Going Ballastic

There are many very, very angry people in the construction industry right now. Deloitte & Touche, administrator of Ballast, has a list of thousands of them. They are contained in a 100-page document that details the contractor's unpaid bills, expenses and salaries. The total at the bottom is £20m.

The list includes giant M&E firms, such as NG Bailey and Emcor Drake & Scull, owed about £1m each. It also includes small, cash-starved regional subcontractors who have to throw themselves on the mercy of their banks if they go a few hundred quid past their overdraft limits. And then there are the hundreds of former Ballast employees who have lost pension contributions and the chance of redundancy money. These pages are littered with sorry tales of financial crises. But many of the creditors are now seeking ways of getting their businesses and their lives back on track.

In 11 days the firms will have their first opportunity to make an accurate assessment of the situation. Deloitte is holding a creditors' meeting on 16 December at the Novotel near Heathrow Airport. At this, it will detail the parlous state of Ballast after its Dutch parent, Ballast Nedam, refused to give hand over any more money, which triggered the decision to put the firm into administration on 15 October. The administrator will sum up the money it has raised by selling off parts of the business, such as the £2.1m it received from ROK for the northern construction division, and creditors will have the opportunity to say why they should be given a share of what cash is left.

But the meeting may well be a disappointment. Off the record, Deloitte staff admit that there is little chance that the money available will make a dent in what the creditors are owed: "There is unlikely to be distribution to unsecure creditors," says one. Officially, Deloitte is only slightly more optimistic: "At the meeting the creditors will have a chance to submit proposals to administrators. The outcome for the creditors is uncertain."

But the meeting is not just about the money. For many, it will provide an opportunity to interrogate Deloitte. Many subcontractors will demand to know what happened to the long-mooted sale of Ballast Services, the contractor's successful PFI and facilities management arm.

Creditors will have a chance to submit proposals to administrators. The outcome is uncertain

Spokesperson for Deloitte & Touche

A month before going into administration, a management buyout team, German contractor Bilfinger Berger and outsourcing specialist Mapeley were, apparently, all willing to pay up to £11m for the division. Even after Ballast went into administration, with the redundancies and cancelled contracts that followed, Bilfinger and Mapeley were still offering about £2m. When a deal with Bilfinger collapsed, Deloitte gave up on selling Ballast Services, simply choosing to sell on half-a-dozen FM contracts. A source close to Ballast urged creditors to demand why this happened: "The meeting won't be a sham if the creditors have organised themselves and ask the right questions."

Many firms have agreed to work together in the fight to get their money back. A group in the North-west – believed to include glazier Peter Rogers Associates and engineer ABB, which is owed £250,000 – is looking at taking action against Ballast Nedam, the Dutch parent company. They believe it misled them. "We think there may be the potential to go for Nedam after it said it would support the existing business," says a source in the group.

This last comment is a reference to a comfort letter sent in September by one of Ballast's regional managing directors to his suppliers (reproduced on the page opposite). This was written after the contractor posted a pre-tax loss of £9.7m for the first half of 2003. The key passage says: "The parent company is investing significant financial resources to ensure the UK business meets its obligations to you." Nedam confirmed this by publicly announcing a restructuring of Ballast on 11 September, detailing how it would expand its construction activities by opening a northern office.

Sources at Ballast tell a different story. In private, they say, Nedam had grave doubts about the viability of its UK subsidiary. It had tried to sell the entire business over the summer and failed. And at the beginning of September, it had launched a separate initiative to sell off its profitable Ballast Services arm. While Ballast's public relations officers were denying the possibility of a management buyout, senior executives were being asked if they would like to resurrect an earlier bid. The problem was that the process of raising the money for the deal would take months – and Nedam was desperate to dispose of its British subsidiary and start afresh with its profitable core businesses. Impasse.

Every one of our businesses has suffered. We will not go away until full payment is received

Subcontractors on the East Lothian PPP

A month after the public announcement of support, the financial lifeline to Ballast was cut. The announcement was a shock to Ballast's suppliers in general, and to those such as Sound Ceilings, a Cheshire partitions specialist, which had been on the verge of pulling its workers off site, and had changed its mind after receiving the reassurance. One took on another contract. A source close to these firms says: "The letter and statement said that was no need to worry, so they didn't take any action. A solicitor is looking at the prospects of success against Nedam."

A consortium of up to six companies in the South, including M&E engineer RTT Group and civil engineer Marron, intends to follow suit in pursuing the Dutch firm. Nedam, however, does not accept responsibility: "It all falls under the administrator and Ballast," says a spokesperson.

In Scotland, creditors are taking a different route. Ballast was part of the Innovate East Lothian schools PPP consortium, which includes Lloyds TSB and Forth Electrical Services. In October, Ballast's collapse led unpaid workers to down tools, and work on the eight sites ground to a virtual halt. The suppliers on these schemes, including glazing contractor Albann, Richard Edward Construction and maintenance specialist Rolland Group, are demanding that the consortium pay them £5m in unpaid bills. A spokesperson for the group says: "Innovate must accept responsibility … they were responsible for the appointment of Ballast to this project. Every one of our businesses has suffered. We employ up to 1000 people between us and these jobs are in very real danger if an urgent payment solution is not found. We will not go away until full payment is received."

Perhaps Ballast's most lucrative contract was the £88.5m Tower Hamlets PFI schools project. Investment bank Babcock & Brown effectively owned the project, holding 100% equity in the special purpose vehicle running it. Ballast was its contractor, and Nedam had signed a bond of guarantee to provide construction and facilities management work. Work stopped when Ballast went into administration, and two weeks ago Babcock ended its FM contract. So Nedam has another reason to watch out – Babcock is likely to go after the bond. "There is a guarantee. We'll be looking at the bond," says a source at the bank.

It's hardly surprising Babcock won't let it go – the bank has lost considerable sums through Ballast's collapse. Although construction work can be mothballed – Babcock hopes to have a contractor on board in the new year – it has had to keep the FM going. To keep the project alive it agreed to pay the Ballast Services subbies, such as Emcor and Portakabin, from the day Ballast went into administration. By 26 November, Babcock had splashed out £250,000. The source says that it will also try to re-use the existing supply chain when the project is back up and running. But he adds that the subcontractors on the construction side remain heavily out of pocket: "A minimum of 20 companies have been affected."

Although many affected firms plan to fight back, others have are simply trying to get back on their feet. Plastering and drylining specialist LTW South East had to take 26 people off a school site in Blackheath, south-east London, the day Ballast went into administration. It had a 12-week contract worth more than £200,000 – a big chunk of the company's projected £3m turnover, and vital to its cash flow. Of the £132,000-worth of work it did, LTW received a cheque for £15,000. The company has paid off its own subcontractors but this has put it under terrible pressure. Managing director Tim Kinghorn says: "We've gone from a £700,000-turnover business to a £3m one in five years, but we could have lost all of that. It nearly wiped us out." Fortunately, LTW has survived and is to retender for the job.

Elsewhere the news isn't so good. The collapse of Ballast has cost nearly 1000 jobs at that company alone; subbies are reeling from unpaid debts; schools and hospitals projects have been frozen mid-build, and thousands of workers have been left frustrated and angry. In two weeks at the Novotel, some hard questions will be asked.