Construction firm Carillion is hoping for an eleventh-hour rescue to save it from collapse amid fears for the future of a host of major government projects and day-to-day services, from schools to hospitals, prisons and the army.
The Cabinet Office hosted emergency talks on Sunday aimed at mapping out a future for a company that employs 43,000 people – including nearly 20,000 in the UK – but the meeting broke up without a rescue deal being announced.
The company’s bank lenders were considering a last-ditch appeal to fund a rescue plan, according to Sky News, but accountancy firm EY is standing ready to manage a potential administration process, which could be triggered as soon as Monday morning.
Labour called for a public inquiry into the rapid decline of Carillion, whose chairman is an adviser to the prime minister on “corporate responsibility” and signed an open letter in 2015 from business figures urging people to vote Conservative.
Trade unions branded Carillion a “textbook example of the failures of privatisation” and urged the government to step in to guarantee jobs and services.
Opposition MPs are expected to question the government on Monday on why it awarded Carillion lucrative public sector contracts, including £1.4bn of work on the HS2 rail project, even after it became clear the company was struggling.
The government has insisted it has contingency plans to protect vital public services provided by Carillion, such as cleaning and catering in NHS hospitals, the provision of school dinners in nearly 230 schools and prison maintenance.
Some of the Wolverhampton-based company’s partners on multimillion-pound projects have been primed to take over the firm’s share of their joint-venture contracts.
Thousands of staff could be transferred to new employers under transfer of undertakings (TUPE) regulations that preserve staff pay and conditions when a business changes hands.
The Pension Protection Fund (PPF) is also on alert to take on the multiple pension schemes, which have 28,500 members and a £580m deficit which, experts predict, could balloon to £800m if the firm collapses.
Carillion stunned the City of London by issuing a profit warning in July, an announcement that sent its shares tumbling 39% and prompted the resignation of chief executive Richard Howson, who earned £1.5m in pay and bonuses in 2016.
It has since downgraded its profit forecasts twice more. Four months ago, it reported a £1.15bn loss for just six months, after taking hits of more than £1bn on unprofitable contracts.
Its bank lenders – including HSBC, Barclays and Santander – are unwilling to inject more money without a government bailout for a company with debts of £900m and whose stockmarket value is just £61m. Three years ago, Carillion was valued at £1.6bn.
The Cabinet office minister, David Lidington, has been leading the crisis talks, assisted by the civil service chief executive, John Manzoni, a former board member at BP.
The pair are thought to have told Carillion not to expect a taxpayer-funded bailout, sending executives back to the company’s banks in the hope they would offer a lifeline.
The shadow Cabinet office minister, Jon Trickett, demanded a public inquiry, pointing to regulations that call for government officials to step in when companies providing public services are performing badly.
The shadow health secretary, Jon Ashworth, urged his opposite number, Jeremy Hunt, to make a public statement to guarantee that hospital services would not be affected.
Fellow Labour MP Stella Creasy said the affair raised concerns about other public-private contracts, which she said were a “way of transferring the risks arising from major projects to the private sector”.
Trade unions called on Downing Street to reassure workers and the public. “There are not only thousands of jobs on the line here,” said the GMB national secretary, Rehana Azam. “Crucial services that hundreds of thousands of people rely on every day are at immediate risk.
“The prime minister must stop dithering and delaying, and immediately launch a taskforce bringing together employers and unions to safeguard these vital jobs and services.
The TUC deputy general secretary, Paul Nowak, said Carillion was a “textbook example of the failures of privatisation and outsourcing”.
As well as managing services across education, the NHS, the prison service – and working on transport projects – Carillion is a major contractor building the Midland Metropolitan and Royal Liverpool University hospitals. The new Liverpool hospital, a £335m flagship development which is unfinished and overdue, is among projects that have caused problems for the company.
One former banker with experience of similar public-private partnership contracts warned that the government may have limited legal powers to intervene to ensure these two projects were not severely disrupted. He said costs were now likely to escalate.
“My experience in work-outs of this kind is that the cost of completion spirals out of control,” he said. “Any replacement construction company will immediately declare that half of what has been done so far is defective and ‘you might as well start from scratch’.”
Independent pension expert John Ralfe said that the pension deficit was likely to swell to £800m when it is valued for the purposes of the PPF.
“The good news is that the 28,000 Carillion pension scheme members would receive PPF compensation – around 85% of the pension promise end-to-end – and the PPF surplus is big enough to cope,” he said.
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•This article was amended on Thursday 18 January. Carillion provided school dinners at 230 schools, not 900 as first mentioned.