Carillion Carillion lenders consider appeal to save firm from collapse Despite late rescue bid, administrators prepare to take action, prompting fears for 43,000 jobs, major projects and crucial public services Cranes at a Carillion construction site in central London. Photograph: Simon Dawson/Reuters
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.
Labour demands answers on 'high-risk' Carillion contracts Read more
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.
Q&A What is Carillion? Show Hide What is Carillion? The Wolverhampton-based firm is second only to Balfour Beatty in size. It was spun out of the Tarmac construction business in 1999 and steadily took over rivals, such as Mowlem and Alfred McAlpine. It expanded into Canada and built a construction arm in the Middle East. Carillion then diversified into outsourcing, taking on contracts such as running the mailroom at the Nationwide building society to helping upgrade UK broadband for BT Openreach. It took over running public service projects, ranging from prison and hospital maintenance to cooking school meals. Last year a third of its revenue – £1.7bn – came from state contracts. It employs 43,000 people, with more than 19,000 in the UK. Notable construction projects
• GCHQ government communications centre in Cheltenham (2003)
• Beetham Tower, Manchester (2006)
• HS1 (2007)
• London Olympics Media Centre - now BT Sport HQ (2011)
• Heathrow terminal 5 (2011)
• The Library of Birmingham (2013)
• *Liverpool FC Anfield stadium expansion (2016) Current projects
• Midland Metropolitan Hospital in Smethwick (due 2019)
• Aberdeen bypass (due 2018)
• Royal Liverpool University Hospital (due 2018, behind schedule) Government contracts
• NHS – manages 200 operating theatres; 11,800 beds; makes 18,500 patient meals a day
• Transport – “smart motorways” to monitor traffic and ease congestion; work on HS2; track renewal for Network Rail; Crossrail contractor
• Defence – maintains 50,000 armed forces’ houses; a £680m contract to provide 130 new buildings in Aldershot and Salisbury plain for troops returning from Germany
• Education – cleaning and meals for 875 schools
•Prisons – maintains 50% of UK prisons.
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 900 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 has paid a heavy price for too many risky contracts | Nils Pratley Read more
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.
Q&A Why is Carillion in trouble? Show Hide How did the company get into trouble? Companies like Carillion have to keep projects on budget and keep winning new contracts. When one of those fail, problems loom. Carilllion shocked the market in July with a massive profit warning, writing down its value by £845m, all related to key contracts. Two more profit warnings followed and the company admitted it needed cash quickly not to breach bank loan terms At the start of 2017 shares were changing hands at 240p. This weekend they were 14p. With debts of £900m it has been trying to arrange a £300m cash injection. However, lenders will not provide the cash without government guarantees. What happens to the pension scheme?
Carillion has a £580m pension scheme deficit. If it collapses the government-backed Pension Protection Fund would take over the scheme, although the liability would swell, to £800m. While the Fund provides a safety net for millions of workers, there are limits on what it can pay out. Who runs Carillion? Chief executive Richard Howson quit after the July profit warning, with the new boss yet to start. It has been run by engineering industry veteran Keith Cochrane and the group’s chairman Philip Green, the former boss of United Utilities. Sally Morgan, who was director of government relations for Prime Minister Tony Blair, is also a director.
“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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Carillion Fears fallout from Carillion collapse will spread to other companies Concerns over the wider supply chain after insolvency of construction company with 450 public sector contracts The prime minister’s official spokesman said that some of Carillion’s contracts could be taken in house. Photograph: Tolga Akmen/AFP/Getty Images
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.
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.
Q&A What went wrong for Carillion? Show Hide Carillion relies on major contracts, some of which have proved much less lucrative than it thought. Earlier this year 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. Photograph: Tolga Akmen/AFP
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.
Carillion goes into liquidation after last-ditch talks fail - live updates Read more
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.”
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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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Carillion Labour demands answers on 'high-risk' Carillion contracts Opposition asks what due diligence was carried out before £2bn worth of contracts were awarded to a firm in poor financial health The government is holding talks with the construction and outsourcing firm in a last-ditch attempt to stave off its collapse into administration. Photograph: Christopher Thomond for the Guardian
Labour has called on the government to explain why it awarded contracts worth nearly £2bn to Carillion even after it became clear the company was in financial distress.
The construction and outsourcing group issued the first of three warnings about its financial health in July, in an update that sent its share price tumbling and forced its chief executive to step down.
Q&A Why is Carillion in trouble? Show Hide How did the company get into trouble? Companies like Carillion have to keep projects on budget and keep winning new contracts. When one of those fail, problems loom. Carilllion shocked the market in July with a massive profit warning, writing down its value by £845m, all related to key contracts. Two more profit warnings followed and the company admitted it needed cash quickly not to breach bank loan terms At the start of 2017 shares were changing hands at 240p. This weekend they were 14p. With debts of £900m it has been trying to arrange a £300m cash injection. However, lenders will not provide the cash without government guarantees. What happens to the pension scheme?
Carillion has a £580m pension scheme deficit. If it collapses the government-backed Pension Protection Fund would take over the scheme, although the liability would swell, to £800m. While the Fund provides a safety net for millions of workers, there are limits on what it can pay out. Who runs Carillion? Chief executive Richard Howson quit after the July profit warning, with the new boss yet to start. It has been run by engineering industry veteran Keith Cochrane and the group’s chairman Philip Green, the former boss of United Utilities. Sally Morgan, who was director of government relations for Prime Minister Tony Blair, is also a director.
The shadow Cabinet Office minister, Jon Trickett, pointed to regulations showing Carillion could have been designated “high risk” at that point, and he called on the government to explain what measures it had taken to check the firm was ready for more taxpayer-funded work.
Trickett said: “Alarm bells have been ringing for over six months about the state of Carillion’s finances, so the government must come forward and answer questions on exactly what due diligence measures were undertaken before awarding contracts to Carillion worth billions of taxpayers’ money.”
Carillion issued its first profit warning on 10 July, issuing a statement that sent its shares tumbling 39% and triggered the resignation of its chief executive Richard Howson.
Facebook Twitter Pinterest Jon Trickett Photograph: Sky News
A week later a joint venture between Carillion, its construction rival Kier and the French civil engineer Eiffage won a £1.4bn contract to work on the HS2 high-speed rail link.
The day after that, on 18 July, Carillion won a £158m contract from the Ministry of Defence to provide “catering, retail and leisure, together with hotel and mess services” at 233 military facilities.
A second profit warning in September was followed five weeks later by the award from Network Rail of a contract to electrify the London-to-Corby rail line. A week afterwards the company put out a third profit warning, only to be awarded a £12m schools building contract three days later.
Carillion has paid a heavy price for too many risky contracts | Nils Pratley Read more
The interim chief executive, Keith Cochrane, said the award showed “we continue to retain the confidence of key customers despite the group’s current challenges”.
If a supplier to the government shows signs of financial distress, which include issuing a profit warning, the Cabinet Office can deem the company high risk. At that stage, according to government documents, a “crown representative” should be appointed to work with the company on improving its performance.
Government policy also states that officials “should reduce where possible the extent to which the strategic supplier is given additional work under the terms of an existing contract [...] so as to contain the risk to the taxpayer”.
Cabinet Office records show that no crown representative had been appointed as of September 2017, two months after Carillion’s first profit warning.
Q&A What is Carillion? Show Hide What is Carillion? The Wolverhampton-based firm is second only to Balfour Beatty in size. It was spun out of the Tarmac construction business in 1999 and steadily took over rivals, such as Mowlem and Alfred McAlpine. It expanded into Canada and built a construction arm in the Middle East. Carillion then diversified into outsourcing, taking on contracts such as running the mailroom at the Nationwide building society to helping upgrade UK broadband for BT Openreach. It took over running public service projects, ranging from prison and hospital maintenance to cooking school meals. Last year a third of its revenue – £1.7bn – came from state contracts. It employs 43,000 people, with more than 19,000 in the UK. Notable construction projects
• GCHQ government communications centre in Cheltenham (2003)
• Beetham Tower, Manchester (2006)
• HS1 (2007)
• London Olympics Media Centre - now BT Sport HQ (2011)
• Heathrow terminal 5 (2011)
• The Library of Birmingham (2013)
• *Liverpool FC Anfield stadium expansion (2016) Current projects
• Midland Metropolitan Hospital in Smethwick (due 2019)
• Aberdeen bypass (due 2018)
• Royal Liverpool University Hospital (due 2018, behind schedule) Government contracts
• NHS – manages 200 operating theatres; 11,800 beds; makes 18,500 patient meals a day
• Transport – “smart motorways” to monitor traffic and ease congestion; work on HS2; track renewal for Network Rail; Crossrail contractor
• Defence – maintains 50,000 armed forces’ houses; a £680m contract to provide 130 new buildings in Aldershot and Salisbury plain for troops returning from Germany
• Education – cleaning and meals for 875 schools
•Prisons – maintains 50% of UK prisons.
Trickett will ask the government to explain what due diligence it applied to Carillion after its first profit warning and which ministers were involved in decisions to keep awarding contracts despite its financial problems.
Labour called on the government to be ready to take back public contracts awarded to Carillion to ensure workers do not lose their jobs and that public sector projects involving Carillion – such as the Midland Metropolitan hospital and Royal Liverpool hospital – are not interrupted.
Trickett said: “In the meantime – as emergency meetings take place between officials – employees of Carillion, pension holders and taxpayers will want assurances that financial protections are in place in the event the supplier experiencing further financial difficulties.
Q&A How are you being affected by the Carrilion liquidation crisis? Show Hide If your company or workplace has been affected you can tell us about it using our encrypted form.
Your stories will help our journalists have a more complete picture of these events and we will use some of them in our reporting.
“Labour urges the government to stand ready to intervene and bring these crucial public sector contracts back in-house. The government cannot outsource its responsibility and duty of care to these workers and vital public sector projects.”
Labour is also expected to highlight the links between the government and the Carillion chairman, Philip Green, who is an adviser to the prime minister on corporate responsibility. In 2015 he signed an open letter advising people to vote Conservative.
Facebook Twitter Pinterest Stella Creasy. Photograph: Leon Neal/Getty Images
Stella Creasy, the Walthamstow MP who has campaigned against PFI (private finance initiative) contracts where private firms are contracted to carry out public sector work, hopes to raise the case of Carillion with the Treasury in the House of Commons on Monday.
She expressed particular concern about the firm’s contracts to build hospitals in Liverpool and Smethwick.
While the Cabinet Office has been coordinating the contingency planning for a possible collapse of the company, Creasy insisted the Treasury should not escape responsibility.
“Carillion is one of a handful of companies who have taken on private finance contracts with the public sector for major infrastructure projects,” she said. “The Treasury has previously argued that using these contracts, which are a more expensive form of credit for the costs of building and maintaining infrastructure than public sector borrowing, are a way of transferring the risks arising from major projects to the private sector.
“The problems facing Carillion therefore also raise concerns about the financial stability of the other contractors and whether the public sector may face risks from this as a result.”
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Image copyright Carillion
Construction giant Carillion has gone into liquidation, threatening thousands of jobs.
The move came after talks between the firm, its lenders and the government failed to reach a deal to save the UK's second biggest construction company.
Carillion ran into trouble after losing money on big contracts and running up huge debts of around £1.5bn.
Its failure means the government will have to provide funding to maintain the public services run by Carillion.
Media playback is unsupported on your device Media caption David Lidington says wages will be paid to staff working on public sector contracts
"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," said government minister David Lidington.
Carillion is involved in major projects such as the HS2 high-speed rail line, as well as managing schools and prisons.
It is the second biggest supplier of maintenance services to Network Rail, and it maintains 50,000 homes for the Ministry of Defence.
Defence Secretary Gavin Williamson told MPs there would be a meeting of the government's Cobra emergency committee on Monday to discuss the situation.
Carillion chairman Philip Green said it was a "very sad day" for the company's workers, suppliers and customers.
The company has 43,000 staff worldwide - 20,000 in the UK.
Media playback is unsupported on your device Media caption Labour asks why the government did not act when profit warnings were issued
There are also thousands of small firms that carry out work on Carillion's behalf - many of those have contacted the BBC with concerns about whether they will be paid.
One company, which provided services for Carillion's prisons contract, told the BBC that it might fail if it is not paid the £80,000 owed to it.
What happens next depends on the actions of a court-appointed official receiver. With the help of a team of experts from accountants PwC, the receiver will review Carillion's business - a process which could take months.
The government has already said it is supporting public services and other firms are likely to take on some of Carillion's other contracts and staff.
Analysis: Simon Jack, BBC business editor
Damned if they did, damned if they didn't?
The government refused to insure Carillion's debts, so the banks pulled the plug. If it had offered guarantees to big banks on behalf of a private company it might have been accused of nationalising losses while privatising profits.
The whole point of having private companies do public work is that they shoulder some of the risk. The truth is the government has been helping out Carillion for a while. Awarding it contracts when it knew it was in trouble raised eyebrows last year.
The government constructed the HS2 contracts so that Carillion's joint venture partners would take on the work if the company went bust - meanwhile it hoped the new contracts would be enough to make Carillion's lenders feel reassured.
Industry sources tell me that if the company hadn't been awarded new government work it would have been curtains for Carillion months ago.
Pension impact
Thousands of current and former staff have money in Carillion pension funds, which have a total deficit of almost £600m.
Those funds will now be managed by the Pension Protection Fund (PPF).
The PPF said it was aware news of the liquidation would "raise serious concerns for all people involved".
"We want to reassure members of Carillion's defined benefit pension schemes that their benefits are protected by the PPF."
Shadow business secretary Rebecca Long-Bailey said 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."
Carillion might not be a household name, but over the years it has absorbed better-known businesses, including Mowlem and Alfred McAlpine.
It also has a big international business, including a huge construction project in Qatar related to the 2022 FIFA World Cup.
In addition it is a big supplier of construction services to the Canadian government.
Its biggest problems were cost overruns on three UK public sector construction projects:
The £350m Midland Metropolitan Hospital in Sandwell: opening delayed to 2019 due to construction problems
The £335m Royal Liverpool Hospital: completion date repeatedly pushed back amid reports of cracks in the building
The £745m Aberdeen bypass: delayed because of slow progress in completing initial earthworks
'Public service'
Bernard Jenkin, the Conservative chairman of the House of Commons Public Administration Committee, said Carillion's collapse "really shakes public confidence in the ability of the private sector to deliver public services and infrastructure".
He said there needed to be a change of "mindset" at companies that do a lot of work for the taxpayer.
"You've got to treat yourself much more as a branch of the public service, not as a private company just there to enrich the shareholders and the directors," he said.
"Ironically, Whitehall tends to do contracts with companies that it always does contracts with, because that's the safe thing to do - that's the perception. A great many small and medium-sized companies feel excluded."
Image copyright HS2/Grimshaw Image caption Carillion is part of a consortium working on the HS2 rail line
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."
Rehana Azam, national officer of the GMB union, said: "What's happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons."
Are you employed by Carillion? What are your concerns? You can share your experience by emailing haveyoursay@bbc.co.uk.
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