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Carillion inquiry hearing: 6 things we learned

Carillion’s former leaders have been grilled by a joint select committee of MPs. Here are some of the key revelations from the four-hour hearing. 

Howson’s big regret

When asked about his regrets from his time at the helm, former chief executive Richard Howson said getting involved in the joint venture delivering the Aberdeen Western Peripheral Route was high on the list.

The Aberdeen road bypass project, which Carillion was delivering alongside Galliford Try and Balfour Beatty, was one of the problem PFI deals that contributed to its collapse.  “There’s lots of things I would do differently – I wouldn’t have bid the Aberdeen Western Peripheral Route, I wouldn’t have joined the bidding consortium given the losses on that,” he said.

Mr Howson also used the Royal Liverpool Hospital job to illustrate the contractor’s problems. He explained how, with work on the project largely completed, eight cracked concrete beams were discovered. It would then take a further five months of remediation work to fix the problem. “This added over £20m of cost to our completion,” Mr Howson said. “A parable of the way the company was run?” said MP Frank Fielding.

Richard Howson select committee 180206 1

Richard Howson select committee 180206 1

Carillion couldn’t collect cash overseas

A number of Carillion’s former leaders said the business had not been paid for work carried out abroad.  Mr Howson revealed to MPs that he spent “60 per cent” of his time “chasing cash”, particularly in Canada and the Middle East.

In one case in Qatar the contractor was chasing payment for 18 months. Carillion signed a deal to deliver one of the phases of the $5.5bn Msheireb Downtown redevelopment in Qatar by 2017, but was still chasing £200m the company was owed when it fell into liquidation. Mr Howson said he kept auditors informed of this, and they were even invited to visit Qatar. But this was not reported.

It was only in June 2017 when Carillion was replaced on the job at a cost to the contractor that the business finally reported this contract provision.

Alfred McAlpine fuelled pension problems

When the recession hit and the pipeline of infrastructure projects declined, Carillion’s management took the decision to halve its construction business and focus more on services. At the heart of this were two acquisitions: that of Eaga in 2011, and more significantly Alfred McAlpine in 2007.

“The strategy was to look at opportunities to increase the proportion of business in support services rather than construction,” former finance director Richard Adam said. The acquisitions led to greater cash outflows, but also saw Carillion take on Alfred McAlpine’s pension deficit.

Within a year of the purchase, Carillion’s deficit had gone up by 348 per cent. Alfred McAlpine was responsible for around 60 per cent of Carillion’s current pension deficit, Mr Howson would later confirm.

Keith Cochrane Carillion select committe 180206

Keith Cochrane Carillion select committee 180206

Carillion asked the government for £160m

When asked for the three things that contributed to Carillion’s collapse, chairman Philip Green said growing debt, problem contracts and the company’s inability to access short-term funding in January. As the prospect of liquidation became more and more likely, interim boss Keith Cochrane (pictured) and his leadership team requested a rescue deal from the government.

The deal asked the government to hand over £160m in cash, which Carillion would pay back by April. Mr Cochrane said he didn’t consider this a bailout.

The firm would then ask for a £10m loan every week which would be matched by the banks, until its long-term turnaround plans began to produce results.

The government ultimately refused, the banks followed, and Carillion went into liquidation on 15 January.

45-day average payments

It has been widely reported that a number of suppliers were on 120-day payment terms when working for Carillion.

But according to Carillion management, this was the exception rather than the rule. Finance director Emma Mercer, who took over from Zafar Khan, said in 2016 the average payment terms for its suppliers was 45 days, but by 2017 this had dropped to 43.

Only 5 per cent fell outside this wait, Ms Mercer said, and only a dozen firms were on the 120-day schedule.

When asked if they recognised the claims that Carillion were known in the industry “bad payers”, both Mr Green and Mr Howson said “no”.

Zafer Khan_Carillion select committee 180206

Zafer Khan_Carillion select committee 180206

Zafar Khan removed after ‘spooking’ board

Former finance director Zafar Khan (pictured) suggested his departure may have been a case of the messenger getting “the boot”.

MPs focused in on the suggestion that a presentation Mr Khan gave had “spooked” the board because it revealed Carillion’s critical financial position for the first time.

Ex-chief executive Keith Cochrane rebutted the notion that Mr Khan was let go on the back of the “surprising” presentation.

He suggested Mr Khan was removed because of a “change of perspective” and because he wanted someone that was “closer to cash collection”, although he did acknowledge that the notorious board presentation was a “factor”.

 

  • Keith Cochrane Carillion select committe 180206

    Carillion inquiry hearing: 6 things we learned

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