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Carillion subbies revolt over unpaid work at Royal Liverpool

Carillion’s problem PFI hospital in Liverpool could face more delays as subcontractors look set to dig their heels in over unpaid contracts worth millions of pounds.

Construction News understands a number of subcontractors working on the £335m Royal Liverpool Hospital scheme have not yet returned to the site as they seek payment for work.

CN has learned some subcontractors are owed hundreds of thousands of pounds in official payments and retentions.

In some cases the amount owed is upwards of £2m if uncertified payments are included.

Carillion collapsed into liquidation on Monday, bringing work on the Royal Liverpool Hospital site to a halt.

Royal Liverpool and Broadgreen University Hospitals chief executive Aidan Kehoe confirmed to CN that a only a “small number” of workers had returned to the site and that “very little construction work” was taking place at present.

On Wednesday PwC, the special managers involved in Carillion’s liquidation, sent a letter (see below) obtained by CN calling on Carillion suppliers to return to work.

The letter offered to honour existing terms agreed by subcontractors and Carillion for future work, but stressed there would be no payment for money owed before that date.

More on Carillion

Around 30 firms are believed to be subcontractors for Carillion on the Royal Liverpool Hospital project, which is around 90 per cent complete.

Construction News understands some subcontractors have returned to work, including 90 staff members from Laing O’Rourke subsidiary Crown House Technologies, the M&E contractor for the project.

The Royal Liverpool Hospital is one of Carillion’s three UK problem projects believed to have contributed to its collapse.

The £530m Aberdeen Western Peripheral Route and the Smethwick Midland Metropolitan Hospital are also thought to have been major factors.

In 2013, Carillion reached financial close on the Royal Liverpool deal through its Hospital Company (Liverpool) joint venture set up with its lenders.

Construction News revealed last year that Carillion leapfrogged an Interserve, John Laing and FCC joint venture for the job.

The project has been beset by delays since then, including cracks being found in one of the hospital’s concrete beams in late 2016.

Completion was originally scheduled for March 2017 but this date was missed.

Then only a few weeks ago the hospital confirmed the its revised completion date of 28 February would also be put back.

Mr Kehoe said: “The Hospital Company (Liverpool) have confirmed to subcontractors that they will be paid for their work from 15 January until the end of their contract.

“Any money owed from Carillion for work prior to this is subject to insolvency proceedings and discussions are under way between subcontractors and PwC.

“The trust appreciates that this is an extremely worrying time for those subcontractors and Carillion staff and we hope that they will be supported as much as possible.

“Handover of the new Royal has already been delayed. We expect that the liquidation of Carillion will add to that delay, although the Hospital Company is doing all that it can to minimise any further disruption.”

PwC’s letter to suppliers

Carillion Construction Limited (“Company”)

You may have seen recent media coverage over the weekend with regard to the position of Carillion plc and the announcement to the market by the directors of Carillion plc.

Unfortunately the company has been unable to achieve a restructuring and as a result Carillion PLC and certain subsidiaries have been placed into compulsory liquidation with the official receiver appointed as liquidator on 15/01/2018. Special managers from PwC have been appointed to support the official receiver. These appointments were made by the High Court on 15/01/2018.

The special managers will be working closely with all parties including suppliers and subcontractors. The nature of the appointment and the funding available allows the liquidator and the special managers to continue to operate the business and all staff will continue to be paid as normal while the position and options of the company are assessed. The official receiver’s priority is to ensure the continuing of public services and securing the best outcomes for creditors.

Why have you received this email

We, as special managers, are in the process of contacting subcontractors and suppliers to ask that they resume work. This is on the basis that the official receiver will guarantee to pay for any service provided on the site, from the date of the appointment (15th January 2018), until further notice.

Goods and services required during the liquidation from the date of the appointment of the special managers will be paid for until otherwise notified. We are reviewing contracts and purchase orders issued by the company before our appointment in addition to ongoing requirements and we will contact suppliers concerning these soon.

Given the current financial position of the business, I’m sure you will appreciate that there is a need now for the official receiver and special managers to consider the impact of Monday’s actions on the requirements of the business. 

Please return to work on the site by contacting your supplier / contract manager as usual.

In summary, our key message to suppliers, subcontractors and agency workers are as follows:

  • The group is continuing to trade. 
  • Suppliers, subcontractors and agency workers will be paid for goods and services supplied from the date of the appointment of the liquidator until further notice.
  • If they agree to continue to supply, we will honour existing terms going forward.
  • If they have any questions, they should contact their usual operational contact in the group.
  • Matters requiring the attention of the special managers should be emailed to the following mail inboxes for the different business units.

Central Government
Infrastructure
Corporate & Regions 
Building & Construction 
Shared Services

The special managers will be writing to suppliers shortly to confirm the ongoing trading arrangements. The consequences of the liquidation appointments may cause some disruption to the business. The special managers and their teams will be working closely with all parties to minimise disruption as far as possible.

What are you owed and help we need from you 

If you are owed money by the Company, you will be an unsecured creditor in the liquidation. We will be providing the official receiver with details of the Company’s creditors as soon as possible.

Please note that it is too early to give any indication of the prospects of return for creditors. If your claim includes VAT, you may be able to obtain VAT bad debt relief six months after your supply. Your local VAT office can help you with this.

To help us further, supply details of the following to your usual contact at the company: 

  • Any outstanding orders;
  • Any of the company’s property you hold; and 
  • Any assets of yours that the company has on hire or rental from you and, if known, the address where these assets are held

Your right as creditors

The appointment means that you can’t start or continue legal action, enforce security or repossess any goods held by the company, except with consent of the court and subject to such terms as the court may impose.

More information on compulsory liquidation can be found in the following guide produced by The Insolvency Service: 

https://www.gov.uk/government/publications/claim-money-back-from-a-bankrupt-person-or-company-in-compulsory-liquidation-guidance-for-creditors

If you have any questions, please contact your usual contact at the Company in the normal way. Please also refer periodically to the website https://www.pwc.co.uk/carillion for the latest information. You can also contact the special managers.

Readers' comments (2)

  • Who else, outside the construction industry, would even consider such a deal.

    Would any supermarket chain let you NOT pay for food you took last week, but agree to let you keep shopping IF you paid for this week’s food this week?

    Stupid? Laughable? What's the difference between the above example and the letter, or asking ANY supplier to do same?

    I was once told by my MD at that time not to fallout with someone who rips you off. Keep a note of the amount. Get that back. Get back the same again. THEN cut them off at the knees.

    How do you do that in this situation? Leaving aside the right and wrongs of that mentality, the adversarial tendering that brought that view about or the fact that he felt was 'ok' as a business practice, etc.

    We HAVE to, as an industry, be re looking at the way we operate and take on board the 'Modernise or Die' report. It had LOTS to say and is easier than most reports to read AND made / makes sense. The author, Mark Farmer, is, rightly, all over the main stream media at this time while the industry do it's best indignant ostrich impression and simultaneously object to the fact that its happened and carry on regardless not considering change. Heaven forfend we could / should CHANGE our working practices. It was good enough for Great Grandad, it’s good enough for me!

    Steve Napper CEng Director
    MMCEngineer Ltd
    www.mmcengineer.com

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  • So all the specialist small companies/suppliers will get nothing for all the work they have done prior to this dodgy company going bust. Then they are told to get back to work and they will be paid from the date of liquidation. How the hell are they supposed to finance these future works when they have not been paid up to that date, and why the hell would they take such a risk. They would be better off refusing to return to site UNLESS and UNTIL they are paid what they are owed first. Something stinks about this whole affair, who on earth would keep handing out work to a company when it was in such a sorry state. Well this government did, and at the end of the day it is them, as well as Carillion who will be responsible for many small, hardworking subcontractors who must be in a desperate state.

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