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15/01/2018

HS2 contractor Carillion goes into liquidation

Carillion goes intro liquidation / Carillion

Construction firm Carillion has gone into compulsory liquidation after the firm, its lenders, and the government failed to reach a deal to save it.

In a statement to the London Stock Exchange Carillion said: “Despite considerable efforts those discussions have not been successful, and the board of Carillion has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect.”

Carillion, which employs more than 40,000 people worldwide, including nearly 20,000 in the UK, has lost money on big contract and run up huge debts. It is not clear how staff will be affected.

In July 2017, The Planner reported that the Department for Transport had announced the firm as among the consortia awarded contracts to build the first phase of HS2 between London and Birmingham.

Carillion is the second biggest supplier of maintenance services to Network Rail and it maintains 50,000 homes for the Ministry of Defence (MoD). It also manages public services, including schools, hospitals and prisons.

With thousands of jobs at risk, Cabinet Office minister David Lidington has said all employees should continue to go to work and that they will “continue to get paid”. The government is to provide the necessary funding to maintain public services carried out by Carillion and its subcontractors, according to The Guardian.

Lidington defended the government’s decision not to bail out the highlighting contingency plans drawn up following Carillion’s first profit warning in July last year. Other contracts were drawn up in case Carillion failed, which would see other firms take over its responsibilities.

Pension Protection Fund is managing the firm’s pension funds, which the BBC said amounts to a deficit of £600 million.


Reaction

Responding to the collapse of Carillion, the Federation of Master Builders (FMB) has urged to the government to assess its “over-reliance” on major contractors.

“Carillion’s liquidation is terrible news for all those who work for the company and it will have serious knock-on effects for the many smaller firms in its supply chain, some of which will be in serious financial danger as a result of Carillion’s demise,” said Brian Berry, chief executive at the FMB.

“The government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots. That way, it can spread its risk while also reaping the benefits that come from procuring a greater proportion of its work from a broad range of small companies. Construction SMEs train two-thirds of all apprentices and are a sure-fire way of spreading economic growth more evenly throughout the UK.”

Mike Cash, general secretary at the Rail, Maritime and Transport (RMT) union, said the news is “disastrous” for both the workplace and transport and public services in Britain.

"The blame for this lies squarely with the government, who are obsessed with outsourcing key works to these high-risk, private enterprises.

"RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members’ jobs and pensions.”

He added that infrastructure and support works must be immediately taken in-house, with the workforce protected.

Infrastructure support provider Amey has incorporated joint ventures with Carillion to deliver the Regional Prime and National Housing contracts for the MoD, through the Defence Infrastructure Organisation (DIO). These contracts maintain the MoD of estate in the UK.

The terms of the arrangement will now see Amey continue the services.

The company said that for the past few weeks it has been working on detailed contingency plans with the DIO and the cabinet office to ensure that it can effectively continue to manage the contracts and these are being implemented today.

Amey confirms that it is “fully prepared” to continue the service obligation of the contracts without adverse effect on the employees of the joint ventures or the supply chain.

In a statement Balfour Beatty said it is in joint venture with Carillion on three projects: the Aberdeen Western Peripheral Route, the A14 in Cambridgeshire, and the M60 Junction 8 to M62 Junction 20 scheme.

It will continue to work with its customers and will meet its contractual commitments, said the company.

The cash impact to Balfour Beatty “is likely to be an outflow in the range of £35 million to £45 million in 2018”. The profit impact of Carillion’s compulsory liquidation would be recorded as an exceptional non-underlying charge in the income statement.

Balfour Beatty does not have any other material financial exposure to Carillion, the statement concluded.


Image credit | Carillion

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