What the government can learn from Carillion’s collapse

What the government can learn from Carillion’s collapse

As Carillion, which was considered by some to be too big to fail, goes into liquidation, it gives local and central government clients an opportunity to reconsider how they award work.

This could be as fundamental as whether it is appropriate for the work to go through a framework programme, putting it out of reach of capable regional contractors, or simply to diversify the suppliers to which they award contracts.

Richard Beresford, chief executive of the National Federation of Builders, said, “When a major contractor goes into liquidation, it highlights the importance of diversifying those to whom you award contracts. When a company does go into administration, those suppliers owed money in retentions are unlikely to be paid, even though they have already provided skilled services.”

Beresford added, “Many large regional contractors miss out on work simply because they are not among the usual suspects. Let’s not forget that £10.5 billion of the UK construction industry’s annual turnover is withheld in retentions by clients and large contractors from regional SMEs in their supply chain.”

The Government must learn from Carillion’s demise and assess its over-reliance on major contractors, according to the Federation of Master Builders (FMB).

“Carillion’s liquidation is terrible news for all those who work for the company and it will have serious knock-on effects for the many smaller firms in its supply chain, some of which will be in serious financial danger as a result of Carillion’s demise,” said Brian Berry, Chief Executive of the FMB, said.

Carillion’s liquidation raises serious questions for the Government, not least about its over-reliance on major contractors,” Berry added. “The government needs to open up public sector construction contracts to small and micro firms by breaking larger contracts down into smaller lots.

“That way, it can spread its risk while also reaping the benefits that come from procuring a greater proportion of its work from a broad range of small companies. Construction SMEs train two-thirds of all apprentices and are a sure-fire way of spreading economic growth more evenly throughout the UK.”

The news that the UK’s second largest construction company has been placed into compulsory liquidation has also prompted a warning from Unite, who said that this must not mean ‘business as usual for big business’.

Jim Kennedy Unite national officer for local government, said, “One thing is evidently clear from this: there must be no business as usual for big business. There has to be an urgent inquiry into how a company that loaded itself with debt, which undercut competitors with unsustainable bids, which hoovered up vats of public money, and that had repeatedly alerted the government to its own financial shortcomings got its hands on so much of the public sector and taxpayers’ cash.

“We are also very concerned about the impact of Carillion’s collapse on the wider supply chain. Many of these small firms are the lifeblood of their community but their exposure to Carillion’s debt puts them at serious risk.

“PWC must put workers and suppliers at the head of the queue for payment, not the banks and certainly not the Carillion boardroom whose greed and recklessness has brought this giant company to its knees and imperiled so much of our public services.”

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