Collapse of Carillion puts ‘thousands’ of Scots jobs under threat
● Holyrood moves to give reassurance over unfinished infrastructure projects
Thousands of Scottish jobs are at risk following the collapse of services firm Carillion as the Scottish Government reassured the public it has contingency plans for infrastructure projects being handled by the defunct company.
The Unite trade union said it could not specify how many jobs could be lost north of the Border after the firm was taken into the hands of liquidators yesterday morning.
But union leaders said they believed the number would run into thousands following the failure to find a funding deal to save Carillion.
The UK government, which is handling the liquidation process, has told Carillion employees to turn up to work, insisting “you will get paid”.
However, those on private sector contracts, unlike their public sector counterparts, will only be protected for 48 hours after the firm’s collapse.
Carillion has a number of high-profile contracts north of the Border.
The Aberdeen Western Peripheral Route is among affected projects, with the company’s list of existing clients including Registers of Scotland, the Scottish Children’s Reporter Administration, West of Scotland Housing Association and NHS Greater Glasgow and Clyde.
The firm was also in charge of a contract awarded last year by Network Rail to deliver platform extension works at Waverley Station. Carillion also has two Ukwide facilities management contracts with the Ministry of Defence worth £158 million, which includes 83 military sites in Scotland.
The Scottish Government said it had been “working to manage or eliminate risks” associated with Carillion after the firm’s financial difficulties became apparent in July last year.
Car ill ion, which has been struggling under £900m of debt and a £590m pension deficit, has seen its shares price plunge more than 70 per cent in the past six months after making a string of profit warnings and breaching its financial covenants. Lenders – including Royal Bank of Scotland, as well ash sbc, bar clay sands ant and er – are reportedly set to lose an estimated £2 billion as a result of the collapse.
Reports yesterday claimed Carillion had asked the government to provide funds of £20m to help it secure more money from the banks and avoid going into liquidation, but was unable to secure a deal. The firm boasts
a Scot – former Weir Group head Keith Cochrane – as its interim chief executive following the departure of Richard Howson in July. Carillion has swallowed up big-name firms including Mowlem and Alfred Mcalpine over the past 15 years and had a takeover bid for Balfour Beattie rejected in 2014.
Politicians, unions and trade bodies warned the situation should be a “wake-up call” for the government to highlight the risks of the privatisation of public services and over-reliance on major contractors.
Unite Scotland spokesman Pat Rafferty said: “There needs to be a government inquiry to establish just what went wrong at Carillion so that lessons can be learned. Meantime, the administrators have to determine what contracts held by Carillion can be brought into public control.”
A damning statement from the Institute of Directors said the situation demonstrated that major providers of public services “must be governed in a prudent manner” and urged the government to consider “how it can better monitor the robustness of governance at key contractors”.
Roger Barker, the Iod’s head of corporate governance, said: “Today’s outcome suggests that effective governance was lacking at Carillion and we must now consider if the board and shareholders have exercised appropriate oversight prior to the collapse.
“The relaxation of clawback conditions for executive bonuses in 2016 appears in retrospect to be highly inappropriate. It does no good to the reputation of UK business when top managers appear to benefit in spite of the collapse of the organisations that they are responsible for.”
Brian Berry, chief executive of the Federation of Master Builders, said: “Carillion’s liquidation raises serious questions for the government, not least about its over-reliance on major contractors.”
Tim Roache, GMB general secretary, called for Carillion contracts to be brought back into public ownership.
David Chapman, a civil servant working for the Insolvency Service, has been appointed liquidator of Carillion, backed up by six liquidators from PWC. It is thought that many of Carillion’s workers could ultimately be transferred over to whichever of the firm’s rivals ultimately pick up its former contracts.
David Lidington, the minister for the Cabinet Office, said: “Since profit warnings were first issued in July, the government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business.
“For clarity, all employees should keep coming to work. You will continue to get paid.”
Insolvency experts pointed to the “extremely rare” step of moving straight into liquidation when the company is immediately wound up.
David Birne, insolvency partner at chartered accountants HW Fisher & Company, said: “For a company of Carillion’s size, it is extremely rare to opt for a liquidation rather than an administration – and a compulsory liquidation at that. It suggests there is little, if anything, of value within the company to be saved. Almost every big insolvency in recent years has been a move towards administration.”
Holyrood’s economy secretary Keith Brown said: “The Scottish Government has been working to manage or eliminate risks associated with Carillion’s difficulties since July last year and we have contingency plans in place for affected contracts, including the AWPR, where the contract contains a mechanism for the remaining two joint venture partners to deliver the project and we expect that work to continue.”
Yesterday morning, thousands of employees awoke to hear the news that their employer, Carillion, the UK’S second largest construction company, was going into liquidation. Finally overwhelmed by its financial problems – namely a catastrophic debt burden – the firm, which employs nearly 20,000 people in the UK, threw in the towel after talks with creditors and government failed.
Carillion, in just seven years, has seen its debt balloon to around £1.5bn, compounded by a pension liability of between £600m and £800m. To put this in some context, Carillion is now valued at just £61m.
The company went into liquidation because trust in its ability to manage its financial affairs collapsed. But where a lot of big business is concerned, especially when it overlaps with public services and infrastructure, public trust plummeted a very long time ago, with good reason.
Let’s lend some further context to why people are furious about this. This morning I, like thousands of people across the UK, received a random, strongly worded letter from the Department of Work and Pensions, informing me that I owe them £85 of overpaid benefit from nearly ten years ago.
One may speculate as to why the government is so keen to deploy such vast resources and expertise in recouping paltry sums of money like this. Or why it’s so effective at clawing back cash from certain sections of the population but less keen to balance the books when it comes to others. Maybe it has something to do with the fact some, by virtue of social inequality, don’t possess the means, time or knowhow to reliably contest such things?
Meanwhile, over at Carillion, former execs are probably already receiving the best public relations, legal and financial advice on how best to manoeuvre their way out of further scrutiny – with pockets full of cash. The implications of Carillion’s liquidation are massive, not only for the thousands of employees, who now face immediate and long-term job uncertainty, but also for the various public projects and services Carillion is currently building, like the Aberdeen by-pass, or managing, which covers everything from the digital surveillance agency to 32,000 school dinners across the UK. Then there’s the staff at thousands of sub-contractors, which supplied Carillion with goods and services, now owed millions and still waiting to be paid. The knock-on effect of the engineer’s collapse may affect everything from rail services to the running of prisons as well as the Ministry of Defence.
Carillion has been woven into the fabric of Britain’s infrastructure over the last two decades and its sudden failure will reverberate chaotically across public life for many years to come.
Given the sheer scope of the impact across the UK, surely we can be confident that those responsible for this monumental cock-up, caused mainly by risky investments and corporate over-reach (couched in the aftermath of a financial crash that was caused by the same sort of corporate behaviour) will face consequences like everyone else affected?
I guess it’s a shame that the chair of Carillion, Philip Green (not that one), was binned by Number Ten in 2016, where he’d been, ostensibly, providing advice on the important matter of corporate responsibility.
Maybe he’ll have some insight into why some executives, just months before the firm became embroiled in the accounting crisis, introduced tougher rules to protect bonuses paid to bosses. Maybe he’ll be able to explain how the good folks in charge of an ailing company were able to change the wording of its pay policy to make it harder for investors to recoup their generous payouts. After all, it certainly appears that former board members (removed in September last year when the true extent of the crisis became apparent) have managed to make millions while overseeing what can only be described as abject corporate failure.
Much of the debt will likely be absorbed by subcontractors, many of which may have to lay off staff or even face bankruptcy. Smaller firms could see their owners robbed of their capital which, thanks to the wonders of trickle-down economics, may lead to people not only losing their jobs or their businesses, but also assets – like their homes.
Then we have the immediate impact on the 19,500 employees themselves, who must be going out of their minds with worry, not knowing what the future may hold from one day to the next.
Many commentators will react with scorn at the notion that businesses of this nature should be taken into public ownership, but the sheer frequency at which taxpayers are footing the bill for this kind of corporate mismanagement is nothing short of appalling. Who the hell do these people think they are?
If big companies need public money, then it’s reasonable that the shareholders concede part or complete ownership to the people stumping up the cash. Otherwise, what are we doing but greenlighting a corporate welfare system designed to insulate wealthy executives from what may be the consequences of their own greed and incompetence?
Are we so servile and stupid that we’re willing to be fooled by the daft idea that the integrity of our economy will be dangerously compromised by simply applying the same rules to them that we are subject to ourselves? Do they ever receive strongly worded, threatening letters from a government department? Is it not this reckless tier of rotating cronies, incentivised by loopholes and granted legal safe-haven by opaque, dissociative corporate jargon, that have proven themselves, time and time again, to be the biggest threat to our economic stability?
If capitalism is all about creating incentives, what incentive currently exists to discourage economic vandalism on this sort of vulgar, absurd scale? Quick answer: none. At least for now. What a bunch of shameless, hypocritical, parasitic scroungers.