Dispute over contract costs forced Eclipse administration
A dispute over a contract which saw costs rise from £1.9m to £3.2m forced Blackpool-based contractor Eclipse Developments to call in administrators earlier this year.
The company, which worked on design-and-build projects for customers including Merlin Entertainments and the NHS, called in administrators from FRP Advisory in September.
At the time, FRP cited cash flow issues and a contract dispute as the reason for the contractor’s collapse, which was founded in 2001 and employed 20 people at peak. In its most recent full-year results, it had a turnover £2.4m and made a pre-tax profit of £344,000.
Projects Eclipse had worked on before its collapse included the Cala Gran Holiday Park in Fleetwood, and an expansion of Madame Tussauds in Blackpool for client Merlin Entertainments.
According to an administrators’ report, Eclipse entered into a £1.9m contract with a key customer, for which it had completed a number of jobs previously, in August 2016. The name of the customer and the project have not been disclosed owing to the ongoing administration process.
The contract value included provisional sums for elements of the job that were awaiting design and specification. Once the design was completed, additional works were agreed which pushed the value of the contract up to £3.2m.
During the course of the contract, there were a number of delays and a dispute arose with the contract’s main subcontractor, which was replaced on the job.
Despite this, the contract was completed by Eclipse within its agreed contract term, but the client’s appointed quantity surveyor carried out an interim valuation of the job which claimed Eclipse had been overpaid and disregarded any additional works.
The administrators said Eclipse completed the job on the expectation that the cost of additional works would be resolved once the project was handed over. The project was completed with the help of its suppliers and overdraft facilities.
Eclipse pressed the customer for the full contract sum plus additional works in July this year. However, the client initially said it recognised no additional works and no payment beyond the original agreed fee of £1.9m.
The customer did then agree to review the claim if evidence of design changes and additional works could be provided, despite Eclipse already providing copies of these to the client during the contract.
The administrators said the client “informally recognised” a payment to Eclipse via email, but no money was ever paid to the contractor nor was any attempt made to review the contract.
As a result, Eclipse was left with cash flow issues, forcing the company to reach its overdraft limit.
Eclipse had also incurred “significant legal fees” due to a dispute with two subcontractors, including the subcontractor that was removed from the £1.9m project. Neither firm was named owing to ongoing legal proceedings.
Coupled with the contract dispute, this forced the company to make all its employees, aside from those involved in the firm’s main contract, redundant on 14 August this year.
Following these redundancies, administrators FRP were appointed on 15 September, with all remaining staff made redundant.
The report from FRP also revealed the group owed its creditors £1.3m at the time of its collapse.
This includes £266,000 owed to Merlin Entertainments; £200,000 owed to HMRC; and £99,000 owed to law firm Addleshaw Goddard.