Highways England re-examined the way it tests the finances of suppliers following Carillion’s collapse, its chief executive has revealed to CN.
Jim O’Sullivan told Construction News that Highways England decided to re-evaluate how it measured a supplier’s financial viability following the liquidation of the UK’s second-biggest contractor.
Speaking at a Construction Industry Council policy briefing, the chief executive said: “We did re-examine our financial stringency checks following the liquidation of Carillion and we took the view that we were satisfied with the steps we were taking.”
Mr O’Sullivan added that the collapse had led Highways England to look at contingency plans for its latest £8.7bn roads framework and how best to deal with issues such as contractor failures in future.
At the time of the liquidation, Carillion was delivering work worth hundred of millions of pounds for Highways England, including £292m of upgrades on the A14 in JV with Balfour Beatty and a £475m of smart motorways contract with Kier.
Mr O’Sullivan said Highways England’s use of JVs under its current framework meant that Carillion’s partners could quickly take on staff, which helped ensure Highways England lost only two working days on the schemes.
Highways England’s next round of procurement will see the strategic road network divided into regional lots, with two to three contractors being assigned to each region and carrying out projects as individual firms.
Mr O’Sullivan admitted that not having a JV system in place did mean it would lose “some insurance cover”, but the organisation was working on new contingency plans that would offset this.
One of the problem projects that led to Carillion’s downfall was the £845m Aberdeen Western Peripheral Route.
The much-delayed PFI scheme procured by Transport Scotland led to heavy losses at Carillion, with the company’s JV partners Balfour Beatty and Galliford Try also losing money on the scheme.
Mr O’Sullivan said the problems on the AWPR had not changed his views on private finance models for planned PF2 projects such as the Stonehenge Tunnel and Lower Thames Crossing
“PF2 has been well thought out and well argued,” he said. “There are about £400m successful PFIs in operation, PF2 is an improvement on PFI and seems to work well on roads.”
Later this year, Highways England will go to market with its new £8.7bn Regional Delivery Partnership Framework that will run from 2018 until 2024. The framework will be divided into eight different lots across regions.
Asked whether he was nervous about the supply chain being able to deliver the pipeline of work, Mr O’Sullivan said he was confident Highways England had a solid supply chain to pick from.
“If you asked me three years ago I might have said I was nervous, but I feel there is certainty in the roads sector and I don’t foresee a mass exodus from roads to other sectors.”
He added that once contractors were in the roads supply chain they very rarely left, and those that did often found it difficult to re-enter.
“In reality if you leave the roads sector it is very difficult to get back in,” he said.
“A number of contractors that left roads years ago are now finding it very difficult to come back into the sector currently.”
CN understands a number of new players are looking to take on roads work, with Murphy and Sir Robert McAlpine eyeing up work for Highways England, while Colas has said previously it was looking at delivering capital projects for the roads client.