Tens of thousands of jobs and a host of government contracts are under threat today after crisis-hit construction giant Carillion was forced to enter liquidation.
The Wolverhampton-based firm employs around 20,000 people in Britain and is involved in a number of government projects, including HS2, new hospitals in Liverpool and Smethwick, and the provision of school dinners for 30,000 pupils.
It suffered from severe project delays and missed budgets leading to profit warnings, mounting debt of around £1.15bn and a pension deficit £600m.
The government has sought to reassure staff and the firm’s pensioners, saying on Monday that all Carillion workers should carry on as normal.
It said “those already receiving their pensions will continue to receive payment”, following the construction giant’s collapse.
It comes as a growing political row over the situation threaten boil over, with Labour and trade unions calling on the government to safeguard jobs.
Rebecca Long-Bailey, the shadow business secretary, told BBC Radio 4’s Today programme that big job losses could be avoided “if the government acts quickly and brings contracts back in-house.”
Rehana Azam, national secretary of the GMB trade union, said: “The fact such a massive government contractor like Carillion has been allowed to go into administration shows the complete failure of a system that has put our public services in the grip of shady profit making contractors.
“The priority now for the government and administrators is making sure kids in schools still get fed today – and our members still have jobs and pensions. What’s happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons.”
Carillion is expected to appoint accountants PricewaterhouseCoopers as special managers to handle the collapse of the firm.
Philip Green, Carillion’s chairman, said on Monday: “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.
“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.”
How many jobs are affected?
Carillion employs around 43,000 globally – around 20,000 in Britain – and has its base in Wolverhampton.
But many thousands more are employed by firms tied to Carillion as sub-contractors or suppliers, the Press Association reported.
Rudi Klein, chief executive of the Specialist Engineering Contractors Group, has warned that hundreds of smaller businesses could collapse.
Klein told the Financial Times: “The fallout from this could be horrendous.
“The domino reverberations as it travels down the supply chain could be unprecedented.”
Who does Carillion have contracts with?
The firm is understood to have public sector or public/private partnership contracts worth £1.7 billion.
These include providing school dinners to 30,000 pupils a day, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.
Among many ongoing projects, Carillion is also building the £335m new Royal Liverpool Hospital, which is at least a year behind schedule.
In the UK some of its projects have included the Royal Opera House, the Channel Tunnel, Tate Modern, the Library of Birmingham and the famous doughnut building of the UK’s Government Communications Headquarters (GCHQ).
Internationally it has been responsible for Oman’s parliament – the Majlis, Alvito Dam in Portugal and the Yas Marina Hotel in Abu Dhabi.
As recently as January 2, Carillion celebrated the completion of what it described as “another successful project” at Edinburgh Waverley Station.
Were there warning signs of a collapse?
In July 2017, Carillion told the Stock Market that it would write-down the value of some of its flagship contracts.
This came with a profit warning, sending its share price plummeting 39 percent.
Since then, the government has awarded the firm shares of three significant contracts - two with the Ministry of Defence and one with the HS2 rail project.
Yet these were not enough to prevent two further profit warnings and concerns about the firm’s ability to honour its mounting debt and pension responsibilities.
What’s happened to the share price?
All this caused the firm’s share price to plummet, from 239.80p in January 2017 to 14.20p on Monday, according to Yahoo! Finance.
Why would a government bailout be controversial?
The Unite trade union has called for a public inquiry into the situation at Carillion amid claims of “
Jim Kennedy, Unite’s national officer for local government, said: “Public services, vast amounts of public money, thousands of jobs - including in a lengthy supply chain of insecure agency workers who are also at risk - and workers’ hard-saved pensions are all in danger of being dragged under by yet another bout of reckless corporate irresponsibility.
“Only a full and rapid public inquiry will get to the bottom of this, and set us truly on a course to stop such taxpayer rip-offs happening again.
“Of course, the best way to stop the public having to pick up the tab for these repeated private sector failings is to take these contracts back in-house.”
Carillion reportedly asked the government for £300m and for unquantified help covering its pension liabilities.
Critics of a government bailout have pointed out that Phillip Green, Carillion’s chairman, was an advisor to David Cameron on corporate responsibility.
Sky News reported in 2016 that Green even met with Theresa May, Cameron’s successor, to discuss a role advising the government on “responsible business”.
What happens next?
Questions remain over what happens to the big government contracts that became a staple of Carillion’s business in Britain.
The government is under pressure to take these contracts over and provide guarantees to workers and suppliers.
But this, critics say, would constitute a “bailout” of a kind not seen since the 2008 financial crisis.
There are also contracts where Carillion is just one of a number of contractors, so work could be subsumed by those firms, saving the government cash.
On Monday morning, just minutes after Carillion admitted it was forced into liquidation, the government said workers should go to work as normal and that it will stand by the firm’s pensioners.
And HuffPost UK Political Editor Paul Waugh reported this morning: “Ministers are ultimately responsible of course, but the lack of civil service expertise in dealing with private contractors has been raised repeatedly by some critics.
“Flawed defence projects, IT contracts, NHS and schools PFIs, all suggest the public sector has lacked the business and legal expertise to avoid getting trapped into deals on poor terms.
“Maybe that’s something Cabinet Secretary Sir Jeremy Heywood will want to address today when he makes a rare public appearance, before the Public Administration Select Committee at 3pm.”
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