Published: 00:02, 27 January 2018
The construction and outsourcing giant Carillion plunged into liquidation last week, leaving an estimated 30,000 small businesses in its supply chain unlikely to be paid what they are owed.
Today, companies in Kent are calling on the government to stop overlooking small and medium-sized firms when awarding public sector contracts in a bid to avoid the chaos caused by the collapse.
Ministers asked banks to set up funds to help struggling small firms cope with the fallout after crisis talks to restructure Carillion’s £1.5 billion debts failed, kick-starting shock insolvency proceedings last Monday.
Lloyds Banking Group launched a £50 million fund, HSBC set aside £100 million, and RBS made £75 million available with suppliers expecting to receive less than 1p for every pound they are owed.
The government was forced to take on all public sector services and construction work run by Carillion to avoid disruption at hospitals, prisons and railways.
The company, which employed 20,000 people in the UK, looked after a number of services at Darent Valley Hospital in Dartford after building the centre through a controversial PFI contract.
It also provided services at nine prisons in the county and 12 sites in Kent owned by the Ministry of Defence.
In a joint venture with technical-services firm Eltel Networks, Carillion had been awarded a £38 million contract in 2016 to build a power line between National Grid substations in Canterbury and Richborough.
Firms have called on the government to distribute contracts to more small and medium-sized businesses to help boost the UK economy and avoid the disruption caused when such a large single business collapses.
Ella Brocklebank, business development manager at Jenner Contractors in Folkestone, said: “There are so many small businesses out there and there should be a more collaborative approach taken.
“Smaller businesses can work together and set up special-purpose vehicles to be able to deliver those contracts, rather than them always falling to larger contractors.
“The government always talk about collaborations so let’s see it happen.”
“The government always talk about collaborations so let’s see it happen...” - Ella Brocklebank, Jenner Contractors
Jo James, chief executive of Kent Invicta Chamber of Commerce, said: “Surely the time has come for the UK government to stop taking the easy option and should now be looking at ways in which it can spread the risk and support the real UK economy – not just the shareholders of a few international service companies.
“There must be a point at which too much rests with too few.”
The liquidation has prompted criticism that the government continued to hand out contracts to Carillion, including one as part of a joint venture to build HS2, despite the business issuing three profit warnings since July.
Nick Yandle, chief executive of Maidstone construction and engineering company Gallagher Group, said: “It’s dreadfully sad for all the individuals and companies who will now be worrying about their financial wellbeing and future prospects.
“Carillion was formed by the coming together of a number of longstanding, solid and well-regarded construction companies, such as Tarmac, Wimpey, Mowlem and Alfred McAlpine. The acquisition agenda was driven by the philosophy that ‘big is beautiful’.
“Unfortunately, the City, investors and shareholders seem to assume that increasing turnover will lead to higher profits, but in construction, the opposite is often the case, unless the growth is steady and controlled.
“For construction companies to succeed in what is a perilous industry, they need good people and a good culture where they maintain close control of their activities.
“The bigger a company gets, the harder it is to achieve such a positive and necessary culture.
“If there is anything good to come out of this it might be that medium-sized businesses are able to recruit the good people who are now looking for employment, and that these companies will be better valued by clients and properly recognised and rewarded for what they deliver.”
The collapse of Carillion comes at a tough time for the construction industry, with firms forced to cut prices and operate tight margins to win contracts at a time of weak growth.
“There must be a point at which too much rests with too few...” - Jo James, Kent Invicta Chamber of Commerce
Construction output in the three months to November fell by 2%, compared with the previous three months, according to the Office for National Statistics.
It was the industry’s biggest quarterly fall since August 2012.
Carillion issued three profit warnings in six months but many in the industry still did not think it would cease trading.
“Construction companies have profit warnings all the time,” said Cheryl Causebrook, a construction consultant who went through redundancy and administration proceedings with Epps in Ashford in 2015.
“It’s not a big profit making industry and profit warnings aren’t always a headline.”
Nick Fenton, chairman of Kent Developers Group, said: “The margins on many of the large construction projects are very tight, and there’s been significant build cost inflation, giving no room for error or contingency.
“As a result it does not surprise me that Carillion found itself in such dire straits.
“Many construction companies will be seeking ways to reduce their exposure to tight margins, and some will be looking for development partners to spread the risk.”
Public sector bosses and infrastructure companies insisted Carillion’s liquidation would not disrupt services.
The company looked after many functions at Darent Valley Hospital, having built it under one of the first PFI contracts, awarded in 1997.
Dartford and Gravesham NHS Trust spokesman Sue Daniels said: “We use Carillion PLC to provide some services at Darent Valley Hospital, such as maintenance, catering, portering, cleaning and security.
“We have extensive contingency plans for dealing with this issue and making sure services to patients continue to be provided safely and to a high standard.
“All of our facilities remain open as normal, and patient appointments are unaffected.”
A National Grid spokesman said it had “contingency plans in place for all its projects with Carillion, using alternative suppliers if necessary” in light of the contractor’s £38 million deal to build the Richborough Connection linking substations in Canterbury and Richborough.
He added: “These plans mean we will be able to keep any disruption to a minimum.”
Last April, as part of a joint venture, Carillion was awarded a contract worth more than £200 million over five years to manage catering and accommodation facilities at 87 key defence sites across the South East.
The MoD confirmed the firm carried out services at sites including Sir John Moore Barracks in Shorncliffe, Invicta Park Barracks in Maidstone, the Defence Fire Training Development Centre in Manston, and Army Reserve facilities in Ashford, Bexleyheath, Canterbury, Ditton, Maidstone and Medway.
An MOD spokesperson said: “Carillion’s insolvency announcement has no direct impact on defence or the services provided to the Armed Forces and their families. Housing will continue to be serviced, catering facilities provided and buildings and offices cleaned.”
In 2015, Carillion signed a five-year £200 million contract with the Ministry of Justice to manage the facilities at about 50 prisons, including sites in Kent. It looked after prisons and young offender institutes at Blantyre House, Cookham Wood, Dover, East Sutton Park, Elmley, Maidstone, Rochester, Stanford Hill and Swaleside.
An MoJ spokesman said: “We are working closely with management services to ensure prisons operate without any unexpected change.”
Additional reporting by George Nixon
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