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Were we blind to Carillion's warning signs?

Jack Simpson

“I can’t help feeling all of this is after the horse has bolted,” said Rachel Reeves, chair of the business, energy and industrial strategy select committee.

And it’s true.

Sitting in Portcullis House this morning at the select committee’s post-mortem of Carillion’s demise, you couldn’t help but feel it was all a little too late for those hit by the liquidation two weeks ago.

But there was also a feeling of, ‘Why didn’t we see it coming?’

When laid out in full narrative form, as it was in this morning’s meeting, the last few years clearly threw up warning after warning that Carillion was in significant trouble.

Why didn’t we take notice when the Financial Reporting Council began asking questions over contract assumptions made by Carillion’s management in its 2015 accounts?

Why didn’t we take notice when Carillion shares became, and remained, the most shorted stock on the market for years?

Why didn’t we take notice when the company’s pension liabilities continued to grow and grow?

But hindsight is a wonderful thing. Some of the most experienced figures in the construction and finance sectors didn’t see this coming.

And if looking back fills the sector with regret, looking forward for many will fill it with despair.

Insolvency Service chief executive Sarah Albon slammed the firm’s “incredibly poor record keeping”. It could still take a number of months before her organisation fully understands the scale of what it is investigating, she admitted.

And when it finally gets there, subcontractors shouldn’t hold out much hope of seeing any money coming their way.

As Ms Albon explained, there doesn’t even seem to be any money to pay the estimated £50m costs of “winding up the company”, never mind its creditors.

This shouldn’t happen again; lessons need to be learned.

Lessons not only for plcs working in the construction sector, but also for the government on how it acts when one of its suppliers faces similar troubles and the powers it gives to the regulators to help avert future crises.

Construction News has repeatedly heard from subcontractors that took the government handing Carillion contracts after its profit warning as a sign that the firm was fine.

Awarding deals and saying you are confident Carillion can deliver publicly, while drawing up contingency plans at Whitehall in anticipation of the firm’s collapse behind closed doors, reeks of duplicity.

Having one of your key regulators, the FRC, investigating the firm for seven months but not being able to tell anyone publicly, also seems ludicrous.

These issues need to be addressed. After all, the fallout of Carillion’s collapse is not just about boardrooms and bonuses.

As MP Ruth George put it: “It is about people not being able to pay their mortgages, pay for childcare or cover all the other costs of everyday life.”

Readers' comments (7)

  • There's none so blind as those that will not see? Or is that a bit cynical?

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  • No I dont think that is cynical, it's the truth, and because it's the truth, it will get shouted down.
    Human flaw is not being able to accept the truth, and that is what happened here. Within the construction sector, a high percentage of people knew Carillion were in trouble, and new the Government were throwing life lines, which came mostly from Old School tie brigade.
    Main contractors have been operating on extremely low to non existent margins to continue operating. And Carillion will be only the beginning of tier 1 contractors going under.

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  • One of the key lessons to be learned is that the commercial demands of running a large public company are substantially different to those of running a large private company and it is now clear that the key board directors of Carillion did not understand how to run a plc. They thought that running a plc is just a matter of buying off stakeholders by throwing money at them through dividend payments that could not be afforded and having done that continue to increase their remuneration/compensation packages that also could not be afforded. All of the Finance Directors of Carillion since 2011, should be debarred from ever serving again as board directors. And as for the auditors.................................!!!
    This liquidation will not necessarily be replicated at other tier 1 main contractors because some of the board directors of Interserve, Kier and Laing O' Rourke for example are more astute, shrewder, more intelligent and less self-serving and greedy than the board directors of Carillion.

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  • Not blindness, but wilful ignorance! Contributed, significantly, to by a combination of self-preservation and in some cases greed, in the hope, by so many that it wouldn’t happen on their watch.

    It’s understandable that it happened to an extent as there is little reward for integrity within the industry when trying to win work, some clients don’t always want to know the risk and associated potential delays or costs, to a poorly defined scope, they just want to protect their interests, the contractor to tell them the scope will be done on time within budget and at their risk. They do so in onerous contracts which are accepted in a bid to secure income, by individuals with the conflicting interest of being rewarded for delivering that income.

    From the top-down, inside and out plenty would have seen the signs, but if it meant putting themselves at financial loss to address the issues, why stick your neck out, just carry on. More so in large companies, where unfortunately it’s the company that takes the brunt of mismanagement and not the individual, until that balance is shifted a bit the risk takers will continue to jeopardise businesses for their own short term gain.

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  • StreetwiseSubbie

    StreetwiseSubbie saw the writing on the wall for Carillion but very few publications carried our press release.

    And now Construction News appear to be deleted my comments calling for a public Inquiry into construction rather than supporting it.

    I can't help wondering why?

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  • Tom Fitzpatrick

    @Streetwisesubbie

    I have checked with the team here and none of us knows which comment you are referring to? We would only delete something if it was abusive, defamatory or didn't meet our terms and conditions.

    I'm not sure what you mean by "I can't help wondering why?"

    I called for a public inquiry into Carillion's collapse in my leader of 15 Jan: https://www.constructionnews.co.uk/companies/contractors/carillion/dont-cry-for-carillion-support-its-staff-and-specialists/10027023.article

    Best,

    Tom Fitzpatrick
    Editor, CN

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  • StreetwiseSubbie

    Hi Tom

    Thanks for your response. We are calling for a Public Inquiry into UK Construction and not just Carillion. I will email you details. In the meantime I will share this with everyone;

    "Enough's Enough - It's Time For Truth!"

    Thousands of lives are going to be impacted by the Carillion liquidation

    It's time to stop ignoring the payment abuse, and the shameful and degrading way that some of the big players treat their subcontractors and suppliers!

    Those that have the power to change things are choosing to ignore the shameful way that professionals, Sub-Contractors, and suppliers go unpaid or under paid, for work properly and professionally carried out.

    Enough's enough, let's all work together for real truth and real change. So, here is what we would like you to help us with;

    • Support our call for a Public Inquiry into construction at; https://goo.gl/qk6osw

    • Share this message across all social media using #enoughsenough and #buildfair4all

    • Share your stories in confidence with us by email at info@streetwisesubbie.com

    • Get free information to protect your interests at; www.streetwisesubbie.com

    Please feel free to give us a call on 01773 712116 or email us on info@streetwisesubbie.com, and let's see what we can all do together to bring about positive change.

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