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Carillion FD says supply chain let contractor down

Carillion’s former finance director Zafar Khan has told MPs that subcontractors had made it hard for the company to generate income.

Mr Khan told MPs at a joint select committee inquiry into Carillion’s collapse that the nature of the industry had left the company in a difficult position, as it was dependent on its suppliers to deliver works.

He said: “You’ve got to deliver [for the client], but your ability to make cash depends on people in your supply chain.”

He added: “When your supply chain doesn’t perform you have to supplement that.”

Committee co-chair Frank Field sought to clarify Mr Khan’s remarks: “All the people you rely on to deliver contracts let you down?”

Mr Khan replied: “No, but I think with the structure of construction contracts, you’re left holding the baby a lot of the time.”

He added: “You’re kind of boxed in. You’ve got to deliver.”

The evidence featured a number of apologies from former senior Carillion figures.

Ex-chairman Philip Green told the inquiry that words could not “describe the depths” of his “despair” at the contractor’s collapse.

Mr Green said he took “full responsibility” for what had happened at Carillion, although he added that he did not take “full culpability” for the firm’s demise.

Former chief executive Richard Howson told the inquiry he “felt like a baliff” at times with “50 per cent to 60 per cent” of his tenure as CEO taken up with trying to get cash from customers.

Mr Howson echoed the words of several of his former colleagues in defending Carillion’s borrowing. The ex-chief told MPs on numerous occasions that he believed cash collection was the major factor in the company’s failure.

“Winning work most important, delivering it came second and then contributions came after that,” he told MPs.

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

Emma Mercer, who succeeded Mr Khan as FD in September 2017, said its widely reported 120-day payment term system for subcontractors was not accurate.

Ms Mercer said that in 2017 the average wait for payment had actually gone down from 45 days to 43 days.

However, she admitted that there had been “some outliers” involving longer waits for payment, which she said was partly due to suppliers submitting incorrect documentation.

She added that “less than 10” firms waited 120 days to be paid.

Interim chief executive Keith Cochrane also revealed more details about the company’s problems overseas.

Out of the approximately £800m debt, he said £400m was linked to work in Canada and the Middle East.

Mr Cochrane said that a project in Qatar saw 2,500 design variations submitted and that Carillion was not paid by the client for 18 months prior to its collapse.

“That’s even worse payment terms than you were offering to business,” MP Rachel Reeves replied.

“Why did you keep doing the work?” she added.

Mr Cochrane said that at an April 2017 board meeting in Manchester former chief executive Richard Howson told the members “that [the Qatari client] had agreed to pay all the bills”.

But six weeks later the agreement changed and Carillion was not paid.

MP Heidi Allen suggested Carillion was fundamentally flawed, arguing that the company was chasing projects to keep up its volume of work to compensate for the low margins it was getting.

Mr Khan said: “I’m not aware of any contracts being taken on just for volume.”

Mr Cochrane said that he didn’t understand the full scale of the company’s problems until he took over as interim CEO, and the weekend he was appointed he ordered the company to increase the provision it had made for problem contracts.

Mr Khan said that as FD he had not anticipated “the number of risks that crystallised” in 2017.

The inquiry also revealed new information about the attempted rescue deal.

Mr Cochrane said an equity issue had been considered, but that “advice from brokers” was that the company’s troubles meant it was unlikely to be successful.

Carillion had been in talks at the end of September with a Canadian buyer to take over its operations in the country.

Mr Cochrane said “the potential buyer could have taken a position in the plc” as well.

In its final days the company approached the government seeking a £160m four-month loan.

Ms Reeves said the company expected taxpayers to bail it out, but Mr Cochrane said it was “entirely appropriate to approach your largest customer” to help support the business.

“It was a business worth fighting for,” Mr Cochrane said.

But the government rejected the proposal and Carillion collapsed on 15 January.

 

Carillion FD says supply chain let contractor down

Readers' comments (11)

  • Yeah right. As a main contractor, your one job, your only job is to select and manage your supply chain. If that's failed then you've failed.

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  • Passing the buck on to the subbies!

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  • You really cannot believe that they have said what they have. We have a vigorous debt chasing procedure and where consistently fobbed off whether it be by site or the off shore accounts function . They hid behind system and process. Our oldest debts were 2 No. @ 119 days old, 1 @ 116 days and 3 others @ 100 Plus !!. I cannot believe we were one of only 10 firms !! We were asked on 4 occasions to sign up for the Reverse Factoring Facility and declined until we were paid monies due . We received £169K on a company card Plus c £4k in charges. We managed to whittle down the debt to a relatively small amount but only due to hard work by our team and I have to say a couple of very conscientious staff at Carillon . Unfortunately Carillon are not the only ones playing this game !

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  • Carillion HO changed quotation/requisition processes every few months from day one. If the Carillion staff out on delivery sites were confused, it's no wonder the subbies didn't manage to keep up with what documentation they had to provide.

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  • What a disgusting creature to blame the very people you rely on. Those who were funding their business.

    Time please.

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  • Disgusting it was the supply chain funding their business
    Why not employ their own staff and plant and materials like a proper contractor should
    The old companies who built Britain did !!
    These are not interested in construction it’s just a cash cow to them funded by others
    [Part of this comment has been removed for contravening CN's terms of use]

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  • 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

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  • Unbelievable. [part of this comment has been removed for contravening CN's terms of use]

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  • Deluded when they were in existence and still deluded from the grave. This company still displays the arrogance and failure to accept their own shortcomings that were so evident in their demise.

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  • the industry should make sure he never works in it again with that blame culture!

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