15 January 2018 | FM World team
The construction and facilities service giant Carillion plc has dramatically collapsed this morning.
The company, which employed an estimated 20,000 employees in the UK alone, has been compulsorily liquidated despite attempts at the Cabinet Office over the weekend - with stakeholders and the government - to engineer a rescue package. The "short-term financial support" necessary to sustain the company proved not to be forthcoming.
Carillion chairman Philip Green spoke of the "huge efforts" being attempted to secure a "sustainable future" for the business.
"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.
"We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers."
Rebecca Long-Bailey, Shadow Secretary of State for Business, Energy and Industrial Strategy, has called on government to bring public sector contracts back in house. Long-Bailey also criticised the government's awarding of contracts despite Carillion's three profit warnings over the past six months.
"It is essential that shareholders and creditors are not allowed to walk away with the most profitable contracts while the taxpayer bails out loss-making parts of the business," said Long-Bailey.
Julian Fris, director at FM consultancy Neller Davies, says more service providers are likely to be at risk.
Fris says there remains "nothing wrong" with government outsourcing services to reduce costs, " if its in the true spirit of core and non-core activity".
However, he added, "the point about risk transfer is reversed now because the taxpayer is likely to pick up the tab for this failure if there is a disorderly break-up."
"Companies like Carillion, Mitie, Interserve etc, have snapped up contracts at below market-level prices - not just in facilities and construction, in rail and a number of other sectors.
"Despite trying to enforce pre-qualification rules through its own Crown Commercial Services and via the OJEU process, clearly evaluators have been soft because this has been brewing for a while.
"The fact that the City has been betting against this for some while shows that others were aware of what was on the horizon. Issues in the accounts should have been spotted at an early stage and the government procurement teams should have rejected potentially failing companies much sooner.
"The outsourcers have been affected by taking a highly geared approach and this has been impacted by fluctuating demand for services. The effective 20 per cent devaluation of the sterling through Brexit (so parts and materials are more expensive and European workers, in particular, going back), poorer productivity and the relentless desire to keep feeding the corporate beast - something had to snap, and that is Carillion - there will be others.
"We are seeing other companies being more cautious and this could result in less of them in the market (as is happening), as well as higher prices. There is a greater risk of foreign investors coming in and snapping up a bargain (because of sterling) and this could have a far-reaching strategic and security impacts. That could be a dilemma for the government, particularly with key projects like HS2, the MoD and so forth."
Phil Bentley, Mitie plc CEO, said: "This is clearly a very difficult time for Carillion, its customers and its employees. Mitie is making itself available, where it can, to help ensure continuity of service to organisations and Government following Carillion's liquidation."
FM World understands that Mitie are engaged in a number of conversations which involve the company stepping into some of Carillion's contracts.
Infrastructure support provider Amey which has incorporated joint ventures with Carillion to deliver the Regional Prime and National Housing contracts for the Ministry of Defence (MOD), through the Defence Infrastructure Organisation (DIO) said in a statement that they "will continue the services" .
Amey states that it is "committed to doing this and ensuring continuity of service to the DIO and MOD and the service men and women in the UK".
It added: "For the past few weeks, Amey has been working on detailed contingency plans with the DIO and the Cabinet Office to ensure it can effectively continue to manage the contracts and these are being implemented today.
"Amey confirms 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."
Britain's general union GMB has called for the urgent review of private sector contract awards.
GMB, has called on Prime Minister Theresa May to act immediately to take Carillion contracts into public ownership.
The union called for a full and transparent inquiry into the provision of public services by private sector contractors once jobs and services were secured.
Tim Roache, GMB General Secretary said that "what is unfolding at Carillion must never be allowed to happen again".
Roache called on the Prime Minister to "act right now to bring Carillion contracts back into public ownership" saying that was "the only way to safeguard the jobs and services this mess has put at risk".
He added: "Merely propping up this botched shell of a company is not a secure or stable solution for our public services. It's high time we brought this vital work back in house.
"Despite months of profit warnings, ministers have failed to prepare for the collapse of Carillion, which has plunged workers into crisis today.
"The Government has continued to spoon-feed the company taxpayers' money by awarding them yet more contracts. Ministers should be hanging their heads in shame today - it's a complete shambles."
FM World will be updating this story as the day progresses.