UK suppliers to Carillion are desperately trying to figure out the impact of its failure on a vast network of businesses that had contracts with the indebted construction services company, according to the head of an industry lobby.
“Carillion outsourced everything,” said Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, whose members include steel-working firms, electricians, and plumbers.
“It was a management company, it wasn’t a construction company or an infrastructure company,” he said. Carillion, which obtained London court approval for liquidation, “provided management services, and sometimes not very well. Its payment performance to its suppliers was appalling,” Mr Klein said.
Carillion’s portfolio of contracts span the UK’s public infrastructure, from building projects at schools and hospitals to telecom cables, railways and nuclear decommissioning.
These involved hundreds of small and medium-sized companies, presaging a messy winding up of the Wolverhampton-based company.
It has also sparked a political outcry about the role of the private sector in public contracts.
It marks one of the biggest British corporate failures in recent years after costly contract delays and a slump in new business left it swamped by debt and pensions liabilities of around £1.5bn (€1.68bn).
The demise of the 200-year-old business poses a headache for Theresa May’s government, which had employed Carillion to work on 450 projects including the building and maintenance of hospitals, prisons, defence sites and a high-speed rail line.
Carillion’s announcement has also roiled shares in supplier Speedy Hire, which rents equipment.
The shares fell up to 12%, the most since September 2015. Balfour Beatty, which has a joint venture with Carillion, said it is expecting a cash impact of £35m to £45m.
Construction is the most outsourced sector in the UK and Carillion’s failure raises the question of whether the current model of state contracting is fit-for-purpose, Klein said.
“The mind boggles. There are other approaches to procurement. This is simply not on anymore,” Mr Klein said.
The business group is trying to assess the extent of its members’ exposure and seeking government proposals on what will happen to those owed money.
Some projects could be ring-fenced so that their suppliers would be paid, he said.
Bloomberg and Reuters