A month after the government contractor Carillion folded, the effects of its failure are still filtering through.
The latest cost of the company’s collapse has landed on the construction firm Galliford Try, which is to tap shareholders for £150m after taking a £25m hit on the cost of picking up Carillion’s share of their Aberdeen bypass joint venture.
Galliford Try needed the extra cash, it said, so that it did not have to divert money from other projects it was working on. Its shares slumped more than 18%, wiping more than £150m off its stock market value.
MPs have raised fresh concerns that former Carillion staff who have been made redundant are being left in the dark and could wait six weeks for redundancy and statutory notice pay.
The outsourcing firm Serco emerged as a rare winner from Carillion’s failure: it had previously agreed a £48m deal to take over NHS contracts from the company, but will now pay £30m.
As the Insolvency Service picks over the remains in an effort to save jobs and keep public services running, here are the key developments:
Carillion employed about 19,500 people in the UK. The official receiver, an office of the government’s Insolvency Service, is trying to find new employers for them, mostly by identifying other businesses willing to take over contracts.
So far, 6,668 jobs have been saved, more than a third of the company’s headcount. But nearly 1,000 staff have already been made redundant and a further 11,800 are hanging in the balance.
It looks likely that more jobs will be rescued, after the Insolvency Service reported a “lot of interest” from companies keen to buy out Carillion’s contracts.
But Frank Field, chair of the work and pensions committee, and Rachel Reeves, his counterpart on the business committee, wrote to the Insolvency Service on Wednesday with fresh concerns. They said staff had not been told how long they would have to wait for redundancy and statutory notice pay and warned it could be six weeks before payment arrived.
However, some suppliers to Carillion have already laid off staff and the full impact on jobs in Carillion’s supply chain is unlikely to be clear for months.
What was Carillion?
The Wolverhampton-based firm was second only to Balfour Beatty in size.
It was spun out of the Tarmac construction business in 1999 and steadily took over rivals, such as Mowlem and Alfred McAlpine. It expanded into Canada and built a construction arm in the Middle East.
Carillion then diversified into outsourcing, taking on contracts such as running the mailroom at the Nationwide building society to helping upgrade UK broadband for BT Openreach. It took over running public service projects, ranging from prison and hospital maintenance to cooking school meals. In 2017 a third of its revenue – £1.7bn – came from state contracts. It employs 43,000 people, with more than 19,000 in the UK.
Notable construction projects
• GCHQ government communications centre in Cheltenham (2003)
• Beetham Tower, Manchester (2006)
• HS1 (2007)
• London Olympics Media Centre - now BT Sport HQ (2011)
• Heathrow terminal 5 (2011)
• The Library of Birmingham (2013)
• Liverpool FC Anfield stadium expansion (2016)~
• Midland Metropolitan Hospital in Smethwick (due 2019)
• Aberdeen bypass (due 2018)
• Royal Liverpool University Hospital (due 2018, behind schedule)
• NHS – managed 200 operating theatres; 11,800 beds; made 18,500 patient meals a day
• Transport – “smart motorways” to monitor traffic and ease congestion; work on HS2; track renewal for Network Rail; Crossrail contractor
• Defence – maintained 50,000 armed forces’ houses; a £680m contract to provide 130 new buildings in Aldershot and Salisbury plain for troops returning from Germany
• Education – cleaning and meals for 875 schools
• Prisons – maintained 50% of UK prisons.
Suppliers and small firms
Carillion subcontracted much of its private and public sector work – from cleaning to landscaping – to an estimated 30,000 small companies, many hired for their specialist expertise.
It was also a notorious late payer, according to the Federation of Small Businesses. That means many companies that were already operating on wafer-thin margins have lost a lucrative client that owed them money.
Court documents revealed last month that those companies are unlikely to get anything back, at most a penny in the pound. Writing off these outstanding bills could mean firing people, or even threaten the survival of small businesses.
The British Business Bank is providing £100m in loans to affected firms, while high street banks have agreed to provide £225m of assistance such as overdraft extensions and loan repayment holidays. But reports are already emerging that these facilities are taking a long time to be approved.
Larger firms that worked with Carillion, or were its competitors, have also been affected. Rival outsourcing firms have seen their share prices tumble amid mounting concern among investors about the general outlook for the sector.
One rare winner is Serco, in the midst of its own financial recovery plan under the leadership of Winston Churchill’s grandson Rupert Soames. Serco agreed to buy contracts to manage NHS facilities from Carillion last year for £48m but will now pay 38% less.
• Managed facilities including 200 operating theatres and 11,800 beds
• Made more than 18,500 patient meals per day
• Helpdesks dealt with 1.5m calls per year
• Engineering teams carrying out maintenance work
• Built '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
• Upgraded track and power lines for Network Rail
• Major contractor on London’s Crossrail project
• Roadbuilding and bridges
• Managed infrastructure and 50,000 homes for Ministry of Defence
• Designed and built 150 schools
• Catering and cleaning contracts at 875 schools
• Maintenance and repairs at about half of UK prisons
• Managed several public libraries in England
• Built substations, overhead cables and other works for National Grid
The UK’s largest construction firm Balfour Beatty was working with Galliford Try on the Aberdeen bypass project and has said Carillion’s collapse could cost it up to £45m.
A joint inquiry has already begun, led by MPs on the work and pensions select committee and their counterparts on the business committee. They have demanded answers from pension regulators and trustees involved in Carillion’s retirement schemes.
They have also procured evidence from the big four accountancy firms, whom they accused of “feasting” on Carillion, pointing to £72m in fees those firms billed over the 10 years leading up to its collapse.
The auditor KPMG will face questions next week. In evidence to the committee, the firm said it could not have seen the collapse coming, pointing to the speed at which things can go wrong in construction. MPs are expected to ask why it deserved £20m in fees if it was so powerless to spot the iceberg ahead.
The biggest fireworks from the inquiry so far came during evidence sessions with former Carillion directors, who were branded “delusional” by Field and Reeves. Asked during the session if they would voluntarily hand back bonuses, they declined to do so.
An inquiry by the Financial Conduct Authority is also under way, looking at the veracity of Carillion’s statements to the stock market, while the Financial Reporting Council is examining whether KPMG might have been at fault.
The business secretary, Greg Clark, asked the Insolvency Service to fast-track an investigation into the conduct of Carillion’s current and former directors. “Any evidence of misconduct will be taken very seriously,” he warned.
In many cases the work that Carillion was doing in the public and private sectors has carried on more or less uninterrupted. The Insolvency Service has found some new contractors, or is paying for work to continue as normal in vital public services such as school catering.
The future is less certain for two multimillion pound hospital projects, the Royal Liverpool University hospital, and the Midland Metropolitan hospital in Birmingham. Work stopped on those projects after Carillion’s liquidation and they are now facing fresh delays, having already been postponed.
These were among the projects that brought Carillion’s financial problems to a head – and that could make finding new contractors difficult and expensive.
Carillion grew fast by taking over companies, including Alfred McAlpine, Mowlem and George Wimpey. Each deal brought with it a pension scheme, and the combined schemes, which have nearly 30,000 members, are estimated to be at least £990m in deficit.
The government’s pensions lifeboat, the Pension Protection Fund (PPF), is expected to assume a liability of up to £900m, its largest ever. It has enough money to do that, but scheme members will face payout cuts of about 15%.