Have you checked who you are contracting with?


A Court has rejected a contractor's claim against a council for £2.1 million for an alleged breach of procurement rules. The tender was submitted by a well-known contractor company, however, it subsequently transpired that the company was dormant and the work was actually going to be carried out by their parent company. The contractor could therefore not claim for lost profit as it would not actually have itself carried out the work. The council had been unaware that the tender had been submitted in the name of a dormant company.


Farrans Construction Limited (“Farrans”) tendered for flood prevention works in Glasgow – or did they?

In 2007 they filled in the pre-qualifying questionnaire stating they had hundreds of employees, professional memberships, a long track record of successful civil projects in Scotland, and the assets to carry out the job which was a complex multi million pound project. They sent it to Glasgow City Council (“GCC”), and on the strength of that were invited to tender. Following what Farrans claimed was a flawed evaluation, the tender works were awarded to a competitor, and Farrans raised an action against GCC under the Public Contracts (Scotland) Regulations 2006, claiming £2.1 million lost profit.

A Court hearing on all issues was well under way when a managing director mentioned in his evidence that Farrans was a dormant company. Confusion ensued, the Hearing was adjourned, and a separate hearing was fixed on the sole issue of whether Farrans had title to sue.

Farrans lost their case. They agreed they were a dormant company within the meaning of the Companies Acts, but claimed to be acting on behalf of Northstone (NI) Limited, their parent company, being the company which actually had the necessary resources. Unfortunately, they had not told GCC (although there was a poorly expressed statement inserted in the accounts section of the PQQ which was held not to amount to fair notice). The Sheriff held that they could not be an “economic operator” because they were not a “contractor” which “offered to carry out works”- they had no means of operating. They could have no profit and no loss, as Northstone- not Farrans- would receive any payments. In addition, the 2006 Regulations require the economic operator to “suffer” loss, which appears to rule out a derivative claim based on the law of agency, even if otherwise competent.


Always check the identity of a company which you are contracting with or may possibly contract with after a tender process. Run a Companies House Search at http://www.companieshouse.gov.uk/index.shtml.
If you contract with a dormant company then you risk having no remedy under the contract for any claims arising as you are contracting with "a man of straw".
If court proceedings are started, ensure that you are suing, or being sued by, the company which you actually contracted with. Then check the legal and financial status of that company. If the company is dormant and has no assets then you may be able to ask the court to grant you security for your costs or security for the sums which you are suing for.

To read the full judgement, click here.