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Carillion: PPP contracts to suffer £63m hit

Three public-private partnership financiers expect the costs of replacing Carillion on contracts to top £63m.

The company most affected is HICL Infrastructure, which has made a provision of £59.4m to cover costs associated with Carillion’s collapse.

The fund, which invests in PPP infrastructure projects in the UK and overseas, said it expects to incur the costs on 10 Carillion facilities management contracts.

HICL said: “This assessment incorporates assumptions around the expected costs of the transition phase; the anticipated timing and costs of implementing long-term solutions; delays to distributions at project level; and a view on the possible impact on the valuation of these projects as at 31 March 2018.”

Another backer, the John Laing Infrastructure Fund (JLIF), announced that it expected a £3m hit from replacing Carillion as a facilities manager on nine of its PPP contracts.

These include four education deals, four covering emergency services, and one for a roads project.

A third fund, International Public Partnerships, said it expected to incur costs of “less than £1.5m” in transferring FM contracts to new suppliers.

PPP agreements place the liability for replacing an operator on any contract with the private sector financier.

Credit rating agency Moody’s has said that any new contracts agreed with replacement subcontractors could have “less favourable terms and pricing” for the financiers.

It said: “Moody’s expects that new subcontractors will join the various projects over the coming months. However, there is no guarantee that the new contract will be on the same terms and pricing.

“Project companies could potentially face increased FM costs without an accompanying increase in revenue.”

JLIF and HICL both added that Carillion was not carrying out construction works on any contracts when it collapsed on 15 January.

HICL did confirm however that Carillion was still liable under the defects period to remedy any defects on five projects.

JLIF said Carillion was still liable for defects on one project, which it said was completed 10 years ago and for which a recent survey had “not highlighted any significant areas of concern”.

Both funds said they had been monitoring Carillion’s position for months and had put contingency plans in place in case of its failure.

HICL said it had “previously identified replacement operators” lined up which would take over Carillion’s duties “as soon as is practical”.

Clyde & Co partner and procurement export David Hansom said appointing replacements for Carillion on PPP contracts could take months though, depending on the original terms of the deal.

“If the joint venture needs to go through a fully regulated procurement [to find a new contractor] then it could take months to run a new process,” he said.

JLIF said there would be “minimal service disruption” on its contracts, while HICL said there were “no material issues” with operations.

Shares in HICL have fallen 10.7 per cent since Carillion entered liquidation on 15 January, while shares in JLIF have fallen 6.8 per cent.

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