The move came after talks between the construction, refurbishment and maintenance firm, its lenders and the government failed to reach a deal to save the UK’s second biggest company in these sectors.
The failure of the company will mean that government has to provide funding to maintain the public services run by the company, which includes diverse non-construction contracts for managing prisons to providing school dinners.
Carillion’s problems arose after losing money on big contracts and running up huge debts. They issued a profit warning in July 2017, which was shortly followed by the chief executive stepping down from the company, which then caused a share price plunge. In November last year a further profit warning was announced. Questions are now being asked why the government continued to award the company contracts after the 1st warning. Shadow Cabinet minister Jon Trickett said: “Alarm bells have been ringing for over six months about the state of Carillion’s finances, so the Government must come forward and answer questions on exactly what due diligence measures were undertaken, before awarding contracts to Carillion worth billions of taxpayers’ money”.
The company has 43,000 staff worldwide – 19,500 in the UK, and has run up a £600m pension deficit. It is involved in such high-profile projects as the HS2 high-speed rail line and is one of the largest suppliers of maintenance services to Network Rail. It also maintains 50,000 homes for the Ministry of Defence.
Carillion chairman Philip Green said it was a “very sad day” for the company’s workers, suppliers and customers. It is not clear yet how those staff will be affected. “All employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do,” said government minister David Lidington.
Carillion is essentially an out-sourcer, and supports thousands of smaller firms. It is not yet known how this will effect those firms.
Some of Carillion’s contracts will be taken on by other firms and some could be taken back into the public sector.
Carillion has large bussiness contracts overseas, including a huge construction project in Qatar for the 2022 FIFA World Cup.
Bernard Jenkin, the Conservative chairman of the House of Commons Public Administration Committee, said Carillion’s collapse “really shakes public confidence in the ability of the private sector to deliver public services and infrastructure. You’ve got to treat yourself much more as a branch of the public service, not as a private company just there to enrich the shareholders and the directors.”
However, the failure of Carillion might offer hope for smaller companies to win lucrative government contracts.
“Ironically, Whitehall tends to do contracts with companies that it always does contracts with, because that’s the safe thing to do – that’s the perception.” stated Mr Jenkin. “A great many small and medium-sized companies feel excluded.”
Mick Cash, the general secretary of the Rail, Maritime and Transport (RMT) union, said: “This is disastrous news for the workforce and disastrous news for transport and public services in Britain. RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members jobs and pensions.”
Rehana Azam, national officer of the GMB union issued a statement saying “What’s happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons.”
