Responding to the news of Carillion’s demise, our inbox is brimming with comments from readers. The news is of course shocking and the immediate priority must be the firm’s staff, customers and suppliers.
Here are some of the key talking points from readers following our coverage this week.
Duncan Green, Managing Partner Pick Everard
Duncan Green, Managing Partner at national property and infrastructure consultancy Pick Everard says: “The issue now is that there are hundreds of sub-contractors who have been left unpaid; the early payment system hasn’t worked and this will have a long term impact on the industry’s small businesses, SMEs and JVs. There’s the potential for the industry to lose hundreds of highly skilled people at a particularly crucial time – we all know there’s a widening skills gap and we should be trying to hold on to as many trained professionals as possible in the industry.
“Public procurement is already pretty rigorous; however, we’re constantly facing a system which is driven by price rather than value. This is not sustainable which has meant that principal contractors like Carillion; need to operate low pricing policies which cannot be maintained. Some frameworks, such as Scape, already control quality, value and monitor payment of all suppliers which is certainly a step in the right direction in terms of avoiding something like this happening again. Hopefully we can learn from this and I also hope it brings increased focus on clients providing payments on time.
“Of course we’re going to see less PFI but not less private sector involvement. The public sector relies on its private sector partners and partnership agreements which will continue to be absolutely necessary for public services.”
Tecserv UK has installed fire and security alarms, CCTV and intruder alarms on some of Carillion’s, healthcare projects.
Colin Milligan, Sales Director for Tecserv UK says, “It’s a sorry affair and from reading the press it looks like the tip of the iceberg. There needs to be a more robust public-sector tendering process put in place to ensure that tenders accurately reflect the true cost of the project.
“It is pointless winning large tenders if profit is not generated to enable further investment or the creation of more jobs.
“On a positive note, I’m really pleased to see the support being offered by companies like Nationwide who have announced plans to transfer in-house over 250 full-time employees and 1500 contractors who had been fulfilling their maintenance contract with Carillion’s outsourcing company.”
Chris Hobson, Director of Policy at East Midlands Chamber
Chris Hobson, Director of Policy at East Midlands Chamber, says: “Carillion does not, at first glance, appear to be involved in any major projects active in the East Midlands, although there are many that feed this region, such as modernisation of the Midlands Main Line south of Corby and the HS2 Phase 1 works.
“However, there are many local firms, mostly in the supply chain for major projects elsewhere in the country, which will be impacted by Carillion’s collapse.
“The Government has already said that Carillion staff working on Government contracts will continue to be paid but their money will come through the receivers, not from Carillion.
“But it’s vital the Government acts immediately, where possible, to reassure the small and medium-sized enterprises in Carillion’s supply chain that the projects will continue, their contracts are safe and their workforces won’t suffer as a result of the collapse.”
Ian Hodgkinson, at Hodgkinson Builders
Ian Hodgkinson says: “The Carillion news is grim but I feel sorry for the supply chain, suppliers, sub contractors and ultimately their families who will be affected by this.
“Large cash rich civil engineering contractors used to target Carillion and make a 30 per cent plus margin because they could stand the 120 day payment terms offered by Carillion.
This used to then isolate smaller contractors who couldn’t wait out the 120 day payment terms to be paid, who would have probably have been more competitive on price.
“There is a an opportunity for the Government to do things differently here based on the model which the London Underground is following where they act as principal contractors and engage sub contractors directly, thus cutting out the middle man who suck the margins out of the jobs and contracts.”
Carolyn Fairbairn, CBI Director-General
“The news of Carillion’s liquidation is shocking and the immediate priority must be its staff, customers and suppliers. Carillion and its stakeholders must work together with the Government’s taskforce to support workers and ensure continuity for customers and public agencies across the country who rely on their services. It’s encouraging to see many private sector clients providing immediate security to those affected while a long-term solution is found.
“At the same time, careful consideration must be given to the causes of the collapse and the lessons to be learnt. Carillion’s business practices are rightly under scrutiny, particularly on payment terms – this remains a serious issue across too many supply chains, and larger firms are uniquely placed to make a difference.
“But the drivers of the firm’s demise run deeper, and fundamental questions about the value and health of public contracting must be addressed. Business investment and innovation can be transformational for critical public services and infrastructure. For every project that makes headlines for the wrong reasons, there are many more that are not in the news and delivering value for taxpayers.
“The liquidation of Carillion is a reminder that such success is not automatic, and requires expert partners focusing together on long-term value, rather than short-term costs and the transfer of risk.
“To rebuild confidence with the public and the many thousands of companies that work with the public sector, the Government should undertake a strategic review of the overall health and sustainability of public contracting. The CBI has offered our support with this process.”
Mike Cherry – Federation of Small Businesses (FSB) National Chairman
“It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.
“These unpaid bills may well go back several months. I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.
“Sadly these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.
“When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses. Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the Government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”
Meanwhile, responding to the announcement of overdraft extensions, payment holidays and fee waivers from a number of banks for small firms impacted by Carillion’s collapse, Mike says:
“The emergency measures put in place by banks for customers hit by Carillion’s collapse will provide some respite at a desperate time for hundreds of small firms. Many hundreds more are still yet to feel the knock-on impacts of the giant’s demise. It’s critical that they also receive support in the months ahead.
“We now need to establish a Carillion task force dedicated to helping all affected small firms and workers to recover and get back on their feet. Following Rover’s collapse in 2005, I was involved in a similar initiative where we successfully supported suppliers and found new opportunities for all of the firm’s apprentices.
“This sorry saga has shown that the Government’s reliance on a small number of huge outsourcing firms poses a risk to the nation’s economic stability. As things stand, our procurement regime is stacked against small firms. Providing small businesses and the self-employed with more opportunities to secure public contracts will mean less risk and better return for the taxpayer. At the very least we need to see the reinstatement of the target date for achieving 33% of all public sector procurement with smaller businesses, to 2020.”
Rick Smith Forbes Burton Director
“It’s time for the far-reaching mismanagement of Carillion to be recognised.”
That’s the message from Lincolnshire based rescue and recovery specialists Forbes Burton.
Forbes Burton Director Rick Smith has said that as well as the negative repercussions yet to be revealed from the events of this week, the culture of complex contractual obligations and unfair practice needs to be addressed by those seeking contracts from similarly large concerns.
Rick says: “It’s been disheartening to see the effects that the liquidation served on Carillion this week is going to have on a lot of private sector workers and public projects. Many will now no doubt be stalled, but the culture of Government contracts has already had far-reaching negative implications for companies further down the supply chain.
“Frankly, the trail of devastation left by the likes of Carillion does not start with this week’s events, rather it has been taking place for years.”
Forbes Burton has worked with several companies recently who have never had their debts from the company repaid and has seen many having to dissolve their companies through a lack of cash flow and timely payments.
“This kind of contractual mismanagement is sadly now part of the industry,” says Rick, “Sub-contractors will always have to suffer the indignity of complicated contract arrangements. Add to this the practice of retentions, where larger concerns reserve the right to withhold a certain amount of payment for projects. Those who do not factor in this frequently unpaid amount to their budgets are often left out of pocket.
“For example, a company could take on a £100,000 contract, only to end up being paid around 80% of that due to a retention not being agreed further down the line. Those who don’t add in or factor for these events can end up in ruins.”
Despite this revelation, Rick states there are positive ways in which companies can protect themselves when considering these kinds of contracts.
“Know the risks when you sign on the dotted line and make sure you diversify. Too often we see companies approaching us who have placed all their eggs in one basket. If the foundation of your business is built on one, high-risk partner, you have little scope for survival if things turn south or you are beset with problems. Knowing what you can lose is also important, so have enough reserves to ensure your survival.
“Sadly, the repercussions can be dire – not being able to afford equipment or pay staff often results in negative press and debt – so make sure your cashflow is set to protect you. In a world where contracts are hard-won and payment terms are often on 30, 60 or even 90-day schedules, it pays to be cautious.”
Phil Ball, Sales Director Alpha Rail
Phil Ball, Sales Director from metal railings and gates manufacturer Alpha Rail says, “We have supplied metalwork for projects where Carillion has been the main contractor such as Forest Recreation Ground and more recently on Highfield Park.
“We always found the people great to work with, but we found their payment terms were unfair to smaller contractors like ourselves. It’s really sad that so many construction good professionals now face an uncertain future and I hope that they find alternative employment quickly.”