Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Carillion's woes must be a warning to entire industry

James Wilmore

The extent of the mind-boggling problems facing Carillion were laid bare today and it is not a pretty picture.

On top of the £845m of writedowns it revealed in July, the group has announced an extra £200m of writedowns for problem support services contracts. 

All in all, it has resulted in an eye-watering half-year loss of £1.15bn.

The man currently charged with fixing the issues, interim boss Keith Cochrane, used some pretty straightforward language to admit what had caused the problems.

“People were too focused on the short term,” he told analysts. The company is “too broad and too complex”, he said.

And on its approach to contracts, he added: “We were building a Rolls-Royce, but only getting paid to build a Mini.”

Mr Cochrane appeared to understand that investors needed to hear some straight talking to appease what is a car crash situation. Let’s not forget, Carillion’s share price has tumbled more than 70 per cent since July’s update, wiping around £600m off its market cap.

Unfortunately, investors appear unimpressed so far, as Carillion’s share price has slumped around 11 per cent today. 

In essence, Carillion is a company that got too big without enough checks and balances in place to retain a grip.

As part of the cost-cutting measures, the firm is cutting its management team from 52 to 35, branded a “delayering” process.

But the screamingly obvious question is ‘how did it get this bad’? Yes, construction is a high-risk and complex business, but the phrase ‘asleep at the wheel’ springs to mind with regard to previous management.

Carillion is still without a permanent chief executive and today all we got from chairman Philip Green is “good progress” is being made in the search. Clearly, finding a turnaround expert of the type Carillion requires will take some time.

Ultimately, the firm’s problems, like Balfour Beatty’s three years ago, are a salient reminder of the risks involved in construction.

Hopefully other firms can learn from Carillion’s woes to avoid a similar situation, but that is not guaranteed after other worrying updates this year.

Rivals may be looking at the business and saying ‘there but by the grace of God go us’.

Readers' comments (2)

  • Should that not be "there but for the grace of God go us?

    Unsuitable or offensive? Report this comment

  • Apparently "unexpected" losses of this scale, when read alongside the "unexpected" losses of every other tier 1 UK contractor ( Skanska, BAM, LOR, Balfour, Costain, Kier, Interserve, Vinci, Bouygues) in the last 2 years one must draw some inevitable conclusions :

    1. The UK tier 1 contractors currently provide an unstable uninvestable business proposition. Shareholders are exposed to risks and losses of unacceptable proportions out of all keeping with possible returns,

    2. This genre of major contractor demonstrably cannot control either project risks or business risks to any degree of acceptable bandwidth. The unreliability of the former is the source of the latter. This means they cannot add value for customers because their model is all about integration and risk controls - which are clearly absent ipso facto,

    3. Either the degree of transparency inside their management accounts and their business controls is so poor that losses are completely unexpected - or the reporting at corporate level is a wittingly falsified and wildly over optimistic account of what has actually occurred and what the forecast loss at project level will be. Or both combined.

    4. Auditing that cannot spot £1bn of over stated and mis reported profit in a 2% EBIT industry is no kind of auditing at all.

    If post Grenfell the industry is also shown to have failed to identify and control (technical) risks and life safety then industry has a highly toxic mix of issues to deal with warranting wholesale change in structure , as well as process, procurement, ethics and behaviour.

    Change is necessary to rid our sector of its opaque commercial practices, adversarial behaviours and inefficient practice: instead bringing true openness, collaboration and efficiencies..

    Unsuitable or offensive? Report this comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.