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Carillion planned £3.1bn order book cut

Carillion bosses planned to reduce the contractor’s order book by £3.1bn as part of a radical shake-up of its construction strategy, the firm’s rejected turnaround proposals have revealed.

The company’s rescue plan, presented to government and lenders shortly before its collapse and released now as part of a parliamentary inquiry, show that Carillion considered 26 per cent of its order book to be high-risk.

As a result, it was planning to change to the types of projects it bid for to follow “increasingly stringent” criteria that would shrink its order book from £16bn, as per its 2017 half-year results, to £12.9bn by early 2018.

The new criteria would also lead to Carillion’s pipeline of potential future work being cut by £10bn to £28.8bn.

Carillion’s turnaround plan identified a number of “root causes” to its problems in construction linked to the way it had procured work.

These included taking contracts on with a “high degree of uncertainty around key assumptions” and “insufficient understanding of and adherence to contract requirements”.

Carillion had planned to overhaul its approach to procuring construction jobs to address these problems.

The firm proposed no longer bidding on fixed-price lump-sum works, and exiting PPP construction completely, which it expected to achieve by mid-2019.

Problems on two PPP jobs – Midland Metropolitan Hospital and Royal Liverpool Hospital – contributed significantly to the firm’s collapse. 

Carillion’s turnaround plans revealed it expected to lose a further £143m on these two jobs over the next three years.

The company had also intended to exit construction in Egypt, Qatar and Saudi Arabia, where it had experienced difficulties collecting cash. It expected to complete this by the middle of 2018.

The full extent of the firm’s difficulties getting payment on Middle East projects was revealed yesterday when former chief executive Richard Howson told MPs Carillion was owed £200m for its works in Qatar.

Carillion was instead going to focus on “low-risk procurement” for construction works through open book partnering deals, working with repeat clients, two-stage design-and-build contracts, frameworks, and cost-reimbursable projects.

In addition, Carillion had planned to rein in the scope of its contracting work on infrastructure, focusing on road and rail projects with two-stage design-and-build contracts and target costs.

One example it gave of work it would no longer bid for was its National Grid contract, which Carillion said it did not have the “delivery capability” to manage and was not part of its “core” activities.

Carillion’s power division, along with its contracts with National Grid, have now been bought by Murphy.

The turnaround proposals were presented to Carillion’s lenders and the government in the days before its collapse on 15 January, but were unsuccessful in helping it secure short-term funds to carry on trading.

At the parliamentary inquiry yesterday former interim chief executive Keith Cochrane revealed the company had asked the government to loan it approximately £10m a week until March, for a total of £160m, which it would pay back in April.

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