Trade body Build UK has issued a statement which estimates that over 25,000 businesses are owed money by Carillion and The Federation of Small Businesses said thousands of jobs are now at risk within those firms.
Rudi Klein, head of Specialist Engineering Contractor, which represents suppliers to the construction industry said Carillion outsourced most of its work and that the government knew of Carillion’s reliance on sub-contractors but continued to award the company lucrative work despite growing concerns about its finances. He estimates that Carillion has left a trail of £1.2billion in unpaid bills to thousands of small sub-contractors.
[epq-quote align=”align-left”]”It’s that supply chain who is going to bear the massive loss. There could be a large number of firms that will experience substantial financial distress.”
– Rudi Klein[/epq-quote]
Mike Cherry, National Chairman of the Federation of Small Businesses, said it was a situation made worse because Carillion extended its payment schedule to suppliers last year. “These unpaid bills may well go back several months. I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.”
“When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses. Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the Government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”
Foundations specialist Van Elle revealed its exposure to Carillion this morning, stating that it is out of pocket to the tune of £1.6m, and warning that it would suffer it it wasnt paid. Van Elle said that it would “engage with Carillion and its advisers (including the official receiver) to determine the status of outstanding payments, but shareholders should note that, in the event that Van Elle is unable to recover any monies owed, there would be an adverse financial impact on the group.” This sent share price tumbling.
Van Elle has £2.5m of upcoming work for Carillion, which is now being questioned. “It is too early to say whether there will be any effect on the commencement or completion dates of contracted work with Carillion, or what impact these developments will have on future work programmes, either in the rail sector or elsewhere,” Van Elle said, “but the group will monitor the situation closely and make further announcements as necessary.”
Plant hire firm Speedy Hire generated £12m revenue from Carillion during 2017 and has revealed that it is owed £2m. Speedy said that the collapse of Carillion was not expected to substantially exacerbate its existing debt level of £88.9m and its 2017 financial results would be in line with expectations.
Executive Payments
The payment to Carillion Executives is now under scrutiny, especially in the run up to the crisis and collapse.
According to London’s Metro Newspaper, former Chief Executive Richard Howson, in charge until last year when Carillion issued the first of three shock profit warnings, was given a £591,000 bonus in 2016, is still on £660,000 per year and will continue to be paid until October 2018. Carillion’s former Finance Director, Zafar Khan, quit the company in September but continues to be paid £425,000 a year and is expected to be paid until July 2018. Meanwhile Carillion has a reported pension deficit of £587m, but independent pensions consultant John Ralfe warned that it could be around £800m. Tom McPhail, of broker Hargreaves Lansdown, said: “Those yet to reach retirement will typically see cuts of between 10% and 20%.”
Carillion’s reach stretches beyond construction and into prisons and schools. In 2016 Carillion was handed a £200 million outsourced prison maintenance contract by the Government and was criticised after reports of serious failings which saw damaged cells left unusable for weeks, food serveries closed and windows left broken.
Firefighters in Oxfordshire have been put on ‘standby’ by the County Council, to serve school meals to children if needed.
Jeremy Corbyn said “The outsource-first dogma has wrecked havoc. Often it is the same companies that have gone from service to service, creaming off profits and failing to deliver quality of service” and that it should spell the end of “rip-off privatisation” of public services.
Cabinet Office Minister David Lidington has said that firms contracted by Carillion on private sector projects will only have two days of government support and told the Commons on Monday that the official receiver had the power to impose penalties if it uncovered any misconduct.
