NEWS
16/01/2018 12:47 GMT | Updated 16/01/2018 15:55 GMT

Carillion 'Domino Effect' Looms As Smaller Companies Reel From Collapse

'We found out about the collapse with everyone else in the news.'

Pressure is mounting on the government as hundreds of small firms face financial ruin after the collapse of construction company Carillion - with one business telling HuffPost UK it’s more than £200,000 out of pocket.

Ministers scrambled to save public sector contracts held by the firm, including the management of hospitals, schools and defence sites, but left private deals in limbo.

The Wolverhampton-based giant, which employs 20,000 workers in Britain, went into liquidation on Monday after talks between its lenders and Whitehall failed.

Dan Kitwood via Getty Images
Construction firm Carillion collapsed into liquidation on Monday, risking thousands of jobs 

It succumbed to a mounting £2bn debt pile and £600m pension deficit following a series of profit warnings and write-downs in the value of flagship deals.

Kevin McLoughlin, owner of a painting and decorating firm in the south east of England, told HuffPost he was around £200,000 out of pocket as a result of Carillion’s collapse.

“The first we realised there was a problem was when 30 of our workers turned up on site in London and were told they couldn’t go in,” McLoughlin, whose firm has operated for three decades, said.

“We found out about the collapse with everyone else in the news. For us, Carillion were a good firm, they paid us on time and we had lots of work from them. Luckily, we had just two jobs on the go - one at the Google building and the other in the city at St Bart’s Hospital.

“If this had happened six months ago it would be a different story. 

KM Painting and Decorating
Decorating boss Kevin McLoughlin has said the Carillion collapse will bring 'short-term pain' to some of his workers

“It’s going to be short-term pain for some of our workers but we are a busy company, we have contracts coming in - we’ve just won a big new hotel - but that doesn’t start for a few weeks.

“What people don’t always realise is that you don’t just lose money you are owed when something like this happens - you lose the forward order book, and for us that could’ve been half a million pounds.”

While the government guaranteed public services run by Carillion would continue as normal and assured the firm’s pensioners they would receive payments, no such guarantees have been afforded staff on the firm’s private contracts.

Many of those employed on such projects, including a £71m student housing development in Manchester, left work early on Monday as subcontractors reportedly walked off site.

And it was the fate of Carillion’s suppliers which came to the fore on Tuesday, with many hundreds of businesses reliant on the firm for survival.

Brian Berry, chief executive of the Federation of Master Builders, told HuffPost that it will be small firms at the end of Carillion’s supply chain who will feel the effect of its collapse.

“It is a domino effect and it will be the small medium businesses at the end of the chain who bear the brunt,” he said.

“There will be anger as it becomes clear just how badly Carillion was managed.”

It comes as ministers referred Carillion’s current and former executives to the Insolvency Service to investigate claims on mismanagement.

And on Monday, a political row over the situation exploded in a fiery Commons debate, Cabinet Office Secretary David Lidington made it clear there would be “no bailout”.

His insistence came amid calls for government intervention from Labour, with leader Jeremy Corbyn describing the situation last night as symptomatic of the failure of “outsource-first dogma”.

“It’s time we took back control,” Corbyn said in a video.

“We not only need to guarantee the public sector takes over the work Carillion was contracted to do – but go much further and end contracts where costs spiral, profits soar and services are hollowed out.”

MPs launched an inquiry into the affair, despite a senior civil servant’s claim that officials had “played a blinder” in protecting the taxpayer.

And Labour MP Rachel Reeves questioned whether Carillion’s former chief executive will continue to receive his £660,000 salary until October this year.

Task force

Meanwhile, the TUC has called for the government to assemble a national task force to deal with the crisis.

General Secretary Frances O’Grady said: “We urgently need a national task force involving unions to safeguard jobs, services, and pensions.

“Workers can’t be left at the back of the queue. Each and every worker at Carillion needs to know where they stand. They have bills and mortgages to pay, and deserve certainty on their future.

“And we have to ensure that there aren’t more Carillions on the horizon. Public services are already under pressure, and can’t take another hit like this.”

It comes amid fresh claims that cash was thrown at the soon-to-go-bust firm to maintain British prisons despite ministers twice admitting it was failing to deliver.