Yahoo Finance Carillion collapse: what it means for railways, schools and pensions
Construction giant Carillion has crashed into liquidation putting thousands of jobs a risk.
It’s a company few outside the industry will have heard of but its collapse could have major repercussions.
As ministers, unions, administrators and lenders step up efforts to secure some kind of future, the fallout could be huge.
Carillion has around 450 public sector contracts worth about £1.7bn, covering everything from digging tunnels for HS2 to providing meals for thousands of school children and hospital patients.
One example of the scale of the potential problem is in Oxfordshire, where the county council has the fire service on standby to step in to help serve up school dinners should staff employed by Carillion find themselves suddenly without a job.
What does Carillion do?
Carillion specialises in construction projects, as well as managing and maintaining a raft of publicly-owned and run buildings and facilities.
It has worked on big private sector projects such as the Battersea Power station redevelopment and Liverpool FC’s Anfield Stadium expansion.
It also oversaw construction of “the doughnut” – the circular office building of the UK’s Government Communications Headquarters (GCHQ) – completed in 2003.
It is a member of a consortium working on the HS2 high speed railway line, and it is the second largest supplier of maintenance services to Network Rail.
It also maintains 50,000 homes for the Ministry of Defence, manages nearly 900 schools and manages highways and prisons.
Carillion employs about 20,000 people in the UK and 43,000 staff globally.
Where did it go wrong?
Basically, it got overwhelmed by debts – about £1.5bn, almost £600m of that in its pension scheme. Some analysts have argued the company is paying the price for taking on too many risky contracts – particularly in the Middle East.
Last year, it issued three profit warnings in five months and wrote down more than £1bn from the value of contracts.
It’s been in discussions with its principal lenders – which include Santander UK, HSBC and Barclays – to get more time to pay off its debts but those talks have failed.
Simply put, they were reluctant to lend it any more cash.
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What could the collapse mean for pensions?
Carillion has 13 final salary schemes in the UK with 28,500 members and a pension deficit of roughly £580m.
The Pension Protection Fund – last seen in action securing a £9.8m deal with struggling Toys R Us – will again be looking to safeguard the savings of tens of thousands of people.
Tom McPhail, head of policy at Hargreaves Lansdown, said the PPF had enough funding to absorb the Carillion scheme, should the company go into administration.
However, he warned that while those retired members will continue to receive their pensions in full, those yet to reach retirement will see cuts of typically between 10% and 20%.
“They’ll see an initial reduction of 10% plus they may lose some of their inflation proofing and higher earners may have some of their pension capped,” he said.
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But it’s not just pensioners we should worry about, right?
With interests in everything from railways to prisons, schools to road schemes, the demise of Carillion will be felt across the country.
For example, it provides facilities maintenance, cleaning and catering services to hundreds of schools – and it’s money worries have already seen one council step in.
In Oxfordshire, the county council has announced it has taken over most of the services previously provided by Carillion, and even has the fire service on standby to feed pupils should school dinner staff find themselves suddenly out of work.
And, it’s the second largest provider of maintenance work for Network Rail, repairing tracks and keeping stations open.
Mick Cash, leader of the Rail, Maritime and Transport union, said: “This is disastrous news for the workforce and disastrous news for transport and public services in Britain.”
Carillion is also a key member of the £1.4bn HS2 project to tunnel rail lines under the Chilterns – quite where that stands now is up in the air.
Equally, serious questions are being asked of transport secretary Chris Grayling who signed the contract with Carillion last summer – despite warning signs already there.
Jim Kennedy, Unite’s national officer for local government, said a public inquiry was now needed.
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What happens next?
Accountancy firm PricewaterhouseCoopers (PwC) is expected to be appointed as special manager to act on behalf of the official receiver and handle the collapse.
Carillion said the government would provide funding necessary to maintain the public services carried out by Carillion staff, subcontractors and suppliers.
Cabinet Office minister David Lidington said some services would be taken in-house while others would be handed to other operators “in a managed, organised fashion”.
