The liquidation of Carillion is estimated to cost taxpayers at least £148 million while accountants and lawyers managing the process are set to earn £70m in fees, the National Audit Office (NAO) has concluded.
In a report published overnight investigating the UK government’s handling of Carillion’s collapse, the NAO warned the overall cost borne by taxpayers was “likely to be higher” than £148m, citing factors such as potential legal disputes with Carillion clients, the wider impact on the economy and the £12m cost of finding placements for more than 1,000 of its former apprentices.
The investigation shows that the Cabinet Office began contingency planning for the possible failure of Carillion shortly after the company posted its first profit warning on 10th July 2017. The scale of the profit warning came as a surprise to the government, as it contradicted market expectations and information and commentary that had been provided by Carillion.
The report suggests that once the government received the profit warning, Carillion’s risk rating should have been raised to ‘high risk’, the highest rating, rather than red which the government did upon accepting Carillion’s argument that this could precipitate its financial collapse.
Accountancy firm PwC, which earned £17m in fees from Carillion in the decade before its demise, is expected to earn a further £50m from managing the insolvency.
Lawyers will pick up a further £20m slice of costs that are projected to reach £566m, offset by an estimated £317m in income, including from ongoing public and private sector contracts being managed by the Insolvency Service and PwC.
The NAO report confirms that Carillion chiefs asked the government for £223m of help in January to keep the company trading.
It added: “Rather than provide this, the Cabinet Office decided it was better that Carillion enter into a trading liquidation, because it had serious concerns about Carillion’s business plans, the legal implications, potential open-ended funding commitments, the precedent it would set, and the concern that Carillion would return with further requests.”
The watchdog also criticised the government for not spotting financial problems at a key supplier sooner.
Sir Amyas Morse, the head of the NAO, said: “When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts.
“Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened.
“Government has further to go in developing in this direction.”