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Whilst news of Carillion’s demise continues to unfold in the public eye, experts have started to weigh up the cost this turn of events will have – both on the firm’s employees and the wider construction industry. Where, they ask, will the crisis end?

 

With news breaking that a government bailout wasn’t on the cards and Carillion was instead turning back to its lenders for help, it was unfortunately only a matter of time before the announcement was made. Yet another British firm – this one with a legacy spreading over 200 years – looked set to fall into administration. But with no viable company left to divvy up, Carillion instead faced a worse fate: forced liquidation.

Now, PwC have been appointed to handle the liquidation of Carillion, leaving staff, contractors, and clients wondering what will happen next. Not even a notice that agents, subcontractors and suppliers must continue to work posted out on Twitter can stem the anxiety felt by those most closely involved. But what of the wider construction industry and the economy beyond that?

 

Falling Dominoes

Over its lifetime, Carillion managed to position itself as the UK’s second biggest construction company. As such, the collapse of such a giant is bound to have a devastating effect on all around it, and we’re only now in the early days of measuring the magnitude of that fall. This is what we do know.

Only a few days in and the crisis has deepened significantly, with the revelation that up to 30,000 small businesses in the supply chain are owed money. Already, these small firms are feeling the pressure from their banks, and have resorted to laying off workers in order for them to tighten belts. Concerns were only worsened when PwC commented that they would not pay any bills for work or services conducted before the liquidation date. Meanwhile, Carillion’s employees have their own crisis as they await a new employer to take over their contracts.

On a short-term basis, this will cause considerable damage to current and future construction projects across both the public and private sector, as well as spilling out into other industries with the understanding that major firms such as Arriva and Nationwide also relied on outsourced Carillion workers.

Longer-term, the industry could be left with a deepening skills gap as subcontractors fall out of employment and struggle to compete with each other for new roles, leaving many to leave their profession. At a time when the pressure of Brexit is forcing construction bosses to consider how they’ll acquire skilled workers, this could be a disastrous turn of events which continues to unfold over years.

Meanwhile, the news that only 1p against every £1 owed might be reclaimed has forced lenders and banks to expect a significant hit – with some who are owed amounts totalling £1.6million likely to only receive £16,000. This could then have a knock-on effect on the economy and wider world, but at this point, following this thought is pure speculation.

 

How Did We Get Here?

There was no single road which took Carillion to this outcome. Instead, circumstances are a culmination of several differing factors, all of which highlight areas where significant change needs to be actioned by both the government and the industry.

Some of these areas are well-documented within construction. Firms are always at the risk of under-cutting themselves in the process of outdoing competitors, and the successful bid often falls short of covering extraneous variables, such as weather, technical issues or unusual ground conditions. As a result, expenses rise and there’s not enough money to cover everything – in its last few days, Carillion had just £29million in cash. Considering its debts totalled £1.3billion, insolvency was the only option.

Meanwhile, the BBC’s Dominic O’Connell points out that internal circumstances – the building of a company on various acquisitions in a bid to grow quickly – are not exclusive to Carillion. Other firms in different industries, such as G4S and Serco, have also felt the strain with many not surviving. The reason being that there’s an additional challenge in understanding the acquired department or service, and a natural place must be found for them within the framework of the organisation. To repeat this process in relatively quick succession can cause internal friction and slow down projects, leaving businesses in a precarious position.

Couple these two significant factors with an optimistic set of accounts and the thirst for constant growth, and the conditions were understandably rife for disaster. The final blow came when the government resisted a rescue package which would see guaranteed support for four months and a deferral of taxation. Instead, Carillion was left at the mercy of its creditors.

 

Where Do We Go from Here?

Even now, the story around Carillion continues to be played out in the media. News pieces around the government’s ordering of a hasty investigation into Carillion’s directors and a perceived conflict of interest for PwC flood social media channels and online news outlets, whilst employees and suppliers wait with baited breath for more information about their future.

It’s clear that the Carillion crisis is far from over.

For those affected, I sincerely hope they receive the support they need at this difficult time. For those at the top, we can only hope that this has served as a lesson that doesn’t bear repeating in the future. Now more than ever, the construction industry must support one another – and must receive the support it deserves from the government.

 

Kaleida is a provider of bespoke software to the construction industry and beyond. To find out more about our previous work, feel free to explore our case studies or get in touch directly.

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