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Carillion | What it means for contracts

carillion generic cropped

Yesterday it was announced that one of Britain’s major contractors went into liquidation, but what does that mean for the 450 public and numerous private contracts held by the company.

Carillion worked across numerous sectors, including holding many contracts for roads and rail. This morning its workforce and subcontractors face an unclear and worrying future.

However, all of the clients and contractors in joint ventures (JV) which New Civil Engineer has spoken to, say they have been monitoring the situation throughout and contingency plans are being put into place to protect the projects.

Roads

On hearing the announcement, there were reports in the local press that work on the £96M Lincoln Eastern bypass had been halted. Lincolnshire County Council executive director for highways Richard Wills said the company would continue to work on the project for the “foreseeable future”, but said it was likely the contract would be retendered in the longer term.

“To date, Carillion has only completed about 10% of the work awarded to them and they haven’t started any of the really big and difficult work yet,” said Wills. “This is good, as it means it will be much easier for another contractor to step in once appointed.”

Carillion is one of four contractors alongside Balfour Beatty in the so-called “super JV” on the complex £1.5bn A14 Cambridge to Huntingdon improvement project.

Despite the warnings, contracts for the company were still being handed out in recent weeks, with the announcement it had won the contract for £14M worth of advanced works on the first stage of the East Leeds Orbital Road. In total, the contract has the potential to be up to £120M, and there had been opportunities for the company to win the later two stages.

Galliford Try also announced it would affected by the news, as it in a joint venture with Carillion and Balfour Beatty on the £550M Aberdeen Western Peripheral Route contract. Together with Balfour Beatty it is now obliged to complete the rest of the contract. It estimated the additional cash contribution from Carillion to complete the project to be around £60M to £80M, of which any shortfall would be funded equally between the JV members.

“The companies will discuss the position urgently with the Official Receiver of Carillion and Transport Scotland, to minimise any impact on the project,” said Galliford Try.

Balfour Beatty is also in a JV with Carillion on the M60 Junction 8 to M62 Junction 20 scheme. On the three projects, Aberdeen, A14 and M60, it said the cash impact to Balfour Beatty was likely to be an outflow in the range of £35M to £45M in 2018.

It is also working with Kier on the Highways England’s smart motorway programme.

Highways England responded saying it had been kept up to date with the situation and had put measures in place to deal with it.

“We have been monitoring the situation for some time and Carillion has kept us informed throughout.

“This has enabled us to develop contingency plans to ensure the continued safe delivery of any schemes that Carillion is involved in on behalf of Highways England.”

Carillion also built the Taunton Northern Inner Distributor Road (NIDR) for Somerset County Council, but was in a legal dispute with over delays and escalating costs.

Council leader David Fothergill said: “Our thoughts are with all Carillion’s employees and their subcontractors who will be understandably concerned about the future. However, today’s announcement would seem to reflect the difficult relationship that we have had with them as a contractor.

“We are fortunate that the Northern Inner Distributor Road has been completed, though it was of course subject to major delays. We remain in dispute with Carillion and have repeatedly and robustly resisted its excessive and inflated claims for costs. We also still have a substantial claim against Carillion for delays and will continue to pursue this.

“This is a developing situation and we will be working with the official receivers to resolve this matter as soon as possible”.

Rail

Carillion has numerous contracts across the rail industry, particularly for electrification.

In November last year, Carillion Powerlines, a 50:50 JV with Powerlines Group, won a contract for the Midland Mainline Electrification programme to complete the electrification from London to Corby. Under the 2.5 year deal it said it expected to generate revenues of £62M.

In December last year, under the same JV, it also won a £11.6M Network Rail contract to deliver upgrades to stations on the Shotts line between Holytown Junction and Midcalder Junction. The work is in addition to £49M worth of work awarded to the company in January last year to electrify the 74km route.

Carillion currently holds around £150M to £200M worth of work with Network Rail for project work such as civils work and track renewals.

Network Rail said it was activating contingency plans as the other main framework contractors would be able to step in. It said passengers would not be affected as the company did not work on the day to day running of the railway.

“We will be working closely with the Administrators and Carillion’s management team to ensure projects that they are working on continue and that the supply chain is maintained for this important work,” said Network Rail.

“Our aim is to ensure, as far as possible, that this news has as little impact as possible on our projects to grow and expand the railway network.”

A senior rail insider said although their company did not work with Carillion, it was still planning ahead and putting contingency measures in place. They said jobs where it might require access to areas of the site which Carillion was working on might now be delayed and have a knock on affect on their business.

HS2

In July last year, the C2 and C3 sections of the phase 1 route were handed to CEK, a joint venture formed of Carillion, Kier and French contractor Eiffage. At the time of the award, Carillion had just announced its first profit warning, prompting HS2 to put safeguards in place to ensure the contract would be fulfilled by the remaining contractors should Carillion run into problems.

Today, HS2 said the news about Carillion was “clearly disappointing” for the company and the wider UK construction industry, but it reiterated its position that it had assurances from the remaining parties in the CEK JV that it would be able to deliver on its responsibilities.

“HS2 Ltd does not hold a direct contract with Carillion,” an HS2 spokesperson said.

“We are continuing to discuss with Kier and Eiffage the implementation of contingency plans. Work will continue as planned with no unnecessary or additional exposure to the taxpayer.”

In response to the news, Kier said it had in place contingency plans for each of the projects and was working closely with its clients to achieve continuity of service.

“Following today’s announcement and after a short period of transition for these contracts, we do not expect there to be an adverse financial impact on the Group arising from these joint venture contracts,” it said.

The work, undertaken for the two central legs of the phase 1 route, is still in the design stage and is not yet on site. An industry source told New Civil Engineer this meant the impacts of Carillion leaving the JV would be far less than if it had been on site.

 

 

 

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