Carillion

Carillion collapse to cost taxpayer £148m with liquidators set to earn £70m

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.”

Call for urgent public inquiry into AWPR safety allegations

Scottish Labour leader Richard Leonard has urged the Scottish Government to investigate “extremely serious allegations” regarding safety issues on the Aberdeen Western Peripheral Route (AWPR) construction project.

The call follows reports in Construction News today that workers have quit the project over health and safety concerns.

The publication claims that it has seen evidence of staff working upwards of 70-hour weeks on the £745 million project as well as a 200% increase in accidents over the course of the project’s first year after construction got underway in 2015.

In September, a worker on the Aberdeen bypass was taken to hospital with head injuries after a falling piece of timber cracked his hard hat apart and knocked him unconscious.

Another worker was left with cracked ribs, a liver tear and dislocated toes after being crushed by a half-tonne pipe at the Milltimber stretch of the site back in March 2017.

The latest revelations follow Richard Leonard raising working conditions on the flagship project with Nicola Sturgeon at First Minister’s questions earlier this year.

The Labour leader told parliament the party has evidence of umbrella companies charging workers up to £100 to access their wages.

Mr Leonard said: “These are extremely serious allegations which must be thoroughly investigated as a matter of urgency by the Scottish Government.

“This is supposed to be a flagship project for the Scottish government – and so should be founded on a gold standard of health and safety as well as the terms and conditions of workers on the project.

“I have previously raised concerns directly with Nicola Sturgeon about the treatment of workers on this project, and the Labour Party will keep up the pressure until we see a step change in the industry in general and this public project in particular.

“What is clear is that we need to seriously change how public money is handed out. That is why Labour has repeatedly called for a comprehensive review of procurement in Scotland. It should be a lever for the government and other public agencies to drive working conditions and wider economic benefits up. The highest health and safety standards must be enforced.”

Recently, Galliford Try, one of the contactors delivering the Aberdeen bypass alongside Balfour Beatty, indicated that the firm expects to face additional costs due to various delays on the project, some of which caused by the collapse of joint-venture partner Carillion at the start of the year.

A spokesman for Transport Scotland, the project’s client, said: “The health and safety of those working on all major infrastructure projects and the surrounding community is of the utmost importance to us. Although the responsibility for the health and safety of workers rests with the contractor, Aberdeen Roads Limited, we have been working with them to enhance health and safety standards across the site.

“The project operates a culture of openness and transparency and the workforce is encouraged to report any event or condition they consider to be unsafe. Over the past year, the contractor has reported steady improvements through various reporting mechanisms and we will continue to work with them as the construction of this project nears completion.”

Government’s relationship with major suppliers questioned in wake of Carillion demise

MPs have raised significant concerns about how the public sector manages contracts with major suppliers after documents revealed that ministers failed to respond to warnings regarding the financial health of Carillion months before its collapse.

The Cabinet Office assesses each strategic supplier on a Red-Amber-Green (RAG) scale. Suppliers can also be designated a Black ‘high risk’ status.

Papers released to the House of Commons public accounts committee (PAC) reveal that in November 2017 government officials recommended Carillion be designated a ‘high risk’ supplier.

However, following representations from the company, the Cabinet Office did not confirm the designation and Carillion collapsed less than two months later.

The Carillion assessments also show that although the firm had been rated Amber owing to performance against contracts with the Ministry of Defence and Ministry of Justice, it was not until after Carillion issued a profit warning in July 2017 that the government downgraded the firm to Red. It appears the Government was not aware of Carillion’s financial distress until this point.

Releasing a report on the issue today, the public accounts committee said: “It appears the government was not aware of Carillion’s financial distress until this point.”

Committee chair Meg Hillier said: “Government has become dependent on large contracts to deliver public projects and services. Great secrecy surrounds them. If a company providing a number of these contracts fails, this is bad news for service users and the taxpayer.

“The strategic supplier risk assessments provide an insight into the relationship between government and suppliers and give rise to many questions we want to pursue.

“We recognise there are commercial sensitivities around that relationship. We are also alert to the potential impact on jobs and small businesses should certain information be made public. We have been mindful of the workers and businesses who could lose out through no fault of their own if certain information is in the public domain. But equally we are concerned about the lack of transparency and its potential to create an environment where poor practice takes root. Taxpayers deserve to know where their money is going, that their investment is being managed wisely and that government is providing effective oversight.

“The Carillion papers identify clear and compelling problems with the business in the months leading to its collapse. Government had the opportunity to deal with them. Taxpayers, service users and people and businesses plunged into financial difficulty by Carillion’s demise deserve to know what happened.”

She added: “Other select committees have done some excellent work on aspects of the Carillion affair. We want to look wider and better understand the relationship between strategic suppliers and government. When a contract breaks down, government is the provider of last resort. While it did not bail out Carillion – the company went in liquidation – it did inherit responsibilities and costs, ultimately borne by taxpayers, that would otherwise not be met.”

Galliford Try facing additional Aberdeen bypass costs

Galliford Try has indicated that the Aberdeen Western Peripheral Route (AWPR) remains on course for practical completion this summer but the firm expects to face additional costs due to delays.

The £745 million project to build a 28-mile bypass around Aberdeen, already subject to delays and having suffered from the collapse of Carillion, has encountered further problems due to recent inclement weather, Galliford Try announced this morning.

Galliford Try and Balfour Beatty, the two remaining members of the Aberdeen Roads Limited joint venture tasked with delivering the project, were left to cover the costs after former bypass partner Carillion went into liquidation in January.

Today, Galliford Try was unable to put a figure on the additional costs as it “will depend upon progress recovered through the summer”, when the project is expected to be completed.

Galliford Try said: “On the Aberdeen Western Peripheral Route we are making good progress on site, with progressive handover of sections of road under way.  We have experienced some further cost pressure, principally from weather delays, which are likely to increase the exceptional charge in the current year. The amount will depend upon progress recovered through the summer, and is expected to be lower than the charge (£25m) taken in the first half.  We are continuing to discuss several significant claims. Practical completion of the project is anticipated this summer.”

In a contrasting announcement also this morning, joint venture partner Balfour Beatty said there is “no change” to a previously announced £105m to £120m hit to its finances from the project.

Balfour Beatty said: “Completion of the Aberdeen Western Peripheral Road project is still expected this summer and there is no change to the £105-£120m Balfour Beatty cash outflow guidance for 2018 provided at the full year 2017 results.”

Client Transport Scotland has suggested it is prudent to aim for a late autumn opening date for the bypass.

Carillion’s Board to blame for ‘rotten corporate culture’ that led firm’s failure, say MPs

MPs have launched a scathing attack on directors at collapsed construction giant Carillion who they believe should face disqualification for being too busy “stuffing their mouths with gold” to worry about employees.

In the final report of an inquiry into the spectacular failure of the company, two select committees also attacked the government for “lacking” decisiveness and bravery to tackle failures in corporate regulation that allowed Carillion to become a “giant and unsustainable corporate time bomb”, and called for ministers to break up the hold that the big four accountants have on the UK company audit market.

According to the joint work and pensions and BEIS committee report, Carillion’s Board was either “negligently ignorant of the rotten culture at Carillion or complicit in it”. The committees said honouring pension obligations in decades to come “was of little interest” to Carillion and claimed the contracting giant treated its suppliers with “contempt”.

Despite clear accountability, the directors presented themselves in Parliament as “self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps”.

Carillion’s rise and spectacular fall was a story of “recklessness, hubris and greed”, its business model “a relentless dash for cash, driven by acquisitions, rising debt and exploitation of suppliers” with at best questionable accounting practices that “misrepresented the reality of the business”, the report added.

Frank Field MP

Frank Field MP, chair of the work and pensions committee, said: “Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners. They rightly face investigation of their fitness to run a company again.  This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn. Government urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability. British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion.”

Large accounting firms KPMG, PwC, Deloitte and EY also came in for severe criticism from the committees who claim the market for auditing major companies is “neatly divvied up” among the Big Four firms and that a “lack of meaningful competition” creates conflicts of interest. They said the Carillion demise “betrayed the market’s current state as a cosy club incapable of providing the degree of independent challenge needed”.

Rachel Reeves MP

Rachel Reeves MP, chair of the BEIS Committee, added: “Carillion’s collapse was a disaster for all those who lost their jobs and the small businesses, contractors and suppliers left fighting for survival. The company’s delusional directors drove Carillion off a cliff and then tried to blame everyone but themselves. Their colossal failure as managers meant they effectively pressed the self-destruct button on the company.

“However, the auditors should also be in the dock for this catastrophic crash. They are guilty of failing to tackle the crisis at Carillion, failing to insist the company paint a true picture of its crippling financial problems. The sorry saga of Carillion is further evidence that the Big Four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope.

“KMPG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion.  It is a parasitical relationship which sees the auditors prosper,  regardless of what happens to the companies, employees and investors who rely on their scrutiny.  The Competition and Markets Authority must now look at the break-up of the Big Four accountancy firms to help increase competition and deal with conflicts of interest.

“The collapse of Carillion exposed terrible failures of regulation. The Government needs to stop dithering and act to ensure regulators are up to the job of intervening before companies fail, rather than trying to pick up the pieces when it is too late.”

Former finance director Richard Adam, who was named in the MPs’ report as the “architect of Carillion’s aggressive accounting policies” and was previously accused of “dumping” shares worth hundreds of thousands of pounds at the first possible moment, said in a statement: “‘Despite retiring over a year before Carillion went into insolvency, I am deeply saddened by the events that have since overtaken the company.

“The reasons for the collapse are clearly complex; however, I reject the unwarranted conclusions the committees have reached concerning my role at the company

“I have objected to the committees about quotes that they have misattributed to me. I look forward to contributing to the due process and conclusion of the various investigations that are still ongoing.”

A KPMG spokeswoman said: “We believe we conducted our audit appropriately.

“However it’s only right that following a corporate collapse of such size and significance, the necessary investigations are performed.

“Auditing large and complex businesses involves many judgments and we will continue to co-operate with the FRC’s ongoing investigation.”

The Federation of Master Builders (FMB) said the government must learn lessons from Carillion’ demise by enforcing fair payment and opening up public sector contracts to smaller firms.

Brian Berry

Brian Berry, chief executive of the FMB, said: “It’s the small firms in Carillion’s supply chain that bore the brunt of the giant’s demise earlier this year. The government now has a unique opportunity to completely change how it works with the private sector. For too long, many large firms have reigned supreme and walked all over their supply chains. MPs are right to note that ‘measures that government has taken to improve the business environment, such as the Prompt Payment Code, have proved wholly ineffective’.

“As a signatory of the government’s Prompt Payment Code, Carillion should have paid 95% of invoices within 60 days. However, Carillion enforced standard payment terms of 120 days to its suppliers and we know of FMB members that have had to wait for more than 200 days to be paid by major contractors. A company that was so flagrantly breaking the rules should not have been rewarded by the government with juicy contract after juicy contract.

“The collapse of Carillion created a ‘domino effect’ among sub-contractors. We know of firms that have lost more than £200,000 since the collapse and of others that were so reliant on Carillion contracts, they’ve gone out of business entirely. Once a company at the top of a chain goes under it creates a ripple effect. In this instance, however, the ripple has been more like a tsunami because of the extent to which the government relied on this single company. At present, there is nothing in place to ensure another Carillion doesn’t happen again.”

Mr Berry added: “This report is welcome but we now want to see root-and-branch reform in terms of how the government procures from the private sector. The government should exclude suppliers from major government procurements if they do not demonstrate fair, effective and responsible payment practices. The government should also end retentions abuse by ensuring that retentions are held in a deposit scheme. Finally, the government must also make greater efforts to work directly with small firms by breaking larger contracts down into smaller lots. That way, not only will the government spread its risk, it will also reap the benefits that come from procuring a greater proportion of its work from a broad range of small companies. Small companies reinvest profits into the local economy and in construction, small firms train two thirds of all apprentices. Ensuring SMEs win a higher proportion of public sector contracts makes sense on every level.”

The report was also welcomed by the Specialist Engineering Contractors’ Group (SEC Group) which said that the Carillion saga has shone a light on the dark underbelly of construction.

SEC Group’s CEO, Professor Rudi Klein, added: “Unfortunately Carillion is not alone.  Payment and contractual abuse is rife in the construction industry. Unless we act now the risk is that we’ll end up with more Carillions.”


Carillion report in summary

The Directors

  • The Insolvency Service should “carefully consider” whether Carillion’s former directors breached their duties under the Companies Act and should be recommended to the Secretary of State for disqualification.
  • Richard Adam was the “architect of Carillion’s aggressive accounting policies”. The sale of all his shares, asap after his voluntary departure a year before its collapse, were “the actions of a man who knew where the company was heading”.
  • Richard Howson was the figurehead for a business that “careered progressively out of control under his misguidedly self-assured leadership”.
  • Philip Green was an unquestioning “optimist” when his role should have been to challenge. He incredibly described Carillion as an “attractive and compelling proposition” for investors days before its massive contract write-down, and believed he was the man to head a “new leadership team” right until the end.
  • Carillion’s directors elected to increase its dividend pay- out every year, come what may. Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses.
  • Long term obligations, such as adequately funding Carillion’s pension schemes, were “treated with contempt”.
  • The directors’ “aggressive” accounting practices, described by one major shareholder in Carillion as having “no place in a healthy audit”, are well illustrated by the case study of the Royal Liverpool Hospital: see pp of the attached report.

The Accounting “Tricks

Peer review

Peer review is a check and balance whereby management’s contract appraisals on the estimate of the value and profit margin of a given contract are reviewed independently within the company. A November 2016 internal peer review of Carillion’s Royal Liverpool Hospital contract reported it was making a loss. Carillion’s management overrode that assessment and insisted on a healthy profit margin being assumed in the 2016 accounts. The difference between those two assessments was around £53 million, the same loss included for the hospital contract in the July 2017 profit warning

Traded not certified

Carillion recognised considerable amounts of construction revenue that was “traded not certified”: revenue that clients had not yet signed off, such as for claims and variations, and therefore inherently uncertain whether payment would be received. In December 2016, the company was recognising £294 million of traded not certified revenue, an increase of over £60 million since June 2014, and accounting for over 10% of total revenue from construction contracts

The Early Payment Facility

As described in a release earlier this week, Carillion’s EPF treatment helped hide its failure to generate enough cash to support the revenues it was recognising. Carillion had a target of 100% cash conversion: for cash inflows from operating activities to at least equal underlying profit from operations. It consistently reported that it was meeting this target. It could do this because the EPF classification allowed it, in cashflow statements, to present bank borrowing as cash inflow from operations, rather than as yet another loan.

Aggressive accounting

“Carillion used aggressive accounting policies to present a rosy picture to the markets.” Maintaining stated contract margins in the face of evidence that showed they were “optimistic”, and accounting for revenue for work that not even been agreed, enabled it to maintain apparently healthy revenue flows. It used its early payment facility for suppliers as a credit card, but did not account for it as borrowing. “The only cash supporting its profits was that banked by denying money to suppliers.”

The Big Four

  • Carillion exposed the UK’s audit market as a “cosy club incapable of providing the degree of independent challenge needed”.
  • Government should refer the statutory audit market to the Competition and Markets Authority. Possible outcomes considered should include breaking up the audit arms of the Big Four, or splitting audit functions from non-audit services.
  • In its failure to question Carillion’s financial judgements and information, KMPG was “complicit” in the company’s “questionable” accounting practices, “complacently signing off its directors’ increasingly fantastical figures” over its 19 year tenure as Carilion’s auditor.
  • Deloitte was paid over £10 million by the company to act as its internal auditor but were either “unable or unwilling” to identify the “terminal failings” in Carillion’s risk management and financial controls, or “too readily ignored them”.
  • Ernst & Young was paid £10.8 million for “six months of failed turnaround advice”.
  • The lack of competition in the audit market “creates conflicts of interest at every turn”:  KPMG were external auditors, Deloitte were internal auditors and Ernst and Young were tasked with turning the company around. PwC variously advised the company, its pension schemes and the Government on Carillion contracts, but was still the least conflicted of the Four, and “as the Official Receiver searched for a company to take on the job of Special Manager in the insolvency, the oligopoly had become a monopoly and PwC could name its price”.
  • KPMG’s “long and complacent” tenure of “cursory” audits at Carillion was not an isolated failure: it was “symptomatic of a market which works for the members of the oligopoly but fails the wider economy”.
  • As advisors to Government and Carillion before its collapse, and as Special Managers after, PwC benefited regardless of the fate of the company. Without measurable targets and transparent costs, PwC are continuing to gain from Carillion, effectively writing their own pay cheque, without adequate scrutiny.

The Regulators

  • The Committees say they have “no confidence in our regulators”.
  • FRC and TPR were “united in their feebleness and timidity”, too “passive and reactive” to make effective use of the powers they have. Any extra powers they may receive will have little impact without a change of culture and outlook in both. In TPR’s case, the Committees are “far from convinced that its current leadership is equipped to effect that change”.
  • The FRC is too “content with apportioning blame once disaster has struck” rather than proactively challenge companies and flag issues of concern to avert avoidable business failures in the first place.
  • The FRC was “timid” in challenging Carillion on its “inadequate and questionable” financial information and “wholly ineffective” in taking its auditors to task.
  • The committees have “little faith” in the FRC’s ability to complete its investigations in a timely manner and say its mandate should be changed to ensure that all directors who exert influence over financial statements can be investigated and punished.
  • TPR “clearly failed” in its statutory objectives to reduce the risk of schemes ending up in the PPF and to protect member’s benefits: it had concerns about schemes for many years without taking action, even when Carillion’s trustees repeatedly asked it to intervene.
  • TPR only announced an investigation for possible recovery action after the company collapse, when there was next to nothing left to recover. The PPF expects a funding shortfall – which will be absorbed by the PPF and its levy-payers – of around £800 million, the biggest single it will ever have taken. All the pensioners with schemes in the Fund will receive a reduced level of benefits.

Government

  • Successive governments have nurtured a business environment and pursued a model of service delivery which made a collapse like Carillion’s almost inevitable – with the consequences clear in the taxpayer being left to foot so much of the bill for the clean-up operation.
  • Measures that government has taken to improve the business environment, such as the Prompt Payment Code, have proved wholly ineffective and need revisiting.
  • Government’s Crown Representative system – “semi-professional and part-time” – provided little warning of the risks in a key strategic supplier and should be reviewed immediately.
  • When Special Managers are required for an insolvency, the companies must not be given a blank cheque. The Insolvency Service should set and regularly review spending and performance criteria and provide full transparency on costs incurred and expected future expense.

Financial Reporting Council making ‘good progress’ with Carillion investigations

An investigation into the financial wrongdoings at Carillion could still take months to conclude despite making “good progress”, the Financial Reporting Council (FRC) has reported.

A team of lawyers and forensic accountants from the watchdog is investigating KPMG’s audit of Carillion from 2014–2017 as well as two of the firm’s finance directors Richard Adam and Zafar Khan. The main areas of focus for the investigations are: contract accounting; reverse factoring; pensions; goodwill and going concern.

The FRC is reviewing the audit files for the four year period as well as other material relevant to the financial statements and audits of Carillion, including accounting documents produced by the company and emails and other correspondence from the relevant period.  The watchdog expects to review tens of thousands of documents and emails in order to establish how and why audit and accounting decisions were reached.

The first of many detailed and recorded interviews and fact-finding meetings with those under investigation and other relevant witnesses have been conducted. Further interviews may be held as the responses of one interviewee often needs to be considered and analysed prior to conducting interviews of others.

In an update today on its Carillion investigations the FRC said: “It frequently takes several months to prepare, schedule and conduct a series of interviews.”

The watchdog added: “FRC investigations are often complex and extensive and any findings may be challenged by experts, lawyers and, if applicable, Tribunal members. This requires detailed and rigorous legal and evidential analysis. The FRC will complete the work relating to Carillion as quickly as possible.

“The speed of the FRC’s investigations may also rely on the level of cooperation of those under investigation, audit clients and third parties (for example: other regulators and liquidators). The Carillion case is one of the largest the FRC has investigated.  The FRC will not cut corners to conclude its investigations as that may compromise the integrity of any enforcement action.”

129 more Carillion employees transferred to new suppliers

A further 129 former Carillion staff have secured ongoing employment by transferring to new suppliers, the Official Receiver has confirmed.

The announcement brings the number of jobs saved to 11,618 since the company’s collapse in January.

However, another nine further redundancies are being made in roles no longer required as the remaining business reduces. Those who are leaving the business this week will be provided with every support to find new work by Jobcentre Plus’ Rapid Response Service, the Official Receiver added.

In total, 2,301 jobs have been made redundant through the liquidation with a further 1,103 employees having left the business during the liquidation through finding new work, retirement or for other reasons.

Discussions continue with potential purchasers for Carillion’s remaining contracts and with staff, elected employee representatives and unions as these arrangements are confirmed.

Just over 3,000 employees are currently retained to enable Carillion to deliver the remaining services it is providing for public and private sector customers until decisions are taken to transfer or cease these contracts.

Former Carillion apprentices find new roles at VQ Construction

(from left) Nathan Watson, Sam Clark, Jim Johnstone (community skills manager at Morrison Construction), Tommy Easton (managing director at VQ Construction), Manpreet Singh and Ryan Cochrane

VQ Construction has hired four apprentices from the collapsed Carillion business after a call was put out by Morrison Construction.

The Scottish all-trades company has placed four ex-Carillion apprentices, allowing them to continue with their apprenticeships and gain their final qualifications. The apprentices will now be learning a range of different trades including joinery, painting and decorating and bricklaying.

Carillion was the United Kingdom’s second largest construction company, but recently was forced into liquidation after huge financial troubles which saw it mount up a debt pile of £1.5 billion. No deal could be reached to save the company, putting 20,000 UK jobs at risk.

Morrison Construction played a vital role in securing these apprenticeships. The construction company, which has delivered £1bn worth of private and public sector projects throughout Scotland in the past five years, saw many apprentices in their supply chain lose their jobs and prospects of finishing their qualifications. A call was put out to its contacts and VQ Construction answered.

Jim Johnstone, community skills manager at Morrison Construction, said: “It has been a difficult time for the young people who were under the Carillion apprenticeship programme and as a responsible contractor we have been doing what we can to help then find new employers and gain their qualifications.

“We are delighted that VQ Construction has stepped in and made sure that these four apprentices can continue with their apprenticeships and become valuable assets to their team. There is certainly no shortage of work in construction and our industry needs the skills these individuals are developing.”

357 more Carillion jobs saved but redundancies continue

A further 357 jobs have been saved following the collapse of construction and facilities management firm Carillion, taking the total to 11,450.

However, a further 36 roles have been lost.

A spokesman for the Official Receiver said that 357 employees have transferred to new suppliers who have picked up contracts Carillion had been delivering.

However, 36 employees, whose positions are no longer required as Carillion’s business transfers to new suppliers, will leave the business later this week.

A total of 2,257 jobs have been made redundant since the liquidation in January.

The spokesman said: “I continue to talk with potential purchasers for Carillion’s remaining contracts and will keep staff, elected employee representatives and unions to keep them informed as these arrangements are confirmed.”

Carillion-type failures ‘likely to escalate’ without cash flow intervention

Derek Forsyth

Scotland’s construction industry is facing an unprecedented sequence of problems that are likely to trigger further business failures, particularly amongst smaller supply chain contractors, an independent accountant has warned.

Derek Forsythhead of recovery at Campbell Dallas, is warning that the ‘Big 4’ of issues – a marked fall in major public infrastructure projects, prolonged severe weather, the collapse of a first-tier contractor and persistent economic uncertainty – is affecting order books and compounding cash flow problems across the industry which has an annual turnover approaching £15 billion and employs around 175,000 people.

Mr Forsyth said: “This is probably the most challenging period I have known for the construction sector. The industry is beset with an endemic cash flow issue that has never really been resolved. Businesses will retain cash for as long as possible, which tends to affect smaller companies trading from one job to another. Coupled with fewer contracts and the wider economic and weather issues, many companies are facing a very tough time.

“The Carillion collapse once again exposed the vulnerability of smaller firms down the supply chain to the failure of the principal contractor. Given that payment can routinely take several months, sometimes 6 months or longer, it is unsurprising that banks are unwilling to increase borrowings when payment terms and compliance are so uncertain. Perhaps the banks need help from Government to ease the cash flow problem.”

Mr Forsyth said there was a pressing need for intervention to ensure smaller businesses are paid on time.

He also backed calls for the establishment of an independent body that could be charged with managing a Construction Cash Flow facility, initially for publicly financed projects.

Mr Forsyth added: “One option could be to have an independent body that could be charged with managing a Construction Cash Flow facility, initially for publicly financed projects. Scotland’s construction industry is a vital part of the economy, and much could be done to inject structure and greater certainty into the payments process, in turn helping prevent so many failures.  It is clear that margins are sustainably tight, and the tenders process continues to support this situation, keeping profit levels depressed.

“It is important that key stakeholders involved in Scotland’s construction industry work together to ease these problems and provide support to any businesses affected by badly managed contracts and a lack of cash. Companies may have plenty of orders but until changes are made to the cash flow culture and system, companies should remember that winning work does not mean staying in business.”

Murdoch MacLennan, head of banking advisory services at Campbell Dallas, added: “There are specialist funders to the sector who provide facilities that can ease cashflow. However, ultimately to make it all work, the main contractor needs to be able to pay their sub-contractors.”