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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.
Blame the board for the Carillion collapse, it was deluded 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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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.
A worker on the Midland Metropolitan Hospital, who wanted to only be identified as Philip, told the BBC: "Everyone on the site got told: 'That's it, go home.' My company said, 'You've been laid off.'
"They've literally locked the gate. They've told us we can get our personal tools off the site if they're small, but that's it."
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.
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.
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.
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."
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