The government has moved to dispel mounting concern about the knock-on effect of construction firm Carillion’s collapse, amid fears for the many companies and workers that relied on it for business.
Carillion, which managed hundreds of public sector projects and vital public services, collapsed into liquidation after last-ditch rescue talks failed, with a team from accountancy firm PwC drafted in to help manage the process.
The government’s Insolvency Service urged Carillion’s 19,500 UK staff to go to work as usual and assured them they would get paid to continue providing services such as school dinners, hospital cleaning and prison maintenance.
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The prime minister’s official spokesman said that some of Carillion’s 450 public sector contracts could be taken in house, although that was “a decision for further down the line”.
Contracts for building part of the HS2 rail link will remain in the private sector, he added. Kier and Eiffage, the other two construction partners, have assured ministers they can build the London to Birmingham section of the line without Carillion.
Other companies said they had already drawn up contingency plans for Carillion’s demise, including the UK’s largest construction firm, Balfour Beatty, which expects to take a £45m hit.
The PM’s spokesman described the collapse of Carillion as “very regrettable” and said that ministers had been monitoring the situation since the company’s profits warning in July.
Carillion relied on major contracts, some of which proved much less lucrative than it thought.
In 2018 it slashed the value of them by £845m, of which £375m related to major public-private partnerships (PPPs) such as Royal Liverpool University hospital.
As its contracts underperformed, its debts soared to £900m.
The company needed a £300m cash injection, but the banks that lent it money refused to put more in.
The government also refused to step in and bail the firm out.
That left the company unable to continue trading and forced it to go into liquidation.
Last-ditch talks with Carillion’s lenders at the weekend collapsed, despite emergency talks at the Cabinet Office, with Whitehall sources saying that the government refused to provide £20m that Carillion had hoped would convince the banks to put in some money.
The result was a liquidation process announced on Monday morning, rather than administration, where the business continues to trade while attempts are made to find a buyer. David Birne, the insolvency partner at chartered accountants HW Fisher & Company, said it suggested there was very little of value left within the business.
David Chapman, a civil servant working for the Insolvency Service, has been appointed liquidator of Carillion. He is being advised by six “special managers” from PwC. They will assume day-to-day control of the company, selling assets, dealing with creditors’ claims and investigating what caused the company’s collapse.
Shareholders will not get anything.
The firm is involved in many public infrastructure projects – from transport and health to education and defence – and provides other vital public services such as cleaning and catering in NHS hospitals, the provision of school dinners in nearly 900 schools, and prison maintenance.
It is also the lead contractor on major public-private patnerships such as the unfinished Royal Liverpool University and Metropolitan Midland hospitals.
The West Midlands mayor, Andy Street, the former boss of John Lewis, said he had set up a taskforce to assist Carillion suppliers and subcontractors, adding that a new contractor would have to be found for the Metropolitan Midland.
David Lidington, the Cabinet Office minister, defended the government’s decision not to bail out the company and pointed to contingency plans drawn up in July. These meant contracts were structured so that if Carillion failed, other contractors would take over its responsibilities.
Rehana Azam, national secretary of the GMB union, said: “The fact such a massive government contractor like Carillion has been allowed to go into administration shows the complete failure of a system that has put our public services in the grip of shady profit-making contractors.
“What’s happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons.”
Labour and the Unite union called for an urgent inquiry into Carillion’s collapse.
Jon Trickett, the shadow Cabinet Office minister, said: “Given £2bn worth of government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the government’s handling of this matter.”
Unite also expressed concern about the impact on the wider supply chain, warning that many small firms were now at serious risk of collapse.
“PwC must put workers and suppliers at the head of the queue for payment, not the banks and certainly not the Carillion boardroom,” Unite said.
Carillion ran into financial difficulties last year after issuing three profit warnings in five months and writing down more than £1bn on the dwindling value of contracts in the UK, Middle East and Canada.
It has debts of about £1bn and a £600m pension deficit, and is being investigated by the Financial Conduct Authority over announcements made between December 2016 and July 2017.
Payments to those receiving pensions from the firm are expected to continue, albeit at a reduce rate, with the Pension Protection Fund lined up to take on a scheme whose deficit is predicted to balloon to £800m.
Philip Green, the company’s chairman, said: “This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years. Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future.
“In recent days, however, we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.”
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