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A report to councillors has set out the issues and failings that led to Cumbria County Council having to pay legal costs of £16m following a disastrous dispute with its former highways contractor, Amey.

It reveals that an in-house investigation was unable to establish the formal process by which officers decided to withhold payments to Amey, something the report identifies as the key factor in the dispute.

The report states: ‘The review process found no minutes of an Executive Decision to withhold payment, or written record of who made the final decision to deduct payment from the final account.’

The report contains ‘20 lessons to be learned with associated recommendations’ concerning the procurement and management of the £272m highways contract, which ran from 2005 to 2012, and the legal dispute that arose subsequently.

The council’s decision to withhold payment of around £4.6m at the end of the contract, following concerns about performance, led to Amey suing the council.

The High Court judgment last year went against the council, leaving it with a legal bill of around £10m and a contribution to Amey’s legal costs of £6.2m.

The report concludes that the decision to withhold payments was a major factor that resulted in the highly costly legal process. It states: ‘The Council should not have withheld payment, and because it did, Amey were the net beneficiary at trial. This is deemed as the most significant lesson learned.’

It adds: ‘Although a number of internal Council documents identified the risk, they may not have sufficiently recognised the full magnitude and likelihood of risk involving Amey as a major commercial contractor in a “profitable and high profile” agreement.’

The report describes being involved in major civil litigation of this scale as ‘a new and unprecedented experience for the Council’.

Contractual issues

Among other issues identified by the report was that the contract documentation was ‘voluminous, complex and contained some gaps and inconsistencies that created interpretational uncertainty for all parties with poor performance, poor contract management and [instances of] inconsistent contract relationship management’.

The report identifies ‘missed opportunities to prevent the number of disputes and the value of those disputes accumulating during the lifetime of the contract’.

It states: ‘There appeared to be a culture that resulted in slow or minimal response to issues of concern being raised by front-line employees about service standards and the quality of workmanship’.

‘The Council did not respond promptly enough to recommendations from internal audit reports or some elements of externally commissioned reviews regarding the Amey contract.’

In a statement, Amey said: ‘Amey worked with Cumbria Council for almost a decade and we are proud to have served the county for this time delivering high quality highways services.

‘In 2013, when the contract came to an end there were a few items to be closed out. These were concluded following a High Court decision in November 2016 and Amey was awarded over £5m together with its costs. The council failed in its counterclaims.’

The report by Paul Robinson, Cumbria’s assistant director transformation, will be considered by the council’s Audit and Assurance Committee next week.