Carillion collapse adds urgency to resolving retentions issues

Gladys Abbott
January 17, 2018

Asked whether it had been a mistake to continue awarding contracts to Carillion, the PM's spokesman said: "Since July, we have kept a very close eye on this, but of course if there are lessons which can be learned, they will be".

RBS said in a statement it judged Carillion's restructuring plan was not viable and so it made the hard decision not to make further funding available to the 200-year-old business.

According to the latest annual report from Carillion (for 2016), across 14 DB schemes there were £2.57 billion in assets and £3.37 billion of liabilities.

Britain's government refused to rescue Carillion, saying it could not be expected to bail out a private company.

While the government guaranteed public services run by Carillion would continue as normal and assured the firm's pensioners they would receive payments, no such guarantees have been afforded staff on the firm's private contracts.

Two Canadian employee unions on Tuesday urged Ontario's provincial government to stop the privatization of hospital service contracts following the collapse of Britain's Carillion.

The contractor, which has slumped into administration, worked in joint venture on major schemes such as the £745m Aberdeen Western Peripheral Route (AWPR) project with Balfour Beatty and Galliford Try, and a JV with Kier on a £335m project for work to junctions 13-15 on the M6 at Stafford.

Mayor of Liverpool, Joe Anderson, said: "Clearly when a company of this size fails there are wide repercussions and the receivers should do all in their power to avoid disruption to vital public services and protect Carillion's workforce and limit the impacts on the company's supply chain".

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Ironically, the contracts for these large-scale, taxpayer-funded projects were given out at a time when Carillion's chief executive and finance director were departing, and the share price was tanking.

Indeed, the scale of work which Whitehall has signed up Carillion to undertake was perhaps best illustrated when the Cabinet Office press office told me on Monday morning that it could not furnish me with a list of all of the deals it had done with the firm with the explanation "we don't have that kind of thing to hand". BT Group Plc's shares tumbled a year ago after its pension deficit widened.

The company, with operations also in Canada and the Middle East, had revenues of £5.2 billion ($7.1 billion, 5.9 billion euros) past year. Its shares have lost more than 90 percent of their value over the past six months.

But confidence in Carillon's ability to manage the crisis, in spite of the new contracts, was fading fast, and in September it warned again that profits would fall short of expectations. Across the public sector the outsourced first dogma has wreaked havoc. "With outsourcing you have to continually bid for new contracts, and the stock market expects to see continuous growth", he explains.

"It has been an uninspiring start to the week, with market volumes and volatility expected to be muted given the absence of United States activity as the nation respects Martin Luther King day", said analyst Joshua Mahony at trading firm IG. Just 11 days afterwards, when the firm issued its third profit warning, it was handed a £12 million school building contract from the Education and Skills Funding Agency.

Many of those employed on such projects, including a £71m student housing development in Manchester, left work early on Monday as subcontractors reportedly walked off site.

The last question is, why was this allowed to happen?

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