UK Construction Giant With 43,000 Employees Collapses




UK Construction Giant With 43,000 Employees Collapses

Tense last-minute rescue negotiations failed to yield a result over the weekend, and on Monday morning a major British construction company announced it was going into liquidation after it was unsuccessful in securing a financial lifeline. Carillion, which employs 43,000 people around the world, said in a statement Monday that rescue talks with stakeholders including the British government had collapsed, sending the company into compulsory liquidation.

Commenting on the collapse, Carillion Chairman Philip Green said in a statement that “This is a very sad day for Carillion…Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future.”

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.

Carillion, which has numerous public sector and employs 19,500 workers in Britain and 10,000 in Canada, has its roots in the construction business: roughly three-quarters of its sales come from the U.K., where it has hundreds of contracts with the government. It also builds infrastructure for high speed rail and power distribution projects, and provides government services such as road maintenance and hospital management.

The company had no choice but to liquidate after holding meetings with government figures over the weekend after its bankers refused to provide £300m in new funding without direct intervention from Whitehall. That said, the government will be providing funding required by the liquidator — known as the official receiver — to maintain the public services carried on by Carillion staff, subcontractors and suppliers. According to the FT, PwC is expected to be appointed by the courts to act on behalf of the official receiver and handle the liquidation of Carillion’s assets.

Carillion’s global sales hit £5.2 billion ($7.2 billion) in 2016; the catalyst for its collapse is that Carillion was saddled with net debts of roughly £900m and a pension deficit of £587m, which hugely outweighed its stock market valuation last week of less than £100m after the company lost around 90% of its market cap during 2017.

The crisis was sparked last year when the Wolverhampton-based company warned it was losing cash on key contracts, debt was rising and that it would have to write off £800m and suspend its dividend, leading to the departure of former chief executive Richard Howson.

As a result, Carillion shares, which had been worth as much as £4.57 ($6.30) in late 2007, slumped to trade as low as £0.12 ($0.17) last week after a series of warnings about its finances.


The collapse of Carillion was presaged last year, when the company alerted investors that it was short of cash and would sell assets to raise money.

David Lidington, the top minister at the U.K. government’s Cabinet Office, said in a written statement that his priority was to keep essential public services running.

“All [Carillion] employees should keep coming to work, you will continue to get paid,” he said. “Staff that are engaged on public sector contracts still have important work to do.”

Lidington told the BBC on Monday that the government has been working on contingency plans since 2017 in preparation for a potential collapse. He added that new government contracts awarded to Carillion were structured as joint ventures to ensure that that other partners would be able to step in to complete the necessary work. But critics are unhappy that the government kept awarding contracts as the company floundered.

“It has been more than surprising, possibly even negligent, that the U.K. government continued to dish out contracts to Carillion even though their future has looked uncertain for some time,” said Fiona Cincotta, a senior market analyst at City Index. “[This] is a costly mistake that the U.K. government can ill afford.”

Angela Rayner, shadow education secretary, said the collapse was another example of the failure of privatisation of public services. “Carillion employees whose jobs and pensions are at stake should be the main concern, they are blameless in this corporate meltdown,” she said.

Speaking of pensions, around 28,000 members of Carillion’s 13 UK pension schemes will now be transferred to the Pension Protection Fund, the industry lifeboat for collapsed companies and the UK equivalent of the US PBGC  — one of the largest schemes the PPF has had to take over. Those who are not yet retired will receive 90 per cent of the pension they were expecting, up to a cap, while members who are already receiving their pensions will get the full amount, but may see lower annual increases in future.


Carillion collapse raises job fears


Construction giant Carillion is to go into liquidation, threatening thousands of jobs.

The move came after talks between the firm, its lenders and the government failed to reach a deal to save the UK’s second biggest construction company.

Carillion ran into trouble after losing money on big contracts and running up huge debts.

Its failure means the government will have to provide funding to maintain the public services run by Carillion.

“All employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do,” said government minister David Lidington.

Carillion is involved in major projects such as the HS2 high-speed rail line, as well as managing schools and prisons.

It is the second biggest supplier of maintenance services to Network Rail, and it maintains 50,000 homes for the Ministry of Defence.

Carillion chairman Philip Green said it was a “very sad day” for the company’s workers, suppliers and customers.

The company has 43,000 staff worldwide – 20,000 in the UK. It is not clear yet how those staff will be affected.

Carillion also employs thousands of smaller firms, who will be keen to know how they are affected by its collapse.

Some of Carillion’s contracts will be taken on by other firms and some could be taken back into the public sector.

Analysis: Simon Jack, BBC business editor

Carillion signEPA

Damned if they did, damned if they didn’t?

The government refused to insure Carillion’s debts, so the banks pulled the plug. If it had offered guarantees to big banks on behalf of a private company it might have been accused of nationalising losses while privatising profits.

The whole point of having private companies do public work is that they shoulder some of the risk. The truth is the government has been helping out Carillion for a while. Awarding it contracts when it knew it was in trouble raised eyebrows last year.

The government constructed the HS2 contracts so that Carillion’s joint venture partners would take on the work if the company went bust – meanwhile it hoped the new contracts would be enough to make Carillion’s lenders feel reassured.

Industry sources tell me that if the company hadn’t been awarded new government work it would have been curtains for Carillion months ago.

Pension impact

Thousands of current and former staff have money in Carillion pension funds, which have deficit of almost £600m.

Those funds will now be managed by the Pension Protection Fund (PPF).

The PPF said it was aware news of the liquidation would “raise serious concerns for all people involved”.

“We want to reassure members of Carillion’s defined benefit pension schemes that their benefits are protected by the PPF.”

Shadow business secretary Rebecca Long-Bailey said Labour wanted a full investigation into the government’s dealings with Carillion: “This company issued three profit warnings in the last six months, yet despite those profit warnings the government continued to grant contracts to this company.”

She added that she did not want the government to take on the contracts that were loss-making, while selling the profitable ones to other private companies.

Contingency plans for the failure of Carillion are in operation:

  • Network Rail says rail services will run as normal because Carillion’s work does not involve day-to-day running.
  • Oxfordshire County Council has taken over services provided by Carillion including some school meals and cleaning. It said the fire service was on standby to deliver school meals if necessary.

Carillion has a big international business, including a huge construction project in Qatar related to the 2022 FIFA World Cup.

It is also a big supplier of construction services to the Canadian government.

‘Confidence shaken’

Bernard Jenkin, the Conservative chairman of the House of Commons Public Administration Committee, said Carillion’s collapse “really shakes public confidence in the ability of the private sector to deliver public services and infrastructure”.

He said there needed to be a change of “mindset” at companies that do a lot of work for the taxpayer.

“You’ve got to treat yourself much more as a branch of the public service, not as a private company just there to enrich the shareholders and the directors,” he said.

“Ironically, Whitehall tends to do contracts with companies that it always does contracts with, because that’s the safe thing to do – that’s the perception. A great many small and medium-sized companies feel excluded.”

HS2 Euston station artist's impressionHS2/GRIMSHAW – Carillion is part of a consortium working on the HS2 rail line

Mick Cash, the general secretary of the Rail, Maritime and Transport (RMT) union, said: “This is disastrous news for the workforce and disastrous news for transport and public services in Britain.

“RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members jobs and pensions.”

Rehana Azam, national officer of the GMB union, said: “What’s happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons.”