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: Daniel Sorabji/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 What went wrong with Carillion and where does it go from here? Key questions answered on the liquidation of the construction firm and its implications for staff Carillion employs 43,000 people, including almost 20,000 in the UK. Photograph: Christopher Thomond for the Guardian
The construction firm Carillion, which is involved in a host of major government projects including HS2, has gone into compulsory liquidation.
What went wrong for Carillion?
Carillion relies on large contracts, some of which have proved much less lucrative than it expected. Last year it slashed the value of them by £845m, of which £375m related to 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 bail it out. That left the company unable to continue trading, forcing it to go into liquidation.
Carillion liquidation: Taxpayers face 'raw deal' as staff urged to keep working - live updates Read more
Why liquidation and not administration?
Administration aims to help a company repay debts to avoid insolvency if possible, while liquidation is the process of selling all assets before closing down the company completely. Carillion is likely going straight into liquidation for two reasons. Firstly, it does not even have enough cash to keep trading during an administration process and secondly because the public services run by Carillion need funding from the government to carry on and only the Official receiver, who oversees liquidations, can deal with such payments.
The Cabinet Office minister, David Lidington, has promised an orderly process, avoiding a fire-sale of assets. Shareholders will get nothing.
Who is handling the liquidation?
David Chapman, a civil servant working for the Insolvency Service, has been appointed as liquidator. He is being advised by six “special managers” from accountancy firm PricewaterhouseCoopers. They will take over the day-to-day control, selling assets, dealing with creditors’ claims and investigating the cause of failure. The directors will no longer be involved. The costs of the liquidation are paid from the assets.
Thousands of jobs at risk as Carillion goes into liquidation Read more
What does it mean for staff? Will they get paid?
The government has urged staff to go to work as usual and promised they will be paid, via the Official Receiver.
What does it mean for jobs?
Up to 43,000 jobs are at risk worldwide at Carillion, including almost 20,000 in the UK. Some employees will be moved over to other contractors, particularly where they are working on state contracts, such as HS2 and Crossrail. Lidington said some public services would be taken in-house while others would be handed to rivals. Some of Carillion’s small business suppliers are also now at risk, jeopardising more jobs.
What does it mean for Carillion trainees?
The Construction Industry Training Board said it would step in to secure the future of Carillion’s 1,400 apprentices, offering grant and apprenticeship transfer incentives to other employers.
What happens to the company’s contracts?
Q&A What government contracts does Carillion hold? Show Hide NHS
•Manages facilities including 200 operating theatres and 11,800 beds
•Makes more than 18,500 patient meals per day
•Helpdesks manage 1.5m calls per year
•Engineering teams carry out maintenance work Transport
•Building '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
•Upgrades track and power lines for Network Rail
•Major contractor on London’s Crossrail project
•Roadbuilding and bridges Defence
•Manages infrastructure and 50,000 homes for Ministry of Defence Education
•Designed and built 150 schools
•Services such as catering and cleaning at 875 schools Prisons
•Maintenance and repairs at about half of UK prisons Libraries
•Manages several public libraries in England Energy
•Building substations, overhead cables and other works for National Grid
Lee Causer, of the accountants Moore Stephens, said customers would have clauses in their contracts that allow them to break the deal if Carillion became insolvent. While some customers may have contingency plans, delays in delivering projects appear inevitable, along with disruption in the supply chain.
What about subcontractors?
They could face big problems. According to insolvency specialist Begbies Traynor thousands of small firms are owed millions of pounds by Carillion. Causer of Moore Stephens said: “Carillion’s collapse could trigger a number of insolvencies across the construction sector, in an industry that already experiences the highest levels of insolvency per year in the UK. The ramifications of the failure of Carillion could be huge.”
What does it mean for school dinners?
The government has promised to provide the cash necessary to maintain public services provided by Carillion staff, subcontractors and suppliers, ranging from school dinners to managing hospital operating theatres and maintaining prisons. Oxfordshire county council put firefighters on standby to ensure local schoolchildren would get fed if Carillion workers didn’t turn up.
What will happen to the pension fund?
Carillion has 13 pension schemes with a total deficit of £580m, but the liability will balloon to more than £800m because the firm no longer has a solvent business behind it. The Pension Protection Fund (PPF) will take over. The PPF has a £6bn surplus, socan cope with this hit.
Will pensions be covered in full?
People who have already retired will receive their pensions in full, but those yet to retire will see cuts of 10-20%. Higher earners may be affected a PPF cap on payouts, which currently is £34,655.05. However employees with more than 20 years’ service can receive more. The PPF assessment procedure could take months or even years.
Where can employees get help?
Anyone worried about their pension should ring the Pension Advisory Service (TPAS) on 0300 123 1047 for free guidance. TPAS has also set up a special helpline number for members of Carillion’s pension schemes: 020 7630 2715. Employees can also contact JobCentre Plus through its rapid response service.
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