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Carillion understated hospital costs by £70m

Carillion’s internal review of its two problem hospital jobs showed costs to be £70.8m higher than management was officially reporting, according to Deloitte.

Deloitte, the contractor’s internal auditor, revealed the discrepancies in a letter to the business and work and pensions committee that is conducting the Carillion joint inquiry.

In November 2016, Carillion’s internal peer review forecast the Royal Liverpool Hospital job would cost £53.9m more than the company had accounted for in its official contract appraisal.

The firm’s Midland Metropolitan Hospital project meanwhile was forecast to cost £16.9m more than officially stated to the market.

Of all the peer reviews the company carried out between January 2015 and July 2017 on contracts where a provision was made, 42 per cent showed a forecast margin that was smaller than the company was officially stating.

Additionally, half of these had a variance in cost of more than £5m.

The contractor operated a peer review system on some of its contracts to review how they were trading against the management’s official positions.

When Carillion executives were told about the different values produced by the peer review, they were “surprised” they had not heard about it before, according to Deloitte internal audit partner Michael Jones.

Carillion did not review the Aberdeen Western Peripheral Route contract because of difficulties agreeing the procedure with its JV partners on the job.

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