Carillion’s collapse
RAIL explains the implications for the rail industry of the liquidation of the UK’s second largest construction company.
RAIL industry contractor Carillion entered liquidation on January 15, after its financial backers refused to provide the multi-disciplinary company with further funding.
It followed extensive negotiations, but early on January 15 the company’s board of directors issued a statement saying they had “no choice but to take steps to enter into compulsory liquidation with immediate effect”.
Later that day, the High Court appointed the Official Receiver as liquidator of Carillion and its companies, with six special managers from PwC to support him.
The company employed around 20,000 of its 46,000-strong global workforce in the UK. In addition to its railway renewals and construction activities, it held contracts for prisons, hospitals, school meals and the armed forces (among others).
In November 2017, it issued its third profit warning in five months, and sought to refinance the business. It had debts estimated at £900 million and a pension deficit that in 2017 was expected to rise to up to £800m. It required a cash injection of around £300m, which its backers and the Government refused to provide.
Carillion provided track, civil engineering and overhead line electrification renewals services for Network Rail, and was a major contractor on Crossrail. In July 2017, it won a £1.4 billion design and build contract from High Speed 2, in a joint venture with Eiffage and Kier, for the sections from the North Portal Chiltern tunnels to Brackley and Brackley to Long Itchington Wood Green tunnel South Portal.
Asked why the Government awarded contracts to Carillion
despite its profit warning, Prime Minister Theresa May said in Parliament on January 17: “If the Government pulled out of contracts, or indeed private sector companies pulled out of contracts, whenever a profit warning was issued, that would be the best way to ensure that companies failed and jobs were lost. It would also raise real issues for the Government about providing continuing, uninterrupted public services.
“Yes, we did recognise that it was a severe profit warning, which is why we took action in relation to the contracts that we issued. We ensured that all but one of those contracts was a joint venture.”
In a statement about the liquidation, Network Rail said: “Network Rail is activating its contingency plans as a result of this unfortunate news. Passengers can be reassured that their services will be running as normal today, as Carillion’s work for Network Rail does not involve the day-to-day running of the railway.
“We will be working closely with the Administrators and Carillion’s management team to ensure projects that they are working on continue, and that the supply chain is maintained for this important work.
“Our aim is to ensure, as far as possible, that this news has as little impact as possible on our projects to grow and expand the railway network.”
Carillion’s work for NR is estimated at between £150m and £200m. Although it is one of the company’s main framework contractors, NR is understood to be confident that others will be able to take over the work.