I spoke with a property developer director last week about the aftermath of Carillion’s collapse and the impact on its projects.
The developer had deals worth slightly less than £100m on site with the failed firm when it went bust.
That the UK’s second-largest contractor had entered liquidation, rather than administration, was a surprise for the developer. It is likely to lead to delays for its scheme of six weeks, with work having stopped. It expects that “business as usual” will swiftly return in the weeks ahead.
The most interesting thing about our chat though was a throwaway line: that this company had been contacted by “several contractors” within hours of Carillion’s announcement at 7am last Monday.
Rival firms were seemingly queuing up to take on Carillion’s contracts.
Companies over-extending themselves and tendering at low margins on risky projects should now be a real cause for concern.
Carillion’s rivals will be asked to step into the failed firm’s shoes many times over the coming weeks. Clients will often have to pay a premium as companies, rightly, charge extra to take on partially completed work.
But the desire among Carillion’s peers and smaller, regional players to hoover up work that was often bid at unsustainable prices in the first place should be treated with caution.
Those companies hitting the phones early on Monday last week to try to take on schemes they know little if anything about should surely be avoided.
And what of the companies trying to get back on an even keel after years of, let’s say, over-exuberance?
Balfour Beatty is already splitting the tab with Galliford Try on the Aberdeen bypass and will be expected to fulfil other Carillion deals. This is the company, in its chief executive’s words, that will finally get back to “being a contractor” in 2018 after years of difficulties.
Interserve will be tapped up for services jobs, but does it have the balance sheet to take on Carillion jobs?
What about Kier? One of the more aggressive M&A spenders of recent years, buying up everything from McNicholas to Mouchel, it is now stepping up for HS2 and Highways England jobs alone worth billions.
It has been interesting to be interviewed by national media over the past week, none of whom could comprehend the low-margin, high-risk work being carried out by contractors like Carillion.
Are its management to blame? Yes, certainly in part. Are politicians to blame? Yes, they have been blind to bad behaviour in this industry and contributed to low-margins being ‘normal’.
But if contractors go rushing in to hoover up revenue from Carillion’s downfall, it could put paid to more big players and their staff and supply chains. And these contractors would have no one to blame but themselves.