What’s Just Happened? – The Carillion Crisis

Our Deputy News Editor Oliver Pridmore takes you through a step-by-step guide on the Carillion crisis in the very first edition of ‘What’s Just Happened?’

What’s just happened?

Last week, after months of financial difficulty, it was confirmed that construction giant Carillion had gone into insolvency. They buckled under the weight of a total of £1.5bn in debt, left with just £29m before going bankrupt.

Carillion logo text on a metal gate.

Photo: Elliott Brown/Flickr (changes have been made).

What did Carillion do?

Carillion is a construction and facilities management company that have been involved in some of this country’s biggest projects in recent years including HS2, the London Olympics Media Centre and the expansion of Liverpool F.C.’s Anfield stadium. It employs a total of 43,000 staff, with half of those being in the UK. Carillion is also responsible for around 450 government contracts through PFI (Private Finance Initiative) deals.

What are PFI deals?

PFI deals entail private companies being handed government contracts to carry out public projects. The system was first utilised in the UK under the 1992 Government of John Major which proved controversial at the time. One particular area where there are numerous PFI contracts is the NHS, with 127 PFI schemes for the service in 2017.

What has the reaction been?

Following the announcement last week, the Government ordered the Insolvency Service to fast-track their investigation into the conduct of Carillion’s directors, who attracted controversy due to their high levels of pay despite the company’s financial woes.

One particular director, Richard Howson, who left the company last year, was on a salary of £660,000 whilst also being given £346,000 in long-term incentives, a £245,000 bonus, a £231,000 pension and £28,000 in benefits. As a result, the Government announced no bosses or directors will be given any bonuses or severance payments that they were due.  

At Prime Minister’s Questions on Wednesday, Leader of the Opposition Jeremy Corbyn criticised the Government, asking: “Why did the Government allow a major government contractor to get away with this?”

But, Theresa May said: “We were a customer of Carillion, not the manager of Carillion and that’s a very important difference.”

What happens now?

Carillion outsourced much of its work to small businesses and therefore many of these businesses have been left with money still owed to them by Carillion; money which they may not receive following the collapse.

In response to this, the Government has set up a national task-force to support such businesses and indeed to support the large number of workers left unemployed by the collapse.

Speaking on the BBC’s Today programme on Friday morning, the Business, Energy and Industrial Strategy Secretary, Greg Clark, said: “Every bank has committed to provide tailored support to anyone caught up in this and has put so far nearly a quarter of a billion pounds aside.”

Now, there will be a big task ahead as projects previously being worked on by Carillion now have an uncertain future.

Is there an effect on Lincolnshire?

One such project with an uncertain future was the Lincoln Eastern Bypass. However, Lincolnshire County Council have since confirmed that construction company Galliford Try will temporarily take over work on the bypass until a formal contractor is appointed in the summer.

Elsewhere, Rick Smith, the director of Forbes Burton, the Grimsby-based rescue and recovery specialists, has called on contractors to protect themselves following what he called the “far-reaching mismanagement of Carillion.”

After working with many companies affected by the collapse, Mr Smith said: “Frankly, the trail of devastation left by the likes of Carillion does not start with this week’s events, rather it has been taking place for years.”

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