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Carillion inquiry exposes damning risk and reward appetite

Tom Fitzpatrick

“To be competitive, to win work, to create future cashflows, you have to win. Winning is a balance of risk and reward.”

These were the words of former Carillion chief executive Richard Howson, giving evidence to MPs as the company’s leaders were grilled on its demise.

As Mr Howson gave evidence, Labour MP Rachel Reeves seemed utterly bemused by the idea of 1-2 per cent margins.

Contracts won at the start of his tenure in 2011, Mr Howson said, were won during the depths of recession when more risk was being passed to contractors, with less two-stage and collaborative bidding.

Bidding became more collaborative as the years went on, he said, particularly within infrastructure.

On a longer-term services framework you could then make a margin of 6-7 per cent as collaborative contracts became more prevalent and demand exceeded supply, he added.

“So why did it all go wrong?” Frank Field MP enquired.

Well, it became apparent during the two sessions that those giving evidence were still a little bemused themselves.

When construction companies give evidence in front of MPs, it tends to come with a severe cringe factor warning.

Seven former Carillion leaders stuttered through hours of questioning that ultimately exposed a group of people out of touch with what was going on around them.

Inevitably, finger-pointing ensued. Former chairman Philip Green sat next to Mr Howson and claimed that he had acted decisively by removing the CEO when problems arose.

This failed to recognise that following Mr Howson’s removal being announced in July last year, he was reinstated as chief operating officer the following month before eventually departing as the firm’s worsening state was revealed.

Sitting at the same session as interim chief executive Keith Cochrane, former finance director Zafar Khan claimed Mr Cochrane sacked him after the board was “spooked” by a review of the company’s contracts.

Mr Cochrane denied this, claiming the board was concerned about whether he was on top of cashflow arrangements.

Philip Green claimed the board was “very engaged and asked challenging questions” about why short-sellers were predicting the firm’s demise, but that it believed this to be based on negative analyst views at the time.

The group’s control over information, both financial and personnel, was for the most part defended.

All involved were sorry. None would admit culpability. And none were willing to talk to Construction News.

The hearings are a must-watch for the major firms, particularly publicly listed companies, in this industry.

All in all, it was a sorry state of affairs, and an advertisement for doing things a better way. The risks this company took vastly outweighed any possible rewards.

Specialists judging week under way

This week we have the UK’s best specialist contractors presenting their work to our judging panel of industry experts.

They are competing for the CN Specialists Awards, getting the chance to showcase their businesses to judges including CEOs and operational leaders of the UK’s largest contractors.

Take a look through what’s setting these companies apart in our previews being published each day this week. We will celebrate the UK’s specialist contractors on 8 March at the Grosvenor House Hotel – call Jack Procter on 0203 953 2093 to book your table.

Readers' comments (1)

  • StreetwiseSubbie

    Carillion has impacted over 400,000 lives!

    That's 40,000 employees worldwide x (1 partner + 1.5 children) = 100k

    30,000 businesses x say 4 people x (1 partner + 1.8 children) = 336k

    The actual number may never be known, but whatever it is, it's a national disgrace!

    This Can Happen Again -

    There is no doubt that more businesses will fail. We are calling for a Public Inquiry, into Construction hear why on BBC Radio Derby; http://www.bbc.co.uk/programmes/p05thptr at 1:43 in.

    Please join 1,229 others who are supporting our call for a Public Inquiry at; https://goo.gl/qk6osw

    Unsuitable or offensive? Report this comment

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