DGHP, the housing association at the centre of a procurement probe, was warned by a senior Dumfries & Galloway Council officer not to award a £38 million contract to builders R&D Construction on the grounds that it was the least qualified of the four competing bidders to complete the project.

Iain Macbeth, who at the time (2008-09) economic regeneration officer for urban design and development for the council, has told the Sunday Herald that he had expressed "severe misgivings" about R&D based on his experience of the international construction industry.

R&D went into receivership 18 months after the award of the contract, leaving a £15m trail of private and company creditors, bank debts, laid-off workers, collapsed companies, and substandard houses.

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The Sunday Herald has since uncovered the parlous financial state of the company at the time of the award, leading to calls from local and national politicians for an inquiry into why a sick firm was handed a £38m lifeline of public money, including £16m from the Scottish Government, £13m from Dumfries and Galloway Council and £9m from DGHP.

Macbeth, an architect, who left the council shortly after the award of the contract for health reasons, said that his concerns about why he thought the award of the contract was "not going to turn out right" were based on his encounters with R&D and its chief executive, John Hume. He said that he believed that, while not passing on to DGHP rumours and negative "reports from private individuals" - later borne out by events - about R&D being a "paper company", he formally expressed misgivings about the company's soundness. He claims these were made with the intention of them being minuted by DGHP.

Macbeth also expressed his current willingness to "give my professional opinion of what I thought of the whole [DGHP tendering] process" to the Scottish Housing Regulator which is now probing the letting of the contract.

Macbeth said: "I thought from day one that John Hume was trying to get a contract to offset his financial difficulties. Compared to the other contractors who had a proven track record of building social houses and elsewhere, R&D seemed like a financially focused company rather than a real builder, and did not have a proper builders' way of doing business.

"Although they were rooted in the area, by then they only had an office in Dumfries and their claims to be a 'local employer' were doubtful as they would bus workers down from Hamilton and bus them back at the end of the day.

"I told DGHP that, in my professional opinion, there were others who were better qualified to carry out the work. In my opinion John Hume was a skilful patter merchant who talked the talk but to me it didn't ring true. DGHP may have listened to the advertising pitch and thought they were getting a good deal. To me it smelled funny."

Macbeth continued: "I still feel disgusted that people were taken in by allowing this to happen. Not only did it screw up lots of other businesses and employment for people in the area, it delayed the provision of well-designed new houses for people who needed them."

A spokeswoman for the Scottish Housing regulator said: "We continue to engage with DGHP around its handling of this matter. Those with concerns can bring relevant information to us using the contact information on our website."

DGHP did not respond in time for publication.