Developers of a key North East construction project have said they remain committed to delivering it following the collapse of the building contractor working on the site.
Hundreds of businesses in the North East affected by the shock collapse of the Tolent group are waiting to hear the next steps as they try to bridge crucial gaps in revenue and recruitment - including the developers of Durham's Milburngate scheme.
A spokesman for the Arlington Real Estate and Richardson joint venture told The Northern Echo: “It is obviously very disappointing for all concerned that Tolent entered administration.
"However, we as local developers remain committed to delivering what can now be seen as an exemplar regeneration scheme, not only for the city of Durham but also the wider North East region.
Read next: Gateshead-based Tolent Construction enters administration
“We are working closely with our supply chain partners to review and implement the final stages of construction at Milburngate, to enable us to set a new timetable for completion.
“We continue to engage with our existing occupiers, all of which remain very keen to be part of the development, and we are grateful to them for their patience as we work towards a new opening date.
“We remain encouraged by strong occupier interest in Milburngate and on-going negotiations are continuing with potential tenants for both leisure and office space."
The flagship multi-million pound Milburngate project will feature a boutique cinema and 48,000 sq ft of retail and leisure units, complemented by 390,000 sq ft of hotels, luxury apartments and contemporary offices.
Tolent's joint administrators, James Lumb and Howard Smith of Interpath Advisory, recently set out the timeline of a crisis that has rocked the construction sector.
In the official documents covering all aspects of the administration, Interpath said:
"The group principally operated as a provider of construction and building services across the North East of England, providing services across a number of other key areas including facilities management, decarbonisation, asbestos removal, property investment and management.
"The group has suffered from increased costs of live projects and delays in hand over of completed projects - neither are uncommon issues across the construction sector.
"The group’s largest contract was a mixed-use development in the centre of Durham known as Milburngate, with a value of circa £85 million.
"Planned occupiers for the finished scheme include well-known businesses such as Premier Inn and Everyman Cinema.
"Whilst the construction of the site was substantially completed in 2022, the Group experienced delays in final sign-off of the development which absorbed significant management time.
"In total, project costs in relation to Milburngate overran by approximately £10 million and presented strain on the group’s financial headroom/available cash.
"Over the course of 2022, the group’s management took steps to stabilise the financial position in response to issues such as those experienced at Milburngate.
"Efforts included selling 200 acres of land owned by CLL to generate cash and raising finance from shareholders via a £5 million rights issue.
"Towards the end of 2022, management had also identified a number of other major initiatives to improve the cash position of the group – including selling certain trading business within the Group and further asset sales.
"The group forecasted low headroom from January through March 2023, in common with many construction business, as a result of:
- A seasonal Christmas shutdown and periods of cold weather limiting progress of live sites, reducing sales and impacting margin;
- And a working capital cycle where sales receipts are collected ahead of paying relevant suppliers and subcontractors (ie. cash generated from sales in December/ January was used to meet costs from October/ November – where activity levels are much higher).
"In light of the forecast for January to March 2023, Interpath was engaged in December 2022 by the group and IGF to review the group’s short-term cash flow forecast.
"The reduction in revenue in December 2022 and January 2023 was much greater than anticipated and the group was unable to pay its suppliers and subcontractors on normal payment terms.
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"The group considered alternative options to satisfy its funding requirement. A Time To Pay arrangement with HMRC in respect of historic VAT was initially rejected - however, negotiations between management and HMRC subsequently saw both parties reach an agreement on a TTP arrangement.
"Shareholders were also asked by management to inject further funds, but it was not possible to raise adequate funding in the available time.
"The group continued to incur losses across its main live contracts in the interim and, coupled with the contractual nature of the business, further options were unavailable."
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