Fraud probe into council’s £3m loss on road contract

Roads

Dumfries and Galloway Council is exploring if illegal activities contributed to the council losing more than £3m on a road maintenance contract. 

The probe focuses on the council’s former trading arm, DGFirst (later ‘Enterprising Services’), which was closed  last February.

Between 2013 and 2018 DGFirst was a sub-contractor to the Scotland Transerv joint venture company (of Balfour Beatty and initially Mouchel) for the Scottish Government’s South West trunk road maintenance contract.

The council’s role was to deliver winter service operations and repair carriageway defects. It had worked as a sub-contractor on the two previous contracts, from 2002 to 2013, and each time recorded an operating surplus. But the council lost £3.26m on the Transerv contract. 

An internal review identifies a series of failings. “The fundamental issue that had a significant impact throughout the arrangements for this contract was the culture of ‘DGFirst’, laterally ‘Enterprising Services’,” it says. 

Staff perceived they were “not part of the council and acted independently”. Consequently, the service “did not always engage with the appropriate professional advice and support, particularly in relation to legal, finance, procurement, risk management and internal audit.” 

Although DGFirst commenced work for Transerv in 2013, the two parties did not sign a contract until June 2018 – two months after delivery ended.

An inquiry into possible fraud and corruption is now underway, focusing on DGFirst’s expenditure of £23m over the course of the contract with sub-contractors and material suppliers. 

“[DGFirst] relied extensively on external sub-contractors to deliver the contractual obligations but with no comprehensive competitively tendered or properly aligned contractual arrangements in place,” says the council review. The contractual arrangements left the majority of risk for performance failures with the council.

“National contracts were available for the supply of materials and plant but were not used, despite potentially having more favourable terms and rates for the council.”

The fraud inquiry is exploring issues including: whether all payments due to the council were pursued; whether firms were awarded a contract or preferred supplier status for reasons other than the council’s best interests; whether there were failures to address contract under-performance; and whether officials withheld/misrepresented information about the contract to the wider council.

Findings should be reported towards the end of the year. “Police Scotland will receive the  council’s full support including progressing matters to potential prosecution should illegal activity be identified,” says the council.