The UK’s second biggest construction company Carillion has gone into liquidation with the Government pledging to step in to deliver its public sector contracts.
Crisis talks between the firm, its lenders and the government failed to reach a deal to save the giant, which is involved in major projects such as the Highways England smart motorway programme and HS2.
It is also the second biggest supplier of maintenance services to Network Rail and maintains schools and homes for the public sector.
The firm is reported to have run into trouble after losing money on big contracts and running up huge debts of some £1.5bn, this includes a £600m pension deficit.
One of the key contracts that led to Carillion’s demise was the £745m Aberdeen bypass, which is being built by the Aberdeen Roads Ltd consortium, a joint venture that includes Balfour Beatty and Morrison Construction alongside Carillion.
It is due to open in spring 2018 but one key stretch was due to open a year earlier and has suffered delays because of slow progress in initial earthworks. The consortium was also hit with a £280,000 penalty on for polluting two of Scotland’s most important salmon rivers.
Cabinet minister David Lidington announced the government will continue to deliver all public sector services following the insolvency of Carillion PLC and sought to reassure anxious staff, however he added there would be no bailout for the entire firm.
‘All employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do.
‘It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company.
‘Since profit warnings were first issued in July, the Government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business. We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality. It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been keep our essential public services running safely.’
Following profit warnings and share collapses, the last straw in the saga could have come early this year when it was announced Carillion was being investigated by the Financial Conduct Authority (FCA) in connection with statements it made over a seven-month period leading up to the removal of its then chief executive last year.
While the firm had a large order book and is reported to have been given more time to pay off its debts, it struggled to secure any more lending from its banks.
Chief executive of leading contractors body Civil Engineering Contractors Association (CECA) Alasdair Reisner 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.’
Questions are likely to be asked in Parliament about exactly what the Government knew and when.
Shadow business secretary Rebecca Long-Bailey told the BBC that Labour wanted a full investigation into the Government’s dealings with Carillion: ‘This company issued three profit warnings in the last six months, yet despite those profit warnings the government continued to grant contracts to this company.’
She added that she did not want the government to take on the contracts that were loss-making, while selling the profitable ones to other private companies.
Mick Cash, the general secretary of the Rail, Maritime and Transport (RMT) union, said: ‘This is disastrous news for the workforce and disastrous news for transport and public services in Britain.
‘RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members jobs and pensions.’
Carillion in numbers
Carillion held approximately 450 contracts with government, representing 38% of Carillion’s 2016 reported revenue.
The Official Receiver has been appointed by the court as liquidator along with partners at PwC that have been appointed Special Managers.
Carillion has 43,000 staff globally, 20,000 in the UK.
Last year, the firm issued three profit warnings and wrote down more than £1bn from the value of contracts.
Information from The Insolvency Service
- To ensure continuity of public services, the companies will employ workers on the same terms and conditions as before:
- employees should continue to turn up for work and will be paid as normal any employee worried about their pension situation can ring The Pension Advisory Service (TPAS) on 0300 123 1047 for free and impartial guidance
- The Pension Advisory Service (TPAS) has also set up a special helpline number for members of these pension schemes: 020 7630 2715. Those already receiving their pensions will continue to receive payment
- a dedicated website has been set up to provide information for anyone affected – see www.pwc.co.uk/carillion and a dedicated helpline – 0800 063 9282