A collapsed joint venture that put a £4 million hole in Mouchel’s profits last year is now the subject of a High Court battle, with two subcontractors chasing the consultancy for over £500,000 it says it is owed by the JV.
The subcontractors claim that Mouchel, as the only remaining partner of the JV, should pay them for work they did for the other partner, M Holleran, on behalf of the JV, under a framework contract it had with Southern Water. M Holleran went into liquidation in August 2010.
The subcontractors’ legal claim forms refer to a “secret agreement” between Mouchel, and M Holleran, drawn up after the original JV agreement and after the contract had been awarded, that transferred overall control of the contract to M Holleran.
The subcontractors say in the court documents this agreement was not disclosed to them.
The two subcontractors are chasing payment from Mouchel, formerly Mouchel Parkman, for work they say they did for the Holleran Mouchel Parkman JV after it won the Southern Water Utilities Service Contract 2004-09.
The two claims, totalling £535,000, are the latest challenge facing the infrastructure and services consultancy, which posted a £64.8m loss in 2011.
Mouchel chief executive Grant Rumbles is expected to announce restructuring plans alongside the firm’s interim results today.
Mouchel’s 2011 accounts included a £4m provision against unbilled revenue following the collapse of its joint venture partner Holleran at the end of 2009.
Both subcontractors’ claims relate to the Rushlake Green Project to construct a new sewerage system in East Sussex.
Oakmoore Contractors is claiming £256,170, saying it was hired from 1 July 2007 for groundworks, and £43,347 in interest. Diggers 360 is claiming £199,045, for services from 9 March 2009, and £36,518 in interest.
Both claim that the joint venture agreement that was drawn up to do the work under the utilities contract said the financial interests of both firms, as well as their liabilities and obligations, were to be 50 per cent each unless the agreement expressly stipulated otherwise.
The documents say each firm had two representatives on the management board of the venture, which traded as Holleran Mouchel Parkman JV and described itself in documents as “Holleran MP in partnership”.
The claim documents refer to a subsequent “secret or private and undisclosed” supplemental agreement between Mouchel and M Holleran dated 9 January 2008 and not disclosed to the subcontractors or Southern Water at the time, which agreed that M Holleran took overall control for the performance of the contract with Southern Water backdated to the start of the contract.
They say the agreement also gave M Holleran and not the management board overall control of the JV and the execution of the works, that the management board was to be made up solely of representatives of M Holleran, and that the contract manager was to be appointed and directed by M Holleran “at its sole discretion”.
The agreement “purported to exclude the defendant’s [Mouchel] liability under the joint venture agreement”, the court papers say.
The claim forms say the agreement amended the original agreement “such that the respective financial interests of the joint venturers were to be M Holleran 100 per cent and Mouchel 0 per cent”.
The claim forms say: “Notwithstanding anything in the supplemental agreement, the contractor for the Rushlake Green Project remained the same entity as it had always been since it was appointed by Southern Water.
“Further, notwithstanding the provisions of the supplemental agreement defining the liability of the joint venturers as between themselves, the liabilities of the joint venturers on contracts with third parties made by or on behalf of HMPJV remained unchanged.”
Mouchel reported in its 2011 annual accounts a £4m provision against unbilled revenue in 2011 relating to the JV with M Holleran after it went into administration and was then liquidated, “making the recovery from the customers complicated and protracted”.
Goldman Sachs is understood to have been hired to consult on Mouchel’s future, with suggestions that Mr Rumbles is considering a debt for equity swap that could give control of the company to lenders, or the further sale of parts of the firm.
Mr Rumbles - who joined the company in October - told CN at the end of last year that a rights issue, where shareholders are given the chance to buy more shares at a cheaper price, a debt for equity swap, disposal of divisions, or the ultimate sale of the business, were on the table.
Mouchel and Southern Water declined to comment.
- March 2012 - Goldman Sachs looking at debt for equity swap and sale of divisions;
- January - Mouchel named on HS2 consultancy framework;
- December 2011 - Deloitte turnaround specialist David Shearer joins firm as chairman. Interim results reveal pipeline is down £400m since July;
- November - Annual results to July 2011 reveal a £64.8m loss on turnover of £551.4m, compared with a £14.8m loss the year before on sales of £632.6m; new chief executive Grant Rumbles - in line for up to £1.45m in salary and bonuses if he can turn the company around in the next two years - launches strategic review;
- October - Mouchel sells energy division to Mott Macdonald; Mouchel sells rail business to Australian consultancy Sinclair Knight Merz; David Sugden, appointed interim chairman, resigns after four days following the resignation of former chairman Bo Lerenius; Mr Rumbles joins as chief executive after Richard Cuthbert resigns.