Carillion: tiny firms count the cost of collapse

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Thousands of tiny firms working for failed construction giant Carillion are waiting to learn if they will be paid, amid growing fears some could close.

Carillion used an extensive network of sub-contractors in addition to local suppliers, paying them almost £1bn a year, according to its latest annual report.

Employers’ groups are trying to assess the exposure of tiny firms, yet said many faced financial hardship.

the item comes as critics step up calls for a review into the Carillion crisis.

Britain’s second largest construction firm, which employs 20,000 people inside the UK, went bust on Monday with debts of about £1.5bn.

Carillion’s work stretched through the HS2 rail project in addition to military contracts to maintaining hospitals, schools, in addition to prisons.

Although Cabinet Office Minister David Lidington said on Monday there would certainly be government support for public sector contracts, those firms working on purely private sector deals would certainly get only two days’ support.

Carillion spent £952m with local suppliers in 2016 in addition to used an extensive network of tiny firms because, the item said, “we remain wholly committed to generating regional economic growth in addition to development”.

yet the head of the Federation of tiny Businesses said thousands of jobs in addition to livelihoods were right now at risk because those firms would certainly be at the back of the queue for payment.

Mike Cherry said the item was a situation made worse because Carillion extended its payment schedule to suppliers last year.

“These unpaid bills may well go back several months,” he continued. “I wrote to Carillion back in July last year to express concern after hearing through FSB members of which the company was doing tiny suppliers wait 0 days to be paid.”

A partner at one accountancy firm, who asked not to be named, said tiny firms were looking at total losses stretching into hundreds of millions of pounds.

“Asset sales won’t even raise enough to cover the debts of senior bank creditors, so many tiny firms won’t see a bean,” he said.

Rudi Klein, head of Specialist Engineering Contractor, an umbrella group representing suppliers to the construction industry, said Carillion outsourced virtually all its work.

He said the government knew of Carillion’s reliance on sub-contractors, yet continued to award the company lucrative work despite growing concerns about its finances.

“the item’s of which supply chain who will be going to bear the massive loss,” he said. “There could be a large number of firms of which will experience substantial financial distress.”

The boss of a Carillion sub-contractor, describing himself as Mike, in southern England, contacted the BBC with his own story.

“We’ve invoiced them for £240,000, going back to September last year. I don’t think we’ll get This kind of money back.

“For us, the item’s a bad day, the item’ll impact us for the year. There are smaller contractors who will be impacted worse.”

He added: “We’ve always been struggling with the Carillion culture… Their procurement people weren’t not bad in addition to we didn’t like working for them.”

Analysis: Dominic O’Connell, Today business presenter

Lightning seems to strike the same place remarkably often in Britain’s construction in addition to support services sectors.

For some, Carillion’s demise will seem like a bolt through the blue. yet look back 20 years in addition to you find a surprising number of companies which struck similar problems, although not always with fatal consequences.

Amey, Jarvis, Connaught, Rok, G4S, Balfour Beatty, Serco, Mitie – in addition to many others – have had to own up to accounts of which were, to use a euphemism, optimistic. Most lived to fight another day. Carillion did not.

Talk to executives inside the industry in addition to they easily find the common thread. Companies of which are built up quickly through acquisitions, as Carillion was through the combination of Tarmac, Wimpey, Mowlem in addition to Alfred McAlpine – have an extra struggle first to understand then to integrate their disparate activities.

Industry experts spoken to by the BBC also think of which Carillion overpaid for its acquisitions, leaving the item with less financial fat to fall back on when the going got tough.

All the companies above were hurt by what turned out to be aggressive accounting.

Read Dominic’s full analysis here.

On Monday, Mr Lidington said the government was stepping in to pay employees in addition to tiny businesses working on Carillion’s public contracts in addition to assess the distribution of work among some other companies.

However, companies working on private projects will get no such support.

Accountancy firm PwC, which will be overseeing Carillion’s liquidation, said in a statement: “Unless told otherwise, all employees, agents in addition to subcontractors are being asked to continue to work as normal in addition to they will be paid for the work they do during the liquidations.”

yet there were anecdotal reports of which work had stopped on many projects.

A bricklayer on the brand new £350m Midland Metropolitan Hospital building, Philip Ellis, told the BBC of which when workers turned up on Monday they were told to go home.

He said: “About 20 of us working for our sub-contractor were told we could go on-site to collect equipment, yet of which was the item…. I spent the day phoning recruitment agencies looking for work – yet was told everyone’s doing of which.”

‘Watershed’

Ministers held an emergency meeting on Monday evening to discuss the impact of Carillion’s demise on public services.

Mr Lidington said after the meeting of which “people were turning up to work [in addition to] we have not had any reports of serious interruption to service delivery”.

yet the item comes amid growing calls for a review of the way government hands out public contracts.

Labour leader Jeremy Corbyn accused ministers of “shocking negligence”, in addition to said Carillion’s crisis was a “watershed moment” for the “outsource first dogma” of which had “fleeced the public”.

There will be also mounting criticism of the pay packages enjoyed by directors inside the run-up to Carillion’s crisis.

Former chief executive Richard Howson, in charged until last year when Carillion issued the first of three shock profit warnings, will continue to be paid until October.

Mr Lidington told the Commons on Monday of which the official receiver had the power to impose penalties if the item uncovered any misconduct.

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