The Carillion collapse causes chaos

Carillion, one of the biggest construction companies in the UK, has gone into compulsory liquidation following unsuccessful attempts to negotiate a deal with its banks and the Government’s Cabinet Office. The collapse of the construction giant means that there are 43,000 employees whose jobs are under threat. The company has debts of more than £900m and a pension deficit of almost £600m.

Carillion was the biggest manager of military bases for the Ministry of Defence and the second largest supplier of maintenance services to Network Rail. Carillion also provided facilities management services for hospitals, prisons, schools and construction services on major projects including the redevelopment of the Battersea Power Station.

The Labour party has called on the Government to provide an explanation as to why it awarded contracts worth nearly £2bn to Carillion despite the company issuing warnings about it’s financial distress. Carillion issued its first profit warning on 10 July 2017 resulting in its share price decreasing by 39% and its former chief executive, Richard Howson, standing down. Shadow Cabinet Office minister, Jon Trickett, has said that there were enough grounds to deem Carillion “high-risk” following the first warning and that measures should have been taken to check that the company was ready for more taxpayer-funded contracts. A company which supplies services to the Government and shows signs of financial distress, can be deemed “high-risk” which would result in a “crown representative” being appointed to work with the company on improving their performance.

Following the publication of this profit warning, a joint venture between Carillion and rival Kier and French engineer Eiffage won a £1.4bn contract to work on the HS2 high speed-rail link. On 18th July, Carillion won a £158 contract from the Ministry of Defence to provide “catering, retail and leisure, together with hotel and mess services” at 233 military facilities.

In September a second profit warning was published and was subsequently followed by the company winning a Network Rail contract to electrify the London-to-Corby rail line, five weeks later.

Seven days later, the company put out a third profit warning and was then awarded a £12m schools building contract three days later. 

Two months after the first profit warning, Carillion had still not been appointed a crown representative and despite two additional profit warnings, further work which equated to more than £2bn in contracts was awarded to the company. Whilst the Government has been ensuring it had contingency plans in place in the event that the company collapsed, Stella Creasy, the Walthamstow MP, along with many others, have insisted that the Treasury should not escape a degree of responsibility for the collapse of the company.

Aspire Comment

Whilst concerns rise over the financial impact this will have on other contractors, small businesses and the public-sector contracts, many officials are simply questioning how this happened.

This is an example, albeit on a massive scale, of the importance of due diligence in any supply chain.

Due diligence is the key to ensuring that you can be confident that the people you contract with are compliant and financially stable. To avoid being a name on a list of creditors with a risk of never seeing your invoice paid, contact Aspire to discuss carrying out due diligence on your suppliers.

If you’re concerned over your due diligence processes, please get in touch with Aspire on 0121 445 6178 to discuss how we can help.