Carillion

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Carillion plc, prior to its ongoing liquidation, was a British multinational facilities management and construction services company headquartered in Wolverhampton in the United Kingdom.

Carillion was created in July 1999, following a demerger from Tarmac. The company experienced financial difficulties in 2017, and went into compulsory liquidation on 15 January 2018, the most drastic procedure in UK insolvency law, with liabilities of almost £7 billion. Before its liquidation, it had grown through a series of acquisitions to become the second largest construction company in the United Kingdom, was listed on the London Stock Exchange, and had some 43,000 employees (around 19,000 of them in the United Kingdom).

In the United Kingdom, the insolvency has caused project shutdowns and delays in the UK and overseas (PFI projects in Ireland have been suspended, while four of Carillion's Canadian businesses sought legal bankruptcy protection), job losses (in Carillion - 2,303 UK redundancies up to 21 May 2018 - and its suppliers), financial losses to joint venture partners and lenders, and potential financial losses to Carillion's 30,000 suppliers and 28,500 pensioners. It has also led to questions and multiple parliamentary inquiries about the conduct of the firm's directors, its auditors, the Financial Reporting Council and The Pensions Regulator, and about the UK Government's relationships with major suppliers working on Private Finance Initiative (PFI) schemes and other privatised outsourcing of public services. It also prompted legislation proposals to reform industry payment practices, and consultations on new government procurement processes to promote good payment practices.

The final report of a Parliamentary inquiry said Carillion's collapse was "a story of recklessness, hubris and greed, its business model was a relentless dash for cash", and accused its directors of misrepresenting the financial realities of the business. "Carillion was unsustainable," the report said. "The mystery is not that it collapsed, but that it lasted so long." The report's recommendations included regulatory reforms and a possible break-up of the Big Four audit firms.

Video Carillion

History

Foundation

Carillion was created in July 1999, following a demerger from Tarmac, which had been founded in 1903. Tarmac focused on its core heavy building materials business, while Carillion included the former Tarmac Construction contracting business and the Tarmac Professional Services group of businesses. At the time of demerger Sir Neville Simms was appointed executive chairman of the business. Simms stood down from his executive responsibilities in January 2001 but remained non-executive chairman until May 2005 when Philip Rogerson took over the chair.

The name 'Carillion', a corruption of the word 'carillon' (a peal of bells), was intended to give the construction business a clearly defined, separate identity, and to distance it from its construction roots. It was proposed by London branding consultancy Sampson Tyrell (later Enterprise IG, part of WPP).

Acquisitions

Under CEO John McDonough (formerly at Johnson Controls, and appointed Carillion CEO in January 2001), Carillion expanded into the facilities management services sector.

In September 2001, Carillion acquired the 51% of GT Rail Maintenance it did not already own, thereby creating Carillion Rail. Carillion Rail carried out track renewals on the rail network, and contract work for Network Rail.

In August 2002, Carillion bought Citex Management Services for £11.5 million and, in March 2005, it acquired Planned Maintenance Group for circa £40 million. After that, Carillion went on to acquire two more United Kingdom support services firms: Mowlem, for circa £350 million in February 2006, and Alfred McAlpine, for £572 million in February 2008. Then, in October 2008, Carillion bought Vanbots Construction in Canada for £14.3 million.

Carillion bought Eaga, an energy efficiency business, for £306 million in April 2011, and in December 2012, it acquired a 49% interest in The Bouchier Group, a company providing services in the Athabasca oil sands area, for £24m. Then, in October 2013, the company bought the facilities management business of John Laing.

In August 2014, the company spent several weeks attempting a merger with rival Balfour Beatty. Three offers were made; the last bid, which valued Balfour Beatty at £2.1 billion, was unanimously rejected by the Balfour Beatty board on 19 August 2014. Balfour refused to allow an extension of time for negotiations that could have prompted a fourth bid. Carillion announced later that day that it would no longer pursue a merger with its rival.

In December 2014, Carillion acquired a 60% stake in Rokstad Power Corporation, a Canadian transmission and distribution business, for £33 million. Carillion acquired 100% of the Outland Group, a specialist supplier of camps and catering at remote locations in Canada, in May 2015 and a majority stake in Ask Real Estate, a Manchester based developer, in January 2016.

Blacklisting involvement

In 2009, Carillion was revealed as a subscriber to an illegal construction industry blacklisting body, The Consulting Association (TCA), though its inclusion on the list was mainly due to its previous ownership of Crown House Engineering (acquired by Laing O'Rourke in 2004), and previous use of TCA by Mowlem (acquired by Carillion in 2006). Carillion made two voluntary submissions to the House of Commons' Scottish Affairs Select Committee, one in September 2012, and another in March 2013, relating to its involvement with TCA.

In July 2014, Carillion was one of eight businesses involved in the 2014 launch of the Construction Workers Compensation Scheme, though this was condemned as a "PR stunt" by the GMB union, and described by the Scottish Affairs Select Committee as "an act of bad faith". As one of the contributors to the scheme, Carillion reported in August 2016 "a non-recurring operating charge of £10.5 million" representing the compensation and associated costs it expected to pay. In December 2017, Unite announced that it had issued High Court proceedings against 12 major contractors including Carillion.

Financial difficulties

On 10 July 2017, Carillion issued a trading update that referred to a £845 million impairment charge in its construction services division, mainly relating to three loss-making UK PFI projects and costs arising from Middle East projects. Chief executive Richard Howson (appointed CEO in December 2011) stepped down but was retained as operations director, with Keith Cochrane temporarily becoming CEO (Carillion's search for a new CEO led to the appointment of Andrew Davies, CEO of Wates - announced on 27 October 2017 - with Davies set to join the firm in April 2018).

As a result, the contractor was demoted from the FTSE 250 Index, and five directors (including Howson and finance director Zafar Khan) left the company as it tried to close a refinancing deal. On 27 September 2017, a Middle Eastern firm was said to be considering a takeover bid. Two days later, it was revealed that Carillion's losses for the six months ended 30 June 2017 totalled £1.15 billion, following a further write down of £200 million, this time in its support services division.

In dialog with investors in September 2017, Keith Cochrane stated that in his view, the business had accepted too many projects which had turned out unprofitable and for which the amount paid was insufficient for the cost of work done ("we were building a Rolls Royce but only getting paid to build a Mini"), and its management structure and internal organisation had been over complex and lacking sufficient regard to contractual risk assessment and overly optimistic assumptions, and that as a result the company had "burned through cash" in trying to deliver to a high standard without assessing the possible implications. In January 2018, The Times commented that its problems were not a secret and had been known for around four years, with too many poorly managed contracts, delays to works, and monies withheld by clients.

On 24 October 2017, it was reported that Carillion was preparing to sell its healthcare facilities management business to Serco (the deal included 15 contracts, with annual revenues of approximately £90m for which Serco was to pay £47.7m - later cut to £29.7m - with Carillion losing £1bn from the value of its order book), and was planning to dispose of its Canadian operations to help shore up its finances. A week later, it was announced Carillion was selling its interest in developer Ask Real Estate to West Midlands developers Richardsons Developments for £14 million. In December 2017, the Richardsons also acquired Carillion's interest in the Milburngate development in Durham.

In a further profit warning, on 17 November 2017, Carillion said it would breach banking covenants the following month, with full year debts set to reach up to £925m. A recapitalisation plan was to be implemented in early 2018. The company's share price fell over 50% in early trading to just 18p - valuing the business at £73m. Unite the Union sought urgent talks with the company, concerned about the future of around 1,000 Carillion workers plus others employed by subcontractors and agencies. Major shareholder Kiltearn Partners halved its shareholding incurring a loss of over £40m. On 20 December, Carillion announced it had brought forward the arrival of new CEO Andrew Davies to 22 January 2018.

On 3 January 2018, it was reported that the UK Financial Conduct Authority was to investigate the timeliness and content of Carillion announcements from December 2016 regarding its financial situation. Ten days later, the BBC reported that the company had "a matter of days" to avoid collapse and that Carillion was the subject of "high level government meetings".

These meetings continued throughout the weekend of 13-14 January--covering the company's £900m debts, a £580m pension deficit, and many ongoing contracts for government departments--but broke up without a rescue deal agreed, with a potential administration process set to start on 15 January 2018. The Financial Times later reported Carillion had just £29m in cash when it collapsed, and would have run out of cash by 18 January 2018. Consultants PricewaterhouseCoopers (PwC) and EY had both rejected roles as administrators amid concerns they would not be paid.

Maps Carillion

Liquidation

On 15 January 2018, the BBC reported Carillion was to go into liquidation (as opposed to administration), the company having issued a notice to the London Stock Exchange "that it had no choice but to take steps to enter into compulsory liquidation with immediate effect". The notice anticipated an application to the High Court for PwC to be appointed as Special Managers, to act on behalf of the Official Receiver. Carillion chairman Philip Green (who had been appointed to that post in May 2014) said:

This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years. [...] In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision. We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers.

Six UK Carillion businesses, including Carillion plc and Carillion Construction Ltd, were liquidated in the first phase. On 19 January, Carillion (AMBS) Limited was placed in provisional liquidation, and on 25 and 26 January 2018 ten UK further companies went into liquidation. Another business went into liquidation on 2 February, followed by ten more on 16 February 2018. Two Carillion businesses in Jersey and Guernsey also went into liquidation, in January and March 2018 respectively.

In April 2018, the Official Receiver estimated the total liabilities of the 27 liquidated UK companies at £6.9 billion, a figure over three times higher than given in the Group's accounts at the end of 2016.

Direct impacts of liquidation

The liquidation announcement had an immediate impact on 30,000 subcontractors and suppliers, Carillion employees, apprentices and pensioners, plus shareholders, lenders, joint venture partners and customers in the UK, Canada and other countries.

Suppliers

Subcontractors were said to be vulnerable: the Specialist Engineering Contractors Group said Carillion's failure could lead to many smaller firms going under. Up to 30,000 small businesses were reportedly owed money by Carillion, who used 'delay tactics' and withheld payments to suppliers, sometimes for as long as 120 days.

Within 24 hours, equipment hire firm Speedy Hire and piling contractor Van Elle were reporting potential losses of £2m and £1.6m respectively; Van Elle also reported uncertainty relating to £2.5m worth of future work for Network Rail. A survey of 133 companies by the Building Engineering Services Association and the Electrical Contractors' Association found that 80 of them were collectively owed £30 million by Carillion, an average exposure of £375,000. Average debts owed to micro businesses (fewer than 10 employees) were £98,000; medium-sized businesses (50 to 249 employees) were owed on average £236,000, with the most exposed firm owed almost £1.4 million. Only £31m of the estimated £1bn-plus owed by Carillion was covered by trade credit insurance. In late March 2018, Bury North MP James Frith hosted a meeting in Parliament attended by suppliers affected by Carillion's collapse; companies highlighted unpaid debts of between £250,000 and £2.7m.

On 29 January 2018, CCP, a Slough-based dry lining contractor with a 350-strong site-based labour force, called in liquidators due to debts owed by Carillion. Already financially-troubled ground engineering business Aspin Group Holdings went into administration in February 2018 as part of pre-pack deal after the group and its subsidiaries were owed around £800,000 by Carillion. On 23 March 2018, 160-strong mechanical and electrical subcontractor Vaughan Engineering warned it faced administration after losing £650,000 on two Carillion projects; KPMG were subsequently appointed as administrators, making 83 employees in Broxburn, 43 in Newcastle and 28 in Warrington redundant. Four companies in Lagan Construction Group went into administration owing £21m in early March 2018 partly as a result of Carillion's insolvency; tightened credit terms and requests for upfront payments had affected cashflow.

Employees

Liquidator PwC began staff consultations over planned redundancies and transfers to further new employers. On 2 February 2018, the Official Receiver announced an initial 377 redundancies; a further 994 redundancies were announced during February, 337 in March, 554 in April and 46 in May, bringing the redundancy total to 2,303 - 12% of the pre-liquidation workforce. In parallel, 11,637 jobs had been safeguarded through transfers, while 1,115 employees left the business through finding new work, retirement or for other reasons. After staff made redundant claimed PwC did not provide information necessary for them to claim redundancy pay and statutory notice pay, causing financial hardship and threatening mortgages, the Official Receiver established a specialist team and said former staff should receive the necessary information within seven days of being made redundant or transferring to a new employer.

A week after the liquidation, the Official Receiver's managers, PwC, agreed with Network Rail that Carillion Construction employees to its projects would have their wages guaranteed through to at least mid April 2018, while Carillion suppliers on Network Rail projects would also be paid. 150 Carillion workers employed on motorway joint ventures with Kier were set to become Kier employees; 51 Carillion employees working on seven HS2 civil engineering packages awarded to the CEK joint venture were offered the opportunity to join Kier/Eiffage. Nationwide Building Society took on around 250 former Carillion employees engaged in facilities management work at its offices and branches. Around 1,000 Carillion staff engaged on prison facilities management work for the Ministry of Justice were transferred to a new government-owned company, 22 workers from Carillion's power network business joined J Murphy & Sons, around 60 staff at Carillion's Newcastle-based legal services arm joined Clifford Chance, and 700 employees engaged on Network Rail projects transferred to Amey Rail. French engineering group Egis took on Carillion's M40 motorway contract, safeguarding the jobs of around 95 Carillion workers. Carillion Welding was acquired by Rail Safety Solutions Ltd, saving 63 jobs.

However, the transfer of some overseas-born staff to new employers was hampered by strict application of immigration rules that required the workers to apply for permission to remain in the UK. MPs on the Home Affairs Select Committee, citing the case of Nigerian-born Hamza Idris, called on the Home Office to display flexibility and compassion, concerned that "scores" more workers might also be affected.

In early February 2018, private equity groups Greybull Capital, Brookfield and Endless LLP were said to be interested in acquiring parts of Carillion that might be ringfenced for auction. On 8 February, PwC opened bidding for Carillion's rail division and several of the company's road maintenance and facilities management contracts. Canadian FM firm BGIS, a subsidiary of Brookfield, negotiated to take on 2,500 workers engaged on UK hospital, education, justice, transport and emergency services contracts, but the negotiations failed on 8 March 2018.

Out of 1200 apprentices affected by Carillion's liquidation, around a third - 419 - were still without work in early April 2018; only two had been offered a training contract with a government department or agency.

In April 2018, Carillion's Wolverhampton headquarters was put up for sale for £3m.

Rival contractors looked to take over Carillion's two major hospital PFI projects. Laing O'Rourke negotiated about the Royal Liverpool University Hospital. Skanska targeted the Midland Metropolitan Hospital (where 70 Carillion staff lost their jobs) in Birmingham, with the project 18 months late and likely to cost an additional £125 million (in May 2018, Sandwell and West Birmingham NHS Trust had yet to confirm Skanska to complete the project, and with the unfinished site deteriorating, completion was likely to be pushed back an additional two years, to 2022).

Joint venture partners

Main contractors Balfour Beatty (partner on three highway projects) and Galliford Try (partner on one highway project) were now jointly liable for additional cash contributions: the cash contributions for one of those projects, the Aberdeen Western Peripheral Route, totalled between £60m and £80m; Balfour Beatty estimated a cost across the three schemes of between £35m and £45m, while Galliford Try sought to raise £150m and cut its dividend to support its balance sheet claiming Carillion's collapse had "increased the group's total cash commitments on the project by in excess of £150m" (on 27 March 2018, the company confirmed it had successfully raised £158m in a rights issue).

Rail electrification JV partner Powerlines bought Carillion's 50% stake, safeguarding 300 jobs, and Aspire Defence partner KBR acquired Carillion's interests in relation to the Project Allenby Connaught PFI deal. Joint venture partner Abellio withdrew from a bid for a Welsh rail franchise as a result of Carillion's collapse.

Lenders

Five UK banks incurred heavy losses on loans to Carillion. Royal Bank of Scotland (RBS), HSBC, Santander, Lloyds and Barclays had provided £140m of emergency loans in September 2017 and were also lenders on a £790m revolving credit facility. On 22 February 2018, Barclays revealed Carillion's collapse had cost it £127m. On 24 April 2018, Santander revealed a £60m impairment charge attributed mainly to Carillion but also said to include Interserve.

Non-UK operations

Outside the UK, the completion and handover of six schools being constructed under PFI arrangements in Ireland was also suspended following Carillion's liquidation, with Irish suppliers fearing non-payment of Carillion debts (on 6 April 2018, 216-strong Co Kildare-based Sammon Contracting Group sought bankruptcy protection after becoming insolvent due to EUR8m debts on the schools projects, confirmed on 17 April 2018; numerous other Irish subcontractors were also owed sums - on one school, figures ranged from EUR16,000 to over EUR200,000). Work was not expected to resume until May 2018. In March 2018, it was announced that the schools building and facilities contracts had been re-tendered, with the schools expected to open in September 2018, but concerns about whether this completion date would be met continued in late April.

Four of Carillion's Canadian businesses sought protection from creditors under the Companies' Creditors Arrangement Act by an Ontario court so that the businesses, employing 6,000 people and including maintenance contracts in hospitals and roadways plus public-private partnership construction of hospitals, could continue. On 5 February 2018 Fairfax Financial announced it had taken over several Carillion Canada facilities management contracts, with over 4,500 Carillion Canada employees joining Fairfax; the deal excluded highway maintenance contracts in Ontario and Alberta. On 15 February 2018, it was reported that the Ontario highways maintenance business could run out of money in days and might need to be bailed out by province authorities, though this was denied by the Ministry of Transportation of Ontario. On 23 February, Carillion Canada's bankruptcy protection was extended to 25 May 2018. On 1 March 2018 Carillion's joint venture partner EllisDon acquired its interests in four Ontario hospital projects, becoming the sole service provider at Royal Ottawa Hospital, Oakville-Trafalgar Memorial Hospital, Brampton Civic Hospital and Sault Area Hospital. The Alberta government made $8.9m available to help Carillion Canada continue its highway maintenance operations for the remainder of the winter season. An additional $3.1m was made available in May to allow the company to continue to the end of June.

Political impacts of liquidation

There were immediate calls for a public inquiry from politicians and financial analysts in the United Kingdom. On 16 January 2018, the UK government ordered a fast track investigation into the directors at the construction firm to look into possible misconduct.

The company's liquidation raised political questions about the award of UK Government contracts to a financially-troubled business, and about Private Finance Initiative projects and wider privatisation of public services. At Prime Minister's Questions on 17 January 2018, Labour leader Jeremy Corbyn challenged Prime Minister Theresa May over Carillion, asking why over £2bn of contracts had been awarded to Carillion even after the company had issued three profit warnings.

Transport Secretary Chris Grayling faced calls to resign, having awarded a major HS2 rail contract to Carillion in July 2017.

Particular concerns were raised about the National Health Service where 14 hospital trusts had relied on Carillion services and where construction of two major hospital PFI projects - the new Royal Liverpool University Hospital and the Midland Metropolitan Hospital in Birmingham - faced shutdowns and further delays; in March 2018 it was reported that costs on these two projects were over £70m higher than the company was officially reporting. The British Medical Association and Labour Shadow Health Secretary Jon Ashworth were among those who called for urgent action following Carillion's collapse.

The UK Government established a Carillion task force, including representatives from business, construction trade associations, trade unions, lenders and government, chaired by Business Secretary Greg Clark. On 18 January 2018, Clark welcomed the creation of a £225 million fund established by HSBC, Royal Bank of Scotland and Lloyds Bank to support suppliers, particularly SMEs, affected by Carillion's insolvency; a further £100m of lending was offered by the state-owned British Business Bank. Around 30,000 suppliers were reported to be owed approximately £1 billion. MP James Frith tabled an early day motion calling on the government to honour all outstanding payments on public contracts for work completed and to enforce public sector 30-day payment regulations.

Parliamentary investigations

MPs began an investigation into Carillion's pension deficit, amid suggestions that The Pensions Regulator and the firm's pension trustees failed to act after the 2017 profit warnings, putting pensions at risk. Carillion operated 13 UK pension schemes, with around 28,500 members, of whom over 12,000 already received pensions. Despite initial estimates of a £587m deficit, reports suggested the true figure could be between £800m and £2.6bn; on 29 January 2018, Frank Field, chair of the Work and Pensions Select Committee accused Carillion of trying to "wriggle out" of pension payments, resulting in a £990m deficit. Pensions advisers were said to have repeatedly warned that Carillion was prioritising shareholder dividends over the funding of its pension scheme.

Carillion directors, trustees of the company's pension scheme, and the Financial Reporting Council were summoned to appear before the House of Commons Business and Work and Pensions Select Committees on 30 January and 6 February. Directors were also summoned before the Public Accounts Committee on 27 February 2018.

The Business and Work and Pensions Select Committees also wrote to the 'Big 4' firms, KPMG, EY, PwC and Deloitte, asking for detailed accounts of services offered to Carillion, its subsidiaries and pension scheme since 2008, and what fees were received. At 30 January hearing, Frank Field asked the FRC's head Stephen Hadrill whether the 'Big 4' should be broken up in the wake of Carillion's collapse. On 13 February, the 'Big 4' were described by Field as "feasting on what was soon to become a carcass" after collecting fees of £72m for Carillion work during the years leading up to its collapse. It later emerged that Carillion paid £6.4m to 12 firms of advisers the day before pleading for an emergency £10m loan from the UK Government; £2.5m was paid to Ernst and Young, with other large payments to Slaughter and May (£1.2m), FTI Consulting (£1m) and Lazard and Co (£0.5m).

In 6 February hearings, Carillion directors blamed the company's collapse on problem contracts (including two hospital PFI projects - in Liverpool and Birmingham - with cost overruns), high levels of debt arising from the 2011 acquisition of Eaga, plus Brexit, the 2017 General Election and interest rates. The company also claimed it was owed £200m in relation to the Msheireb Downtown Doha project in Qatar - former CEO Richard Howson said he felt like "a bailiff" in chasing the debt. (Carillion's claim was subsequently disputed by Msheireb Properties, with the Qataris prepared to testify to the select committees, providing written evidence to them, and said to be considering a £200m claim against Carillion.) MPs on the two select committees also discussed documents showing that Carillion investor Standard Life had expressed concerns over the company's financial management, strategy and corporate governance in 2015. After the session, committee chairs Frank Field and Rachel Reeves said:

"This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong. We heard variously that this was the fault of the Bank of England, the foreign exchange markets, advisers, Brexit, the snap election, investors, suppliers, the construction industry, the business culture of the Middle East and professional designers of concrete beams. Everything we have seen points the fingers in another direction - to the people who built a giant company on sand in a desperate dash for cash."

After considering the directors' evidence, MPs on the select committees sought further information, particularly where they felt testimony had been "contradictory" or evasive. Other organisations including Msheireb, lawyer Slaughter and May, bankers Lazard and Morgan Stanley, and the clients of three UK PFI projects, were also contacted about their involvement in Carillion's collapse. Published correspondence between shareholders (including Kiltearn, Standard Life and Letko Brosseau) - described as "fleeing for the hills" - and Carillion showed repeated efforts to raise issues with directors with the interim CEO Keith Cochrane said to have only a vague grasp of finances.

Further correspondence showed "contemptuous" Carillion directors had repeatedly refused to fund growing deficits in the company's 13 pension schemes, while pension fund trustees had unsuccessfully sought intervention from The Pensions Regulator in 2010 and 2013. Despite these requests, the regulator only opened the process after Carillion entered liquidation. On 22 February 2018, the Pensions Regulator told a joint select committees hearing that it was considering pursuing individuals connected with Carillion to recover cash for its indebted pension schemes, but was criticised for not forcing Carillion to pay sufficient money into its retirement schemes.

On 22 February 2018, MPs also contested evidence from internal auditor Deloitte and external auditor KPMG (in one exchange MP Peter Kyle told KPMG partner Peter Meehan: "I would not hire you to do an audit of the contents of my fridge"). Rachel Reeves, chair of the business select committee, said:

"Auditing is a multi-million-pound business for the Big Four. On this morning's evidence from KPMG and Deloitte, these audits appear to be a colossal waste of time and money, fit only to provide false assurance to investors, workers and the public. [...] Carillion staff and investors could see the problems at the company but those responsible - auditors, regulators, and, ultimately, the directors - did nothing to stop Carillion being driven off a cliff."

Carillion directors' testimony was further questioned when, on 21 February 2018, a whistle-blowing former Carillion executive told The Guardian the company had been in serious financial difficulty in mid-2016 but directors had been "placating the City." Zafar Khan's successor as finance director, Emma Mercer, was also reported to have voiced concerns about accounting irregularities in April 2017 and at a board meeting on 9 May 2017 which received legal advice from Slaughter and May.

After further documentation and correspondence was published by the select committees, Carillion directors bosses were described by MPs as "fantasists" chasing "a pot of gold", with chairman Philip Green described by Rachel Reeves as having "either a woeful lack of leadership or no grip on reality." The board rejected an October 2017 break-up plan from Ernst and Young that proposed selling off profitable parts of Carillion and then entering liquidation, a strategy that could have raised £364m, with the pension schemes getting £218m; the board believed they could successfully restructure the group. A 2017 report to Carillion's banks from FTI Consulting said the firm hid mounting problems with "aggressive accounting and working capital management."

Interviewed by the joint Business and Work and Pensions Committee on 7 March 2018, key Carillion investors Aberdeen Standard Investments, Kiltearn and Blackrock said the board focused more on their own pay than the company's performance, and questioned KPMG's auditing of the 2016 accounts. The protection of directors' pay extended to the creation of a secret bank account for former CEO Richard Howson's share-related bonuses.

PricewaterhouseCoopers told the Work and Pensions Select Committee on 21 March 2018 that its services over the first eight weeks of the liquidation had cost £20.4m; this followed MPs' accusations that PwC had been attempting "to milk the Carillion cow dry".

Two days before the 16 May 2018 publication of the parliamentary inquiry report, Frank Field said Carillion had "displayed utter contempt for its suppliers", using them to "prop up a failing business model" and conceal true levels of debt. The report was also expected to recommend that the Insolvency Service should consider disqualifying some former Carillion directors from future boardroom positions, and that The Pension Regulator be scrapped and replaced by a new, more powerful body.

Parliamentary inquiry reports

The collapse of Carillion and related implications were investigated by multiple Parliamentary select committees.

Described as "excoriating" and "damning", the final report of the Parliamentary inquiry by the Business and the Work and Pensions Select Committees into the collapse of Carillion was published on 16 May 2018. Its opening paragraph summarised the committees' views:

"Carillion's rise and spectacular fall was a story of recklessness, hubris and greed. Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers. It presented accounts that misrepresented the reality of the business, and increased its dividend every year, come what may. Long term obligations, such as adequately funding its pension schemes, were treated with contempt. Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses. Carillion was unsustainable. The mystery is not that it collapsed, but that it lasted so long."

The report said Carillion's collapse had significant consequences, citing: over 2,000 job losses; a pension liability of around £2.6 billion reducing payments to 27,000 pension scheme members; debts owed to 30,000 suppliers, sub-contractors and other creditors; and £150m in UK Government expenditure to keep essential public services running. Former directors Philip Green, Richard Adam and Richard Howson were singled out for particular criticism. The select committee chairs (Frank Field and Rachel Reeves) called for a complete overhaul of Britain's corporate governance regime, saying the government had "lacked the decisiveness or bravery" to do so, and accused the big four accounting firms of operating as a "cosy club", with KPMG singled out for its "complicity" in signing off Carillion's "increasingly fantastical figures" and internal auditor Deloitte accused of failing to identify, or ignoring, "terminal failings". The report recommended the Government refer the statutory audit market to the Competition and Markets Authority, urging consideration of breaking up the Big Four, while two regulators, the Financial Reporting Council and The Pensions Regulator, were branded as "chronically passive".

The Public Accounts Committee published a report on Government risk assessments relating to Carillion on 23 May 2018. It criticised the government for not identifying that Carillion was financially struggling long before its January 2018 collapse, saying its "traffic light" system of warnings (rating suppliers as green, amber, red, plus black for 'High Risk' status) was "too slow and clunky". Carillion had been downgraded to red following its July 2017 profit warning; when officials recommended a provisional black rating in November 2017, Carillion bosses persuaded them not to.

Accounting investigations

On 29 January 2018, it was reported that Carillion's auditor KPMG would have its role examined by the Financial Reporting Council (FRC). In March 2018, the FRC's conduct committee announced an additional investigation into the conduct of former Carillion finance directors Richard Adam and Zafar Khan, focusing on the preparation and approval of Carillion's financial reports for 2014, 2015 and 2016, and the six months to 30 June 2017, as well as provision of other financial information from 2014 to 2017. Initial interviews had been undertaken by May 2018, with more to follow, and tens of thousands of documents to be reviewed as part of the FRC's investigation looking at 'contract accounting', 'reverse factoring', 'pensions', and 'good and going concern'.

Business secretary Greg Clark told the work and pensions committee on 21 March 2018 that he planned an independent inquiry into the operations of the FRC following Carillion's collapse.

Wider potential impacts on UK industry

Mark Farmer, the author of an October 2016 report calling for industry modernisation, repeated accusations that Carillion and many of its rivals had failed to modernise, innovate or cut down on wasteful inefficiencies in their business models and worksite practices. He also warned that Carillion's collapse could be the first of several if the industry did not overhaul itself. This followed a Financial Times report that the Cabinet Office had established a team to monitor Interserve, another financially troubled firm (though a market analyst said: "in the case of Interserve the arithmetic doesn't look anything like as bad as Carillion") and delayed publication of the March 2017 annual accounts of Laing O'Rourke. Other outsourcing businesses also came under scrutiny; Capita announced a profit warning on 31 January 2018, while Serco and Mitie were called to give evidence to Parliament's Public Administration and Constitutional Affairs Select Committee on 8 May 2018. The following day, Cabinet Office minister David Lidington told the Committee that the government might consider "reputable providers outside of the United Kingdom" to reduce dependency on current suppliers of key public services; revealing that in some key markets, the top five suppliers had nearly 60% of the market, he said: "that does cause some concern, I would like that market to be bigger."

In the wake of Carillion's liquidation, UK contractors trade association Build UK set out an agenda to reform the construction industry's commercial model, potentially eliminating unfair contract terms, late payment and retentions. MP Peter Aldous proposed new legislation to reform payment practices and abuse, gaining support from over 60 construction and maintenance trade bodies; on 23 April 2018, ahead of its second reading (later postponed to 15 June 2018), the Aldous Bill to amend the 1996 Construction Act had gathered the support of over 120 MPs and 76 trade bodies representing over 355,000 companies and many self-employed professionals. The UK government also began consultations on proposals excluding suppliers from major government procurement processes if they cannot demonstrate good payment practices.

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Operations

Carillion provided facilities management services (including cleaning, school meals, hospital maintenance, and defence accommodation - it maintained around 50,000 service family homes in 360 defence establishments), provided architectural and engineering design and project management services (through TPS Consult), and undertook a range of construction projects in sectors including: aviation; central government; commercial, retail, residential and leisure; corporate; defence; education; financial services; healthcare, local government; oil and gas; and transport.

Most of its business was in the United Kingdom, but it also operated in several other regions including Canada, the Middle East and the Caribbean. As of January 2018, the UK Government has been required to provide funding for Carillion's public sector work, which continues despite the company's entry into compulsory liquidiation.

Carillion comprised 326 subsidiary companies, joint ventures (a mix of majority and minority shareholdings) and holding companies, 199 in the United Kingdom, plus others in Canada and other countries. Sarah Albon, chief executive of the Insolvency Service told MPs on 30 January 2018 that Carillion had 169 directors in total but poor Carillion record keeping had made determining that number difficult.

Board of directors

As of 16 January 2018, Carillion plc's board comprised (in order of appointment to board):

• Philip Nevill Green, chairman (director since June 2011)*+
• Andrew Dougal (non-executive director since October 2011)
• Alison Horner (non-executive director since December 2013)*
• Keith Cochrane, interim CEO (director since July 2015)*+
• Sally Morgan, Baroness Morgan of Huyton (non-executive director since July 2017)
• Alan Lovell (non-executive director since November 2017)
• Justin Read (non-executive director since December 2017)

Previous directors included (in order of resignation from board):

• Richard Adam (finance director, appointed April 2007, resigned 31 December 2016)*
• Ceri Powell (non-executive director, appointed April 2014, resigned 31 March 2017)
• One-time CEO Richard Howson (appointed December 2009, resigned 10 July 2017)*+
• Zafar Khan (finance director, 1 January - 10 September 2017)*
  • Emma Mercer (succeeded Khan as finance director in September 2017, but was not a plc board director)*+

(*The directors marked with an asterisk gave evidence to the House of Commons Business and Work and Pensions select committees on 6 February 2018.
+ The directors marked with a cross gave evidence to the Public Accounts Committee on 27 February 2018.)

Problem contracts and prosecutions

In November 2013, Carillion was fined £180,000 plus £28,551 in costs for breaches of health and safety regulations which led to a motorcyclist being completely paralysed in an accident on the A12 in England. The Health and Safety Executive said that Carillion had failed to put up signs to warn motorists of a road closure in good time.

Its subsidiary Clinicenta had a contract to run a treatment centre at Lister Hospital in Stevenage which was terminated in 2013, after the Care Quality Commission found the unit was not meeting minimum standards.

In January 2016, Carillion was fined $900,000 for failing to clear Canada's Queen Elizabeth Way of snow on two occasions following winter storms in November 2015. In October 2016, Carillion's Canadian operation was convicted and fined $80,000 plus a $20,000 victim surcharge by the Government of Ontario for improperly disposing of waste material in an unapproved area.

In November 2016, it was reported that Nottingham University Hospitals NHS Trust planned to end its estates and facilities services contract, awarded in April 2014 to the company, after nurses had been forced to clean the wards because of a shortage of seventy cleaning staff.

src: waterbriefingglobal.org

Major projects

Major projects involving Carillion have included:

• New facilities for the Royal Opera House (completed in 2000)
• The Tate Modern (completed in 2000)
• Darent Valley Hospital in Kent (completed in 2000)
• Star City in Birmingham (completed in 2000)
• The Grand Mosque in Oman (completed in 2001)
• Harplands Hospital in Stoke-on-Trent (completed in 2001)
• The Copenhagen Metro (completed in 2002)
• The Great Western Hospital in Swindon (completed in 2002)
• The de Havilland campus for the University of Hertfordshire (completed in 2003)
• The M6 Toll (completed in 2003)
• Government Communications Headquarters (GCHQ) (completed in 2003)
• Nottingham Express Transit Phase 1 (completed in 2004)
• Marina Towers, Dubai (completed in 2004)
• The Sheppey Crossing (completed in 2006)
• New facilities for the John Radcliffe Hospital (completed in 2006)
• Beetham Tower Manchester (completed in 2006)
• Royal Ottawa Hospital (completed in 2006)
• High Speed 1 (completed in 2007)
• The Riverside Building at the University Hospital Lewisham (completed in 2007)
• Brampton Civic Hospital in Canada (completed in 2007)
• The Great Northern Tower in Manchester (completed in 2007)
• Dubai Festival City Shopping Centre and InterContinental Hotel facility (completed in 2008)
• Aylesbury Vale Parkway (completed in 2008)
• New facilities at the Queen Alexandra Hospital in Portsmouth (completed in 2009)
• The Yas Viceroy Abu Dhabi Hotel in Abu Dhabi (completed in 2009)
• New York University Abu Dhabi (completed in 2010)
• Sault Area Hospital (completed in 2010)
• Redevelopment of Northwood Headquarters (completed in 2010)
• The Royal Opera House Muscat (completed in 2011)
• The Rolls Building in London (completed in 2011)
• London Heathrow Terminal 5C (completed in 2011)
• The London Olympics Media Centre (completed in 2011)
• The Ontario Centre of Forensic Sciences in Toronto (completed in 2012)
• Al Bahr Towers in Abu Dhabi (completed in 2012)
• The Majlis Oman (completed in 2013)
• The Library of Birmingham (completed in 2013)
• Cairo Festival City, Cairo (completed in 2013)
• New facilities for Southmead Hospital in Bristol (completed in 2014)
• Union Station reconstruction, Toronto (completed in 2014)
• Redevelopment of the military garrisons of Aldershot and Salisbury Plain (completed in 2014)
• Oakville-Trafalgar Memorial Hospital in Oakville, Canada (completed in 2015)
• Al Jalila Children's Specialty Hospital in Dubai (completed in 2016)
• The Oman Convention and Exhibition Centre Phase 1 (completed in 2016)
• Liverpool FC's Anfield stadium expansion (completed in 2016)
• One Chamberlain Square, Birmingham city centre (completed in 2017)
• New offices for HM Passport Office, Durham (completed in 2017)
• Redevelopment of Battersea Power Station Phase 1 (completed in 2017)
• Msheireb Downtown Doha Phase 1B in Qatar (completed in 2017)
• Former Sunderland brewery site redevelopment (due to complete in 2018)
• Aberdeen Western Peripheral Route (due to complete in 2018)
• New facilities for Royal Liverpool University Hospital (due to complete in 2018 but a year behind schedule in January 2018)
• Midland Metropolitan Hospital (due to complete in 2019)
• High Speed 2 lots C2 and C3, working as part of a joint venture (main construction work due to start in 2018/9)
• Angel Gardens, Manchester (due to complete in 2019; following Carillion's liquidation in January 2018, the contract was transferred to Caddick Construction)
• Airport City Manchester, working in partnership with Chinese firm Beijing Construction Engineering Group (BCEG) (due to be completed in phases)

src: www.newcivilengineer.com

Awards

In 2008, the company secured first place in the category for large and medium-sized companies with high environmental impact in The Sunday Times Best Green Companies Awards and, in 2017, the company received the Queen's Award for Enterprise in the Sustainable Development category.

src: www.carillion.com

See also

• UK insolvency law
• UK labour law

src: www.rcpbml.org.uk

Notes and references

src: www.carillion.com

External links

• Carillion plc Official site, diverts to PWC
• 2016 Annual report
• Yahoo profile
• Carillion Rail Official site, diverts to PWC

Source of article : Wikipedia