Carillion fallout

Warnings are being issued about the knock-on effects of the compulsory liquidation of UK building contractor Carillion which crashed on January 15, while a liquidator has been appointed to run the company.

Following the compulsory 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 (PwC), who were appointed by the High Court.

Working together, they have assumed day-to-day control of the company, taking responsibility for selling Carillion’s assets, dealing with its creditors’ claims and investigating the cause of the failure.

A warning note, however, was raised by Alexander Wood, partner in the insolvency and business recovery team at law firm Coffin Mew, who said, “Carillion’s liquidation raises the spectre of knock-on distress and insolvency along the supply chain. Not all sub-contractors and suppliers will have the resilience to survive the disruption to their cash-flow and there will inevitably be casualties.

“They should take professional advice immediately to identify strategies to avoid or mitigate any structural or financial issues.”

Concerns about the knock-on effects for the wider supply chain were echoed by Unite – the UK’s largest union – which said that “PwC must put workers and suppliers at the head of the queue for payment”.

Carillion relied on an extensive network of small firms, spending almost £952 million (€1.07 billion) with local suppliers in 2016. Those businesses are now waiting to find out if they will receive money they were owed by Carillion.

According to Cabinet Office Minister David Lidington, firms working for Carillion on purely private sector deals will have just two days of government support. Beyond that, only public sector contracts will receive government funding.

Business Secretary, Greg Clark, has called for an investigation by the Official Receiver to be broadened and fast tracked, so that a full picture of events can be attained as quickly as possible. The conduct of directors in charge at the time of the company’s failure and its previous directors will be examined.

Mathew Riley, UK managing director of engineering firm Ramboll and new chair of the Association for Consultancy & Engineering (ACE), said in a statement that Carillion’s collapse had been an accident waiting to happen.

“Carillion are a good company with a long heritage but are the victim of an industry business model that doesn’t work,” he said.

“Public sector procurement is part of the problem and the way they have sought to manage, share and transfer risk through the supply chain. For an industry that operates on wafer thin margins, to take on more risk, particularly for high value contracts, was always a dangerous strategy.”

Riley added, “The construction industry is facing a lot of converging forces – the need for increased productivity, the uncertainty from Brexit (the UK’s decision to leave the European Union), the opportunities around disruptive technologies, tackling the skills shortage – and now, the realisation of a broken business model.”