Suppliers and workers must be ‘head of the queue’ as post-mortem begins

The reasons for the collapse of Carillion are long and varied and the full account of what happened probably won’t be known until a full report into the affair is completed.

Offering some analysis was Professor John Colley, of Warwick Business School, who said: “The problem at Carillion is twofold in that too many contracts were taken at poor margins and terms, which prevented any subsequent profitability under competitive pressure. Some were allocated during the recession when it was win work at all costs.

“The other key issue is project accounting, which tends to recognise losses late in the project, effectively when the project starts to run out of money. There will no doubt be serious retrospective scrutiny of the accounting.

“Balfour Beatty is still recovering from some similar issues, but it did not have the same debt levels and also had key assets to sell. Carillion does not and has a large pension deficit, which almost ensures liquidation as nobody wants that.”

Prof Colley, who is a former managing director at FTSE 100 retailer Kingfisher, added that the poor state of Carillion’s accounting had only slowly emerged, meaning that the firm was still awarded the £1.2bn HS2 contract – albeit with other JV partners.

“The partners will no doubt attempt to find another UK contractor to take on Carillion’s part. Contractors will be queueing up to see what is available during the Receiver’s sale process,” he added.

In the meantime, Cabinet Office minister David Lidington has said that while the government will pay the salaries of Carillion’s workers, he said private companies employing Carillion would have just two days of government support.

“The position of private sector employees is that they will not be getting the same protection that we’re offering to public sector employees, beyond a 48-hour period of grace,” Mr Lidington told MPs.

“I think that is a reasonable gesture towards private sector employees.”

The Black Country Chamber of Commerce – based in Carillion’s home city – said it was keen to support local businesses and workers, especially those tied up in the firm’s local supply chain.

It said these businesses would need plenty of support in the coming weeks and months.

Corin Crane, chief executive of the Black Country Chamber of Commerce, said: “Carillion is part of the fabric of the region, having operated in the heart of the Black Country for over 100 years. Our number one ask at this point is that decisions are made quickly, specifically regarding contracts that Carillion are already involved in.

“Not just in the Black Country, but across the UK, thousands of small businesses are involved in Carillion’s supply chain – many businesses have already completed their work and are awaiting payment, whilst many are yet to begin work but have planned rigorously for it.”

Paul Forrest, Head of Research at Midlands Economic Forum, added: “British markets, and indeed politics, could experience some volatility as a result of the announcement. With leading UK banks exposed to as much as £900m in loans, a potential pensions deficit of an estimated £580m but potentially rising to £800m, press reports indicated the corporate required some £300m by the month-end to secure its immediate cash flow.”

Elsewhere, the collapse proved a double blow for Birmingham businessman and philanthropist Tim Andrews as Carillion was a £250,000 customer of his Hollywood Monster printing firm, while on a personal level he was also a shareholder in the business.

He tweeted: “Not a great day so far! Carillion going bump. £250k a year client for HM and I’ve got £10k shares. At least the sun is shining…oh it’s not sunny either”.

The Federation of Small Businesses sided with the chamber of commerce, saying it was vital the interests of the sub-contractors was considered.

FSB national chairman Mike Cherry, said: “It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.

“These unpaid bills may well go back several months. I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.

“Sadly these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.”

He said when the dust settled on the sorry saga, there was a wider lesson to be learned about the concentration of public contracts in the hands of a small number of very big businesses.

This was also a theme picked up by many of the MPs involved in Parliamentary debate following the collapse.

Mr Cherry said: “Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the Government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”

Insolvency body R3’s Midlands chairman Chris Radford said: “Whenever a large company becomes insolvent, there are consequences for the wider business community, particularly suppliers and sub-contractors whose own survival can be threatened by the loss of a large customer or source of work.

“It’s important to remember that liquidators are responsible to all creditors, and have an obligation to realise as much money for creditors as possible. They will do this by selling an insolvent company’s business or assets. Employees, creditors and suppliers of a company in liquidation should contact the liquidators for more information on their specific cases.”

Concerns have already been expressed to PwC that this point they have a strong duty to the creditors of the business to do what they can.

John Kelly, President of the Birmingham and West Midlands District Association of the Institute of Chartered Accountants of England and Wales (ICAEW), and Regional Managing Partner for Begbies Traynor in the Midlands, said: “At what is bound to be a confusing time for many people, it is important to try and remain patient.

“What Government and the accountants involved will need to be doing is to make it entirely clear how employees, sub-contractors and businesses will be dealt with. More will become apparent over the coming days and weeks, and businesses who are currently employed by Carillion, or are owed money, or likely to incur future costs, should seek assurances from the insolvency practitioners dealing with this case that they will be paid for their future work.

“The construction sector has continued to struggle and remains in a delicate state, and companies affected should consider the effect this bad debt is likely to have and if they are concerned should take early advice from their accountant or specialist insolvency experts.”

Trade union Unite said workers at the firm were braced for difficult days ahead.

Jim Kennedy, Unite national officer for local government, said: “These have been a grim few days for this workforce. They will head into work today not knowing if their wages, pensions and even their jobs are safe.

“The administrator must provide reassurances on these to the workforce as a matter of urgency, and also that vital public services on which many depend will continue to be provided.

“We will be seeking a meeting with the administrator today to press home that that the priorities now are not the shareholders but the workers who provide the service and the people relying on them.”

The union has also supported calls for an urgent inquiry into how a company loaded with debt and which it claimed, undercut competitors with unsustainable bids, could be awarded so many lucrative public sector contracts.

He added: “We are also very concerned about the impact of Carillion’s collapse on the wider supply chain. Many of these small firms are the lifeblood of their community but their exposure to Carillion’s debt puts them at serious risk.

“PwC must put workers and suppliers at the head of the queue for payment, not the banks and certainly not the Carillion boardroom whose greed and recklessness has brought this giant company to its knees and imperiled so much of our public services.”