – have been involved in claims in recent years.

And, of course, the existence of a legal claim is simply the tip of the iceberg regarding contractors’ liabilities. As one director at a listed housebuilder says: “In most cases we make a concerted effort to get them back to do the remediation work for us, rather than sue them.”

There aren’t that many contractors that do that volume with housebuilders. There’s not so many others with such a huge backlog of work to deal with”. 

Alex Hyams, director at consultant Turner & Townsend Alinea

The point he makes is that contractors will usually agree to re-do work for free, where they accept liability, rather than fight a legal claim.

So, while most of this work will not show up in the courts, these costs do show up in contractors’ balance sheets, where this work has to be written down: ACL made a £71m provision for remedial works in its most recent accounts prior to administration.

Hence, others are certainly recording provisions – main contractor Bouygues wrote down a further £69.3m in its most recent accounts for what it called “building safety obligations”, taking its total provision to £198m, while Laing O’Rourke also recently announced a £32m writedown “all of which related to defect provisions due to fire safety regulations”.

While it is not clear how much of those two provisions related to residential sector work specifically, residential specialists have also suffered building safety exceptionals.

Durkan Holdings wrote off £15m in the year to November 2024 for “fire safety remediation works” related to its legacy projects, while JRL Group Ltd, the parent company of Midgard, wrote down £10.5m in the year December 2023 “to complete the remedial works on legacy schemes reviewed”.

Francis Ho, partner at law firm Charles Russell Speechlys (CRS), says: “There’s no doubt that building safety issues are dragging down the balance sheets of various contractors who have past exposure to the housebuilding sector, as Ardmore Construction Limited had.”

Of course it is not just the cost on the balance sheet that is troublesome. Remediation work equates to real management capacity and real workforce time, plus cash and resources taken up delivering jobs, sometimes for years, that cannot then be deployed doing other things.

One main contractor chief executive, who did not want to be named, said: “This is as much of a drag on industry as the Building Safety Regulator. The management time – and the cost, and the legal advice – it’s just as much of a problem.”

There’s no doubt that building safety issues are dragging down the balance sheets of various contractors who have past exposure to the housebuilding sector, as Ardmore Construction Limited had

Francis Ho, partner, Charles Russell Speechlys

The sheer volume should not be underestimated. Andy Hill, group chief executive at developer and contractor Hill Group, says his firm, which includes a “partnership” contracting arm building big developments in the South-east for housing associations, gets notified of two or three fresh jobs every quarter.

The business has a seven-strong head office team dedicated to managing the workload, run by a director, and while most remediation jobs, he says, have been fairly small, Hill now has in excess of 50 separate jobs to deal with. Last year the firm made a £23.5m provision in its accounts against “building defects”.

On the positive side, Roger Arnold says some firms have actually managed to turn this unfortunate necessity to their advantage, by selling their remediation and re-cladding experience to clients. “They’re offering this now as a service,” he says, adding that some are also using remediation works as an opportunity to sell additional services – known as betterment.

“So, even where the contractor is doing cladding renewal [for free], there are elements of betterment they can charge for to ease the pain.”

Pursuing claims

Undermining this optimistic view is that recent legal precedent has widened liability, exactly at the point at which housebuilders, under pressure in a weak market, have started to talk about going after their suppliers to reclaim costs. Housebuilder Taylor Wimpey, for example, announced a £222m increase to its fire safety provision in its latest accounts in July, largely relating to cavity barriers, taking its total writedown to £435m.

The firm said it was “actively assessing and, where appropriate, pursuing claims against those responsible for poor design, workmanship, or material failures”. Taylor Wimpey has already issued three claims in the past two years, including the one against Ardmore.

Barratt Redrow, the UK’s largest housebuilder, has issued eight claims in the past two years – although it is not clear if each one relates to building safety issues.

Recent legal judgments look to have made recourse against contractors easier. In particular, a Supreme Court judgment in May regarding the application of the Building Safety Act, in a case Barratt brought against consultant URS, now part of Aecom, confirmed that contractors’ liability goes back 30 years, and that the developer itself does not have to have been sued in order to seek to recover costs from its supply chain. It can remediate first and pursue cost afterwards (see Three key building safety judgments panel).

CRS’s Ho says: “In short, the Supreme Court has made it easier for developers to claim building safety remediation costs from the original construction team. It opens the door to potentially many more claims from developers.”

Tim Claremont, partner at law firm Browne Jacobson, agrees. “This is bad news for those defending claims. The Supreme Court has basically red-lined the sort of arguments you might want to run.

“The policy element is pretty clear. So most technical legal arguments are falling by the wayside. That’s where we are.”

Of course, few firms ever want to go as far as court but the legal precedent is vital in determining the leverage firms have when reaching a settlement. CRS’s Ho says the Barratt-URS judgment will “certainly improve leverage in negotiations for developers and owners”.

He adds: “I expect to see them become bolder in issuing or threatening legal proceedings and I expect there to be more settlements.”

Nick Pinder, partner at law firm Eversheds Sutherland, says that, while the focus to date has been on resolving problems out of court, this may now start to shift. “As more developers and individual leaseholders become aware of the wide-ranging impact of the BSA, we anticipate that more parties will be looking to BSA powers to recover the costs of rectification,” he says.

Biggest risks

So, while fears about remediation risks are growing, developers looking to procure work in the current market are asking contractors some pretty uncomfortable questions.

Damien Sharkey, MD of London-based resi developer Hub, which is looking to buy £800m of construction work in the next three years, says the impact of legacy building work has contributed to making contractor selection “right up there at the very top of the risk profile at the moment”.

He says the situation means the first thing his firm now does when looking to choose a contractor, even with existing partners, is to conduct a “deep financial review” of “the contractor’s standing”, including fully understanding any “legacy issues”.

But this is not just for Hub’s peace of mind – it is also a necessary step to get schemes financed. “When we go to bring in a funding partner, the first question we get asked now in due diligence is ‘who are we going to use to build it?’ It’s essential we select financially strong contractors,” he says.

The review includes meeting the business owners, spending time with the finance director, site visits, checks with funders and insurers, the seeking of additional references and sometimes hiring third parties to conduct a full financial audit. “It’s onerous, but it’s absolutely essential,” he says, and potential partners have been “eliminated” at this stage.

When we go to bring in a funding partner, the first question we get asked now in due diligence is ‘who are we going to use to build it?

Damien Sharkey, MD, Hub Residential

Hub works with McAleer & Rushe, Glencar, JJ Rhatigan, and RG Group already, but is looking for others, given the volume of work it has to buy. “There is a fear around this 30-year look back [on the BSA] – do contractors have problems coming up that are going to affect their ability to deliver our scheme?

“It’s not easy [to find contractors],” Sharkey says. “There’s not a big pool of contractors who can deliver at that scale – and then who are financially strong and don’t have the legacy issues. It’s hard.”

Francis Ho says Hub is not alone in requiring more reassurance about the financial state of contractor partners. “Developers and their funders are tending to dig deeper into contractor financials, insisting on performance bonds, subcontractor collateral warranties and using two-stage tendering to help de-risk potentially delivery issues,” he says.

Piercing the veil

But, if all this is not worrying enough, there is another part to the legal story which is causing further anxiety. The BSA has introduced, through Section 130, a provision to prevent liabilities for building safety work being contained in individual corporate entities, granting aggrieved parties the right in certain circumstances to go after other group companies.

Called Building Liability Orders (BLO), the provisions of the legislation effectively allow claimants to pierce the corporate veil by claiming redress from other companies – where the claim has been proven – if they are “associated” with the original firm at fault.

Barratt this year lost a BLO claim against various companies in the Ardmore Group, in which it was seeking to gain information in order to assess the firms’ financial standing, when it realised ACL did not have funds to pay it the £85m Barratt said it was owed on five separate buildings. However, Ardmore’s victory was due to the fact that Barratt’s original claims had not been proven, rather than any point of principle.

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Lawyers say that what case law there is tends to suggest judges are backing the use of BLOs. “We’ve had guidance from a few cases since last year regarding the extent to which they can be wielded against associated companies”, says CRS’s Ho.

“The principles are still developing but, in short, the courts have a fairly broad discretion to allow them.”

Browne Jacobsons’ Claremont agrees, citing recent judgments such as that in Triathlon Homes vs Stratford Village Development Partnership & Others (see panel), where he says the appellant “threw the kitchen sink at the case”, but the Appeal Court judge rejected “ground after ground”, supporting application of a similar provision, a Remediation Contribution Order (RCO).

“The direction of travel with RCOs is the same as elsewhere,” Claremont says. “The government was seeking to ensure that those that were ultimately responsible should pay the price, and that’s how it’s being interpreted. We anticipate a similar approach with BLOs, albeit some issues - such as how BLOs are treated by foreign courts - remain to be seen.”

The impact on contractors, who might typically attempt to limit liability by having separate group companies for different parts of their businesses, could be significant. A separate contractor boss, who declined to be named, says: “The concept of piercing the corporate veil via Building Liability Orders could see the principle of the corporate veil removed overnight.

“It was brought in to tackle developers with shell companies, but contractors are the ones suffering from it.

“Our view is we can successfully fight them [BLOs]. But, if they are successful, then every construction firm in the UK could be badly affected.”

ACL’s administration has posed some serious questions for the wider contracting sector which is still reeling from the fallout from the Grenfell tragedy. Just how serious this situation will be for UK construction firms looks set to play out within the next few years.