Carillion collapse: industry responds
January 16, 2018 – The collapse of £5.5bn turnover Carillion is sending shockwaves across the UK construction industry and beyond.
On 15th January 2018, a winding up order was made against Carillion and the court appointed the official receiver as the liquidator.
Suppliers and subcontractors, which number in their thousands, can expect to go unpaid for work they may have already completed or materials delivered, leaving them exposed to risk of going under too.
Reactions to the collapse are coming swiftly.
Rudi Klein, chief executive of the Specialist Engineering Contractors trade group, told BBC breakfast television news that Carillion’s failure could lead to many smaller firms going under in its wake.
The Federation of Master Builders also feared for the collateral damage and took the opportunity to plug the ‘small is beautiful’ message. Chief executive Brian Berry said: “Carillion’s liquidation raises serious questions for the government, not least about its over-reliance on major contractors. The government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots. That way, it can spread its risk while also reaping the benefits that come from procuring a greater proportion of its work from a broad range of small companies. Construction SMEs train two-thirds of all apprentices and are a sure-fire way of spreading economic growth more evenly throughout the UK.”
The Association of Consultancy & Engineering argued that its members – consulting engineers – should be the top priority on the list of creditors and be paid first since they are more important than Carillion employees, trade contractors and other parties likely to be left hanging.
“It’s always a sad day when a company goes into liquidation, putting at risk thousands of jobs and livelihoods. The collapse of Carillion also has a number of major ramifications for our industry,” said ACE chief executive Nelson Ogunshakin.
“In the immediate term, we need to ensure that our members from the consultancy and engineering sector, who worked with Carillion on some of the key infrastructure contracts they held, are paid. There are always competing interests when a company goes into liquidation, but the importance of our members to delivering the nation’s infrastructure is such that we would argue they should be at the front of any queue. We will lobby the government and creditors to ensure that this is the case.”
Alasdair Reisner, chief executive of the Civil Engineering Contractors Association, took a less divisive line. He said: “Today’s news is extremely worrying for Carillion’s staff and suppliers. In this challenging climate, it is vital that industry and government work together to provide support to those affected by Carillion’s liquidation. We will work with the government and other industry representatives to identify where and how this support can best be provided.”
Scottish Building Federation president Stephen Kemp, managing director of Orkney Builders, said: “The news that Carillion has now gone into liquidation has major ramifications for the UK construction sector. But it should also stand as an important lesson for government that, when it comes to awarding public sector work, big is by no means always best. As a trade federation, we have long argued that the bundling of contracts into huge frameworks that only the very biggest companies can bid for is not only detrimental for SME contractors that are unable to compete – it also creates big risks for government when something like this happens.”
Stephen Kemp added: “I think the Scottish government needs to take a closer look at procurement practices and put in place measures to enable greater SME participation. This may require the procuring authority to do more work to manage the contract across multiple contractors. But spreading the work and associated risk across multiple smaller companies would not only be good for the industry – it should deliver better outcomes for the taxpayer.”
Some thought there was more to this than straightforward incompetent business management.
Former National Infrastructure Commission chairman Lord Adonis told Talk Radio breathlessly that the collapse of Carillion was “one of the major corporate scandals of our times”. He said: “Books and films will be made of it, a bit like Enron.”
He said he had not no evidence of any crimes having been perpetrated but said “big questions need to be asked of the auditors in cases like this”.
Other political opponents of the government, including trades unions and Labour MPs sought to blame the government, either for continuing to award contracts to a firm that had reported an interim loss of £1.1bn in September, or conversely for not doing enough to protect employees and suppliers of Carillion.
The Insolvency Service said that to ensure continuity of public services, Carillion will continue to employ workers on the same terms and conditions as before. It said that employees should continue to turn up for work and will be paid as normal.
A dedicated website has been set up to provide information for anyone affected at www.pwc.co.uk/carillion and a phone helpline – 0800 063 9282.