New grant scheme could help deliver thousands of jobs to the North East

North East manufacturers can now secure unique financial support which should help them land larger contracts and grow more quickly. Peter McCusker reports Chris Johnson and Nicky Atkinson, FW Capital Investment Executives, and Bill Scott CEO, Wilton Engineering Services
Chris Johnson and Nicky Atkinson, FW Capital Investment Executives, and Bill Scott CEO, Wilton Engineering Services

Having to find £4m of performance bonds to win contracts worth £50m proved almost impossible, and was one of the main reasons Tony Trapp sold The Engineering Business in 2008.

Dr Trapp, who formed the Stocksfield-based company in 1997, had watched it grow steadily supplying pipe-laying and trenching equipment to the subsea oil and gas sector.

But in 2008, as word on the skills of the company spread, Dr Trapp was faced with a dilemma which is not uncommon to companies in the North East’s oil and gas supply chain.

The leading North East entrepreneur said: “We won £25m contracts with both Saipem and Technip. At the time we were a £15m a year turnover company, but the size of the two contracts meant we had to provide bonds approaching £4m. We were an ambitious, rapidly growing business and needed to continue expanding and our bank advised us to take no new contracts for at least two years.

“Both customers ended up getting excellent systems but as a privately-owned business raising funds for bonds was very damaging.”

Dennis Clark, chairman of the OGN Group in Newcastle, a fabrication company which employs 1,000 people, says it also faces similar problems as it looks to break into the offshore wind sector.

He highlights how there are major concerns over which participants in supply chain contracts burden the risk.

He said: “The developers and main suppliers are trying to push the obligations down the line to people like us and we are just not big enough to handle it.

“The contracts include strict liability clauses, and then there are the bonds and guarantees required from the operators and developers.”

OGN has developed a unique jacket tripod technology to support an offshore turbine in the deeper waters of the Round 3 North Sea installations.

But Mr Clark says it may be required to raise bonds of up to £90m for contractors and that is not feasible.

He continued: “The Government has said ‘it’s over to you guys, get on and invest’. The politicians are good with the bluster but not with the details. It’s impossible for us to raise that kind of money.”

But a unique performance bond that helps Tees Valley companies bid for large-scale contracts is now being rolled out across the North East.

While the £10m North East Catalyst Fund may not be able to support OGN the much larger contracts, it can support companies that need to provide a financial guarantee that they will deliver on time and to standard.

The first of its kind in the UK, the Catalyst Fund is backed by the Regional Growth Fund and Tees Valley Unlimited (TVU) and was established to overcome a barrier to growth for many companies in the area.

The fund was devised following feedback which highlighted that, while technical expertise led to shortlisting at tender stage, a lack of cash reserves prevented companies from setting up the required bond.

Performance bonds can cover a number of sectors, although generally cover high value products and are common in the oil and gas, construction, advanced engineering and offshore wind sectors.

TVU managing director Stephen Catchpole
TVU managing director Stephen Catchpole

Stephen Catchpole, TVU managing director, said: “The fund has proved to be an effective and efficient catalyst to Tees Valley companies wanting to bid for contracts.

“It has caught the attention and imagination of businesses outside Tees Valley and now the scheme’s geographical footprint is being extended outside the area.”

The regional version will be managed by FW Capital, which has been administering the Tees Valley scheme since its launch.

The Catalyst fund aims to help helps businesses bid for new contracts by providing loans of £100,000 to £2m to fund short-term advance payment guarantees, performance and warranty bonds as well as to extend existing bond facilities. Finance is typically available for up to 24 months.

The fund is expected to unlock almost £700m of additional work and support and is an ‘evergreen’ fund with interest and repayments on loans being ploughed back and recycled into new lending.

The first company to benefit from the scheme was Thornaby-based Process Control Equipment, which supplies industrial valves, actuators and controls for the oil, gas and petrochemical industries.

Making use of a performance bond loan worth £1.1m, the business secured three new contracts worth in excess of £10m relating to the multibillion dollar Sadara project. The work will involve the construction and operation of a vast integrated chemicals complex in Saudi Arabia.

Managing director Barry Jackson said: “This fund is a boon for businesses as it opens up opportunities and removes barriers.

“The loan means that we have not had to tie up a substantial amount of our working capital and as a result we will be able to be more adventurous and ambitious as we bid for future work.”

George Rafferty, chief executive of Durham-based NOF Energy, which represents hundreds of supply chain companies has welcomed the announcement.

He said: “Anything that can help North East companies in the procurement process should be welcomed. The oil and gas sector is becoming increasingly competitive as the number of companies within the supply chain increases and the industry tightly manages its costs.

“The provision of a performance bond guarantee will offer confidence to operators and contractors in the process of controlling supply chain costs and project timetables.”

Dr Trapp feels he may encounter similar problems to the ones he faced at the Engineering Business as he grows his new business Osbit Power, which is based in Riding Mill and works in the offshore renewable and oil and gas sectors.

The 2008 Journal-sponsored North East Business Executive of the Year said: “The big companies and our local supply chain need people like us, but many, particularly in the offshore wind market, do not want to carry the risk.

“However, a small privately owned company will not have access to the finance to provide the guarantees they need and you cannot put the whole company at risk. We want to grow quickly but we cannot do it on our own. At SMD (the first business Trapp helped launch) everyone took a leap of faith.

“With our main customer Brown and Root (a Houston-based oil company) we were working with some wild entrepreneurial Texans they were big spenders and big risk-takers and as a result they achieved rapid technology advances.

“While you wouldn’t expect that type of approach now, performance bonds can be a show-stopper. The Catalyst Scheme should be a help although it would be better if customers didn’t require large bonds in the first place.”

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Bill Scott, CEO of the Wilton Group
Bill Scott

One company to benefit is award-winning engineering company Wilton Engineering Services, of Stockton, which recently completed a £33m project for the world’s largest independent oil and gas exploration and production company, ConocoPhillips.

It has secured a £1.2m loan from the Catalyst Fund to finance the project’s warranty bond with Lloyds Bank.

Established in 1994, Wilton is a specialist provider of services including design and consultancy, fabrication, coatings and site services to the offshore and marine industry.

Chief executive Bill Scott, who was named North East Business Executive of the Year in 2011 and the Entrepreneurs’ Forum Entrepreneur of the Year in 2012, believes the funding will improve the company’s ability to tender for contracts in the future.

He said: “Wilton Engineering Services has a long and established reputation in the Tees Valley onshore and offshore energy sector. We’re proud to have been providing specialist high-quality services to numerous key Tees Valley industries for more than 20 years.

“With the Tees Valley Catalyst Fund backing we’ve been able to move away from using our working capital to cover warranty bonds and have been able to invest in the business to improve our facilities and resourcing. We’re now well-placed to bid for more contracts in future.”

Wilton has completed structures weighing up to 12,000 tonnes on site and undertaken work including sub-sea structures, pipeline clamps and platform and subsea protection structures.

Stephen Catchpole added: “Wilton Engineering Services is a company that Tees Valley truly can be proud of with a track record of making its mark at home and abroad.

“The award to Wilton Engineering Services demonstrates how Tees Valley Catalyst Fund unlocks business opportunities and enhances companies’ capacity to deliver growth.”

Nicky Atkinson, investment executive at FW Capital, said: “Wilton Engineering Services is a well-known and respected name in the North East’s oil and gas industry with an experienced management team and strong strategic vision.

“FW Capital is pleased to have worked with Bill and his team, as well as Lloyds Bank, to structure a loan that provided the financial backing to meet the warranty bond requirements of this high profile project with ConocoPhillips.

“Now the fund it being extended across a wider area, it will be able to help ambitious North East businesses take advantage of opportunities for growth and to access new markets.”

Alison Smith, relationship director at Lloyds Bank Commercial Banking in the North East, said: “We have seen Wilton Engineering Services go from strength to strength in recent years as it capitalises on increasing demand for specialist engineering expertise. We look forward to continuing our support for such an ambitious business, alongside FW Capital and The Tees Valley Catalyst Fund, as it targets further expansion.”

What is a Performance Bond?

A performance bond is issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.

If the contractor fails to construct the work according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.

Performance bonds can cover a number of sectors, although generally cover high value products and are common in the oil and gas, construction, advanced engineering and offshore wind sectors.


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