A further blow hit social housing maintenance group Connaught as an additional 700 workers faced job losses, less than a week after the company entered administration amid concerns about impending public spending cuts. The total workforce affected now stands at 1,400 out of the 4,200 employees previously under Connaught’s umbrella. The turmoil surrounding the company’s financial woes, initially prompted by a deferral of social housing projects by councils in anticipation of government spending cuts, has left a significant workforce in uncertainty.
Administrator KPMG, in a bid to salvage some employment prospects, announced the transfer of eight contracts with local councils and housing associations to Connaught’s rival, Mears. While 600 workers who had already been made redundant may have a chance at re-employment, the fate of the remaining staff remains uncertain. Mears, one of the country’s major maintenance firms, has acquired the contracts—including those with the London boroughs of Lambeth and Merton, Sefton council, and the Yorkshire Metropolitan Housing Association—for a nominal sum. Last week, the bulk of Connaught’s contracts were sold for £28 million to Lovell Partnerships, the social housing division of Morgan Sindall, safeguarding 2,800 jobs.
Administrator Brian Green emphasized that the majority of Connaught’s contracts had been successfully transferred to new providers, ensuring continuity of service for tenants. Discussions are ongoing regarding the sale of the two remaining ringfenced divisions—Connaught Environmental, responsible for street cleaning and waste collection, and health and safety division Connaught Compliance.
Mears expressed optimism about rehiring staff, but the exact number will be determined after discussions with customers. With over 12,000 employees, Mears distances itself from the issues that led to Connaught’s downfall and reported operating profits of £27.5 million last year.
Lovell, having acquired Connaught’s contracts, anticipates an additional £200 million in annual revenues. Connaught’s plunge into administration a week ago followed a failed attempt to secure additional funding from banks. The company had faced a crisis since June, acknowledging that profits would be severely impacted as councils deferred social housing projects ahead of anticipated government spending cuts.
Connaught’s accounting policies, perceived as overly aggressive in booking profits on long-term contracts, came under scrutiny, leading to executive replacements. Efforts to rescue the business faltered, resulting in investors and banks losing confidence. The company’s challenges were exacerbated by nervous suppliers and subcontractors demanding upfront payment. KPMG reports that the company owes £40 million to suppliers and contractors, with outstanding debt amounting to £220 million with a syndicate of banks led by taxpayer-owned Royal Bank of Scotland.
The administration left approximately 280 contracts for councils and public sector bodies unresolved, causing uncertainty for suppliers and contractors. Despite efforts, no buyers have been found for five contracts, including one at Norwich City Council, prompting assistance to customers in finding alternative providers. KPMG, however, faced criticism for the abrupt dismissal of staff, many of whom were informed via conference call after receiving a text message instructing them to call a specific number.
The Financial Services Authority initiated an inquiry in July, examining whether Connaught timely disclosed price-sensitive information about its contracts and the sale of shares by an executive before a profit warning. The departure of the company’s founder and CEO Mark Tincknell and finance director Stephen Hill, along with an independent review of its accounting policy, added to the company’s challenges. Connaught, which began as a concrete repair specialist in 1982 in Sidmouth, Devon, now faces an uncertain future as it grapples with the aftermath of financial missteps.