Councillors representing some of the most deprived areas of Scotland have asked the head of Dumfries & Galloway Council to investigate the award of a £38 million social housing contract to a company in severe financial difficulty.

The collapse of Robison & Davidson (R&D) Ltd in April 2011 with £14.8m of debts was one of the heaviest blows to a fragile Scottish local economy in the recession. It cost 200 jobs and brought down scores of local businesses.

R&D, headed by John Hume, went into administration despite its construction arm being awarded a lifeline contract in 2009 to build 312 new houses for Dumfries & Galloway Housing Partnership (DGHP), Scotland's second largest social landlord.

Loading article content

The overall contract, worth a total of £77m, was heralded by then housing minister Alex Neil MSP as "supporting local jobs" and "great news for everyone in Dumfries and Stranraer".

An administrator's report shows R&D leaving an £8m trail of debts to more than 500 companies and individuals, some amounting to hundreds of thousands of pounds.

It has emerged that any investigaton of the parent company's then current "management accounts" overlooked the fact that in 2007-08, the year before the award of the major contract, R&D had only £1000 in the bank, assets of only £2m, a net cash outflow of £11m and a £24m bank overdraft. Although audited accounts were lodged two months after the award of the contract, the information would have been available to anybody carrying out due diligence.

The parlous state of R&D was partly disguised in the accounts by the repricing of "stocks" (landbank and housing assets) at £9m more than in the previous year. This unexplained leap in value was in defiance of the UK-wide crash which wiped up to 40% of values off builders' books.

Other signs of R&D's troubles were apparent to suppliers. James Runcie, a Stranraer plasterer who lost £130,000 on the job but who stayed in business thanks to supportive business associates and family, told the Sunday Herald that R&D demanded his firm accept 90-day terms as a starting condition, meaning that they would be paid three months after the submission of invoices, not the standard 30.

"Hume was using us [subcontractors] to finance the project," he said. "He was ruthless to take ordinary working people like that. He's a nasty piece of work."

DGHP denied knowledge of this irregular arrangement saying "matters relating to contracts between contractors and subcontractors is between them".

Stranraer councillor Willie Scobie, who has campaigned for compensation for victims of the collapse with fellow non-aligned councillor Graham Forster, has passed R&D's accounts to council chief executive Gavin Stevenson.

Scobie said: "Gavin Stevenson has a background in finance so I'd be interested to know if he agrees that the 2007-08 accounts appear to show that R&D were trading while insolvent. I hope that, at the very least, local MPs and MSPs will call for an investigation, so that we can recover money for the tradesmen and the council.

Since R&D's demise, local community activists have campaigned on behalf of vulnerable tenants with allegations of shoddy workmanship, including poor drainage and potentially hazardous electrical wiring. Scobie claims that "structural defects" in some of the houses completed by R&D before the collapse may be evidence of the builder "cutting corners" as it struggled to stay afloat. He has pressed the claim with the current Housing Minister Margaret Burgess MSP. The defects are described by DGHP as "of a minor and routine nature".

Allegations of poor workmanship are supported by community activist Stephen Reay, who has petitioned DGHP and the council about the gas installation in R&D-built houses, which he claims to be "outwith current installation regulations". DGHP has denied this.

Hughie Gracie, a local roofer whose business collapsed because of an unpaid £200,000 debt for work for R&D in Stranraer, said: "DGHP have a lot to answer for. They awarded a contract to someone who wasn't able to see it through."

A spokeswoman for DGHP said: "Full due diligence was carried out before the contract was awarded, with the entire process fully vetted by the Scottish Government, the local authority and auditors. R&D Construction Group Ltd was selected following a vigorous price/quality assessment.

"As part of the due diligence process, DGHP carried out an independent financial assessment through a third party. This included the last three years published accounts of R&D Construction Group Ltd."

DGHP declined to identify the "third party".

Dumfries & Galloway Council declined to respond to any questions on R&D or DGHP.