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15/01/2018 09:30 GMT | Updated 15/01/2018 21:23 GMT

Carillion Liquidation: Here's What It Means For Jobs, Schools And Hospitals

'The fallout from this could be horrendous.'

Tens of thousands of jobs and a host of government contracts came under threat on Monday 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 up to £2bn and a £600m pension deficit.  

TOLGA AKMEN via Getty Images
Construction firm Carillion took steps to enter liquidation on Monday, risking thousands of jobs

The government has sought to reassure staff and the firm’s pensioners, saying on Monday morning 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 threatens to 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.”

Darren Staples / Reuters
A Carillion worker walks through the firm's Midland Metropolitan Hospital construction site in Smethwick. 20,000 workers are employed by the firm in Britain

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.”

Carillion
Phillip Green, Carillion's chairman, described Monday as a "very sad day" for the firm

Green, who earned £215,000 in 2016, added: “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.”

But Green’s role in governing how Carillion was run in the lead up to its collapse came under increased scrutiny on Monday.

Roger Barker, Head of Corporate Governance at the Institute of Directors said: “Today’s outcome suggests that effective governance was lacking at Carillion, and we must now consider if the board and shareholders have exercised appropriate oversight prior to the collapse.

“There are some worrying signs. The relaxation of clawback conditions for executive bonuses in 2016 appears in retrospect to be highly inappropriate. It does no good to the reputation of UK business when top managers appear to benefit in spite of the collapse of the organisations that they are responsible for.”

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.”

Among those whose job has been thrown into doubt is the firm’s newly-appointed incoming Chief Executive Andrew Davies, who was due to begin his role in April.

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 in 218 schools, 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.

What were the warning signs?

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. 

Yahoo! Finance
July 2017's profit warning sent Carillion's share price into freefall

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 “reckless corporate irresponsibility”.

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.”

And even the pro-business Institute of Directors aired its concerns with how Carillion was managed.

Last year, ex-Chief Executive Richard Howson was handed a staggering £660,000 bonus despite leaving the firm after a profit warning.

Other executives to be handed big payouts include the former financial officer and outgoing interim chief executive.

Unions has called for a moratorium on further big government contracts ending up in private hands.

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.

West Midlands metro mayor Andy Street said he would launch a taskforce to help the region, where Carillion is headquartered and delivering projects including a new hospital, to recover.

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.”