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Carillion | Fallout assessed as industry calls for change

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The construction industry has called for “major structural change” in the wake of Carillion’s collapse, as inquiries were launched into what went wrong.

Experts demanded an overhaul of the “broken” procurement process and improved security for the supply chain as the UK’s second largest construction company announced it was in liquidation yesterday morning, after weekend crunch talks with lenders broke down without a rescue deal.

Carillion employed 20,000 people in the UK and its collapse could also put supply chain jobs at risk. Shadow business and international trade minister Bill Esterson said: “If Carillion’s suppliers aren’t paid, they will go bust too with the loss of thousands of jobs.” 

Unite national officer for local government Jim Kennedy added: “Many of these small firms are the life blood of their community but their exposure to Carillion’s debt puts them at serious risk.”

Specialist Engineering Contractors’ (SEC) Group chief executive Rudi Klein called on the government to clarify what support will be available. 

He told New Civil Engineer: “There are millions of pounds of unpaid payments to the supply chain. I know lots of SMEs are concerned about whether they’re going to get paid, and whether they’re going to get their retentions back.”

He added: “I can’t get my head around the fact that you have the government awarding contracts to Carillion when technically they were insolvent…Would anybody in their right mind do this, giving work to a firm that is minus £1.5bn?”

The Public Administration and Constitutional Affairs Select Committee announced an inquiry into how the government and public sector manages the risks of outsourcing the delivery of public services yesterday afternoon, while in a statement to the House of Commons Cabinet Office minister David Lidington confirmed the official receiver will investigate the failure of the company.

Lidington said this will include “not only the directors at the point of its insolvency but also that of any previous directors, and whether their actions will have caused detriment to the creditors, and this includes detriment to any employees who are owed money.”

The government’s emergency Cobra committee met last night to try and limit the damage and try to keep public services running.

Klein said: “The Financial Conduct Authority (FCA) are already doing an inquiry into Carillion… What we need to be looking at is an inquiry into the future. How are we going to improve payment security for supply chains, how are we going to improve procurement?”

Association for Consultancy and Engineering chief executive Nelson Ogunshakin said the collapse had major ramifications for the industry.

Ogunshakin said: “The challenges of low profitability and negative cash flow experienced by the contracting sector confirm that the current procurement process is broken.

“A new business model, coupled with client leadership, is urgently required to make our industry fit-for-the-future and ensure we won’t experience difficulties with other major players”.

PricewaterhouseCoopers (PwC), which is managing Carillion, said all agents, subcontractors and suppliers should continue to work as usual under existing contracts, terms and conditions. It will review contracts and suppliers will be contacted in the coming days, it said. 

Federation of Small Businesses chairman Mike Cherry claimed Carillion had taken four months to pay some suppliers.

He said: “It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.” The unpaid bills could go back several months, Cherry said.

“When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses,” he continued. “Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”

Klein urged the government to support the Construction Retention Schemes bill that was introduced to Parliament last week and is expected to have its second reading in the House of Commons in April.

Introducing the bill Conservative MP Peter Aldous said: “If one of the larger construction companies were to fail, the consequences for SMEs and their supply chains could be disastrous. They could lose all their retentions, adding to the £220 million that is already lost annually. The Bill would help to avert such a calamity.”  

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Readers' comments (1)

  • Richard Palmer

    One could glibly say that here was a company that was was too big to manage but that misses the real point; the key directors and senior managers were simply not competent. So the question is, why are eye-watering remuneration packages still being honoured?

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