The government is holding talks with the construction and outsourcing firm Carillion, in a last-ditch attempt to stave off the collapse of a company responsible for crucial services in schools, hospitals and prisons.
With the accountancy firm EY lined up to manage an administration that could be triggered as soon as Monday, a rescue deal is expected to hinge on whether the government is willing to help prop up the company.
The Carillion CV
History – The business was built from the construction division of Tarmac. It was spun out of the Tarmac corporation in 1999 and then acquired rivals, including Mowlem and Alfred McAlpine. It also acquired a number of Canadian businesses.
Base – Wolverhampton
Employs – 43,000 staff (20,000 in the UK)
How the problems emerged – A profit warning on 10 July revealed an £845m impairment charge in the construction division. Months later shares were down more than 70%. There were further profits warnings in September and November.
Major projects – Involved in the construction of numerous high-profile projects, including the GCHQ ; the Beetham Tower in Manchester; London Olympics Media Centre; Rolls Building courts complex in London; Heathrow Terminal 5; Library of Birmingham; Liverpool FC’s Anfield stadium expansion; the Battersea Power Station redevelopment; and work on HS2.
Government contracts – School meals and cleaning at nearly 900 schools, maintenance contracts at half of the UK’s prisons, managing 200 operating theatres and traffic monitoring systems for the Highways Agency.
As talks continued on Sunday morning Unite, the UK’s largest trade union, called for a public inquiry into what it called “reckless corporate irresponsibility”, including the conduct of directors.
Carillion, which is based in Wolverhampton, in the Midlands, and employs 43,000 staff, said it was still hopeful it could map out a future, involving its bank lenders swapping chunks of its £900m debt for shares. That plan would probably wipe out all existing shareholders.
But the banks, headed by HSBC, Barclays and Santander, have yet to agree on a restructuring plan and are understood to be reluctant to pour in new funding unless Downing Street takes part in a bailout.
The Cabinet Office is coordinating discussions expected to involve representatives from Carillion, accountants EY and multiple government departments, several of which employ Carillion to provide vital services.
The company derives £1.7bn – about a third of its revenue – from public sector contracts and public private partnerships. These include providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.
Carillion is understood to be keen for the government to provide guarantees on some of its public sector contracts to give lenders the confidence to keep backing the company.
NHS
• Managed facilities including 200 operating theatres and 11,800 beds
• Made more than 18,500 patient meals per day
• Helpdesks dealt with 1.5m calls per year
• Engineering teams carrying out maintenance work
Transport
• Built 'smart motorways' – which ease congestion by monitoring traffic and adjusting lanes or speed limits – for the Highways Agency
• Major contractor on £56bn HS2 high-speed rail project
• Upgraded track and power lines for Network Rail
• Major contractor on London’s Crossrail project
• Roadbuilding and bridges
Defence
• Managed infrastructure and 50,000 homes for Ministry of Defence
Education
• Designed and built 150 schools
• Catering and cleaning contracts at 875 schools
Prisons
• Maintenance and repairs at about half of UK prisons
Libraries
• Managed several public libraries in England
Energy
• Built substations, overhead cables and other works for National Grid
Unite called for a public inquiry into Carillion’s financial woes, asking why the government continued to hand the company lucrative contracts after three profit warnings.
Jim Kennedy, national officer for local government, said: “Public services, vast amounts of public money, thousands of jobs - including in a lengthy supply chain of insecure agency workers who are also at risk - and workers’ hard-saved pensions are all in danger of being dragged under by yet another bout of reckless corporate irresponsibility.
“Only a full and rapid public inquiry will get to the bottom of this, and set us truly on a course to stop such taxpayer rip-offs happening again.
“Of course, the best way to stop the public having to pick up the tab for these repeated private sector failings is to take these contracts back in-house.”
Carillion’s share price plunged by a further 29% on Friday and it has now lost 94% of its value in a year, meaning a company once worth £2bn is now valued at £61m.
Its value is dwarfed by its £900m debt pile and its £580m pension deficit, the latter of which was the subject of discussions on Friday involving the Pensions Regulator and the Pension Protection Fund, the government’s lifeboat that ensures retirement payouts continue if a company goes bust.
EY has been lined up to manage an administration that could be triggered as soon as Monday if no rescue plan for Carillion can be agreed at discussions on Sunday. That would effectively put EY in charge of Carillion’s government contracts until buyers can be found for chunks of the company.
The government has said it has contingency plans to handle the contracts if Carillion goes under. The Cabinet Office declined to comment on the rescue talks.
Controversial contracts
The government has come in for criticism for continuing to award a string of major contracts to Carillion despite its repeated profit warnings. Here is a list of the deals.
10 July 2017 – first profit warning Carillion downgrades its profit forecasts after taking an £845m hit on the value of contracts. Chief executive Richard Howson quits and its shares fall 39%.
17 July - contract award The government awards £1.4bn of HS2 contracts to a joint venture including Carillion.
18 July - contract award Ministry of Defence hands Carillion a £158m contract to manage services such as catering and accommodation at 233 military facilities.
29 September - second profit warning Carillion issues a fresh profit warning after unveiling a half-year loss of £1.15bn, which it calls a “disappointing set of results”.
6 November - contract award Network Rail awards Carillion £62m contract to electrify the London-to-Corby rail line.
17 November - third profit warning Carillion says it is seeking an easing of the terms of its debts, after problems with key contracts forced it to downgrade profit forecasts again.
20 November - contract award The government’s Education and Skills Funding Agency awards £12m in schools building contracts to Carillion, despite what the interim chief executive, Keith Cochrane, calls the group’s “current challenges”.
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