In a statement the contractor said:”During an audit of our UK labour suppliers, concerns related to the Danny Sullivan Group were identified. While these concerns were being reviewed, related issues were reported through our confidential whistleblowing channel in regard to our HS2 project.

“An independent investigation, which has now concluded, found that Danny Sullivan Group had misinformed us about the provision of Construction Industry Scheme (CIS) workers instead of PAYE employees, in breach of their agreements.

“We are facilitating the smooth transfer of Danny Sullivan Group employees to alternative approved labour suppliers or direct to Balfour Beatty to ensure operational continuity and continuous employment for the workforce.

“Balfour Beatty is committed to the highest standards of ethical conduct. Enhanced controls and governance measures have been implemented to mitigate the risk of future compliance issues. ”

One HS2 site source told the Enquirer: “All Danny Sullivan employees were told to go home on Friday and they will be taken on by other agencies next week.”

It is understood that nearly 500 workers were employed by Danny Sullivan Group to work on Balfour Beatty VINCI’s (BBV) 90km section of the HS2 route.

Last month HS2 launched an investigation into allegedly overinflated rates charged by Danny Sullivan for labour supply on the West Midlands section of the project.

Transport Secretary Heidi Alexander also promised an HMRC investigation into the claims.

Danny Sullivan said: “After extensive discussions on our commercial arrangements and contractual terms, Danny Sullivan and Sons will cease its provision of skilled trades and labour to Balfour Beatty.

“This decision follows the completion of a review, commissioned by Danny Sullivan and Sons, into the erroneous engagement of a number of Construction Industry Scheme (CIS) workforce operatives. Throughout this review process, no evidence of deliberate wrongdoing involving any employees of our business was identified.

“Individuals affected by this decision will continue to work with Balfour Beatty and we are working to mitigate the impact with minimal interruption.

“Our externally-led review was carried out in conjunction with significant investment in enhancements and transformation to the company’s processes, technology and culture – supporting our ongoing and future partnerships with long-standing clients who trust us to deliver projects at the heart UK infrastructure.

“Our work continues across UK infrastructure projects and we are proud to be operating at a size and scale not seen before in our business with a renewed focus on the highest standards of governance alongside significant operational improvements.”

A HS2 Ltd spokesperson said: “HS2’s West Midlands construction partner, Balfour Beatty VINCI, is terminating its labour supply agreement with Danny Sullivan Group following an independent investigation into the status of workers.

“HS2 Ltd takes its responsibility for managing public money seriously. Unethical behaviour will not be tolerated, and we fully support our supply chain partners in rooting it out.

“HS2 Ltd is continuing to conduct further investigations into labour supply contracts across the supply chain. A formal referral has already been made to HMRC, and we encourage anyone who believes they may have relevant information, which could support our enquiries, to report it in confidence via HS2’s Speak Out channels.”