Forrest admits to under-costing jobs as refinancing talks continue
Forrest has admitted it made “a series of incorrect pre-construction estimates” on some of its projects as it continues to pursue a refinancing deal to secure its long-term future.
In a statement to Place North West, the company’s chief financial officer Keith Reid said: “We have been working with FRP Advisory in an advisory capacity over the past few weeks to explore options for the business. Our main priority is to find a solution that works best for our customers, employees and suppliers, and we are doing all that we can to secure the long-term future of the business.
“We have faced a number of challenges across our construction division. The projects started prior to the March 2017 refinance have experienced significant time and cost overruns due to liquidity and operational challenges prior to refinance.
“In recent months, it has also emerged that there have been a series of incorrect pre-construction estimates on certain new construction projects.”
Industry sources told Place North West one of the contractor’s major jobs had been heavily under-costed by around £5m despite months of negotiations, while on another scheme, subcontractor packages had been “wildly under-estimated” making certain parts of the project “unprofitable”.
It is understood Forrest had attempted to renegotiate a number of jobs in the last month but these efforts have been largely unsuccessful.
Reid added: “We recognise the uncertainty of the position is extremely difficult for our customers, employees and suppliers and we appreciate their continued support. We will provide a further update in due course.”
The revelations follow after Forrest was forced to deny rumours it would enter administration this week. Following this, a number of sites ground to a halt as subcontractors walked off.
In Liverpool, the contractor has also stopped work on Plaza 1821, pictured above, a £21m project for Peel and Regenda at Liverpool Waters. The project includes 105 one and two-bed apartments over 15 storeys, and worked stopped late last week following a walk-off by concrete frame contractor Heyrod.
Site sources told Place North West: “Forrest were the lowest price on Plaza 1821 and have seen a lot of change in their personnel. They owe us money but what we’re hearing is that they are optimistic they will be back on site after meeting their banks next week”.
It is also understood that Forrest has also downed tools at The Eight Building in Liverpool’s Ropewalks; the contractor was picked in April this year to deliver the Tim Groom Architects-designed project, which features 120 apartments. Discussions are already understood to have taken place with other contractors, should Forrest enter administration.
Work has also ground to a halt on Aura, a £100m student and key worker accommodation project designed by architect Falconer Chester Hall on the former Erskine Industrial Estate. Forrest started on site in April this year but it is understood the contractor has ceased work on the site.
Earlier this week, Place North West reported the contractor could be in line to lose £2m on one of its main problem contracts, Citu NQ in Manchester’s Northern Quarter for developer Salboy, pictured below.
A spokesperson from the developer later told Place that it would be looking to replace Forrest on the job with its in-house construction company Domis, which was set up by Forrest’s former chief executive Lee McCarren last year.
In Salford, projects that have ground to halt include the £28m X1 The Gateway, which only topped out in September. The concrete frame on this project is complete and stands at 20 storeys, but as of yesterday, very little construction work was ongoing at the site.
Similarly, at The Residence, 34-storey private-rented project in Greengate, works have also stopped. Completion of this project was initially pencilled in for the fourth quarter of 2018.
The contractor has found itself in difficulty after it last year unearthed a pre-tax loss of £26m, which it said was down to accounting “errors”.
The company had previously reported a pre-tax profit of £3.6m in 2015 but this was revised heavily downwards to a pre-tax loss of £19.2m. This was followed by a £6.8m loss for the year to 29 February 2016.
Following this, the Greater Manchester Combined Authority agreed to step in with a £2m finance package to keep the contractor afloat. The GMCA was a new lender to the group replacing the Royal Bank of Scotland. At the time, Palatine Private Equity remained as majority shareholder, alongside Lloyds Development Capital.
Mark Nicholson, Carillion’s former managing director of building for the North, Midlands, South West, and Scotland, took over as chief executive in September 2017, following the exit of McCarren.