Fears for supply chain as Carillion goes under
Question marks hang over the immediate future of several key regional projects and the financial wellbeing of suppliers following the news that construction and services giant Carillion is to enter liquidation with immediate effect.
The downfall of one of the UK’s largest firms, which failed to put together a rescue deal with key shareholders over the weekend, will leave sub-contractors in the region exposed, said Mike Cherry, chairman of the Federation of Small Business. He added: “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.”
Brian Berry, chief executive of the Federation of Master Builders, said: “Carillion’s liquidation is terrible news for all those who work for the company and it will have serious knock-on effects for the many smaller firms in its supply chain, some of which will be in serious financial danger as a result of Carillion’s demise.
“Carillion’s liquidation raises serious questions for the Government, not least about its over-reliance on major contractors. The Government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots.”
The Government moved quickly to assuage fears for those involved in frontline public sector service contracts, with Minister for the Cabinet Office David Lidington telling staff to report for work today, confirming that they would be paid by the Government through the receiver in the short-term before services are taken on by other contractors.
In construction though, shockwaves are expected. Balfour Beatty and Galliford Try have already reported that they will each take a £40m hit to their profits, to ensure they meet contractual commitments to clients where they were in joint ventures with Carillion.
The delayed £335m Royal Liverpool University Hospital is one of the projects where overrunning on costs led the contractor into trouble.
Carillion is also the contractor on office scheme No8 First Street in Manchester, where completion was pushed back to spring 2018 after the cladding subcontractor went into administration; and on Moda Living’s 36-storey residential tower Angel Gardens at Noma.
No8 First Street is being backed by Greater Manchester Property Venture Fund. GVA, which manages the fund, said: “This morning’s news is obviously disappointing, however we always consider all eventualities and therefore we have a robust contingency plan in place which is being implemented at present.
“Because of this contingency plan and the advanced status of the programme, we anticipate that recent events will not cause a delay to the current practical completion date.”
In one of its last major corporate announcements in 2017, Carillion sold its 66% stake in Ask and its 50% stake in Ask Carillion Developments to Dukehill. Carillion was no longer involved with the Embankment scheme, where Ask is partnering with Tristan Capital Partners.
Carillion is part of the joint venture at Airport City, Manchester, and was appointed by the University of Manchester to deliver the redeveloped Owens Park in April 2017.
A University spokesman said: “We can confirm that Carillion is the principal contractor on our Fallowfield student development. At this stage we are considering our options and have no further comment to make.”
Lynda Shillaw, chief executive of MAG Property and director of the Airport City JV, said: “The current construction of the Airport City development is being undertaken by Beijing Construction Engineering Group International and is not affected by the issues at Carillion. Carillion has been a joint venture partner in the Airport City project since its creation in 2013 and we will work with PwC where necessary.”
On projects where Carillion was working with well-resourced partners, it is hoped that issues can be kept to a minimum. Kier, which currently operates joint ventures involving Carillion on HS2 and the Highways England smart motorways programme, said this morning that it “has put in place contingency plans for each of these projects and are working closely with clients so as to achieve continuity of service”.
Morgan Sindall said that it is committed to completing the “limited” number of projects it was working on with Carillion.
Carillion has been struggling to keep its head above water since £600m was wiped off its stock market valuation in July 2017, leading it to call in HSBC to advise on restructuring. Ex-Wates man Andrew Davies was intended to take over this month as chief executive. Carillion also reported a pension deficit of up to £800m, which is now being dealt with by the Pension Protection Fund.
Philip Green, chairman of Carillion, 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 and the Board is very grateful for the huge efforts made by Keith Cochrane, our executive team and many others who have worked tirelessly over this period.
“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. We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers.”
An application was made to the High Court for a compulsory liquidation of Carillion before opening of business today and an order was granted to appoint the Official Receiver as liquidator. PwC has been appointed to manage the business.