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Carillion liquidation: Taxpayers face 'raw deal' as staff urged to keep working - live updates Carillion liquidation: IoD blasts board bonuses as staff urged to keep working - live updates
(35 minutes later)
Update: Cabinet Office minister David Lidington is expected to update MPs on the Carillion crisis at around 4.15pm.
Defence in Parliament update: 3.30pm today - urgent question about the National Security Capability Review. So this will follow defence oral questions at 2.30pm. Government statement on Carillion expected around 4.15pm. https://t.co/eJ3knaOJz2
A spokesman for the RMT rail workers union said it was “almost inevitable” that some trains won’t be cleaned today due to the collapse of Carillion.
That’s due to the problems with its fuel cards (see earlier post)
The company employed train cleaners, who were issued with vans to get from job to job and fuel cards to pay for petrol.
With the company in liquidation, those fuel cards have stopped working, making it impossible for cleaning staff to do their jobs unless they are willing to dip into their own pockets.
If your train carriage on the commute home is filthy this evening, that might be why.
Sam O’Callaghan, solicitor in the construction, energy and projects team at Capital Law, predicts that Carillion’s project portfolio will face “significant” difficulties.
Sub-contractors, consultants, and clients may end up losing out on money that they’re contractually entitled to. Secured creditors (like banks) will be putting their hands in the insolvency pot first.
Every sub-contractor, consultant, or anyone involved in a contractual chain with Carillion should take immediate action – starting by reviewing their contract, or getting their lawyer to do so.”
The Press Association is reporting that fuel cards issued to Carillion workers were rejected at petrol stations this morning.
PA says:
Train cleaners have been told to work normally, but their fuel cards are not working, according to the Rail, Maritime and Transport union.
One cleaner filled up at a petrol station, but the Carillion Fuel Card bounced.
The RMT said it was the start of the “brutal reality” facing Carillion workers.
Conrad Landin of the Morning Star has more details:
.@rmtunion says Carillion cleaners on Arriva Rail North have been told to work as normal this morning - but their fuel cards are not working
One worker has filled up at a petrol station, but after his Carillion fuel card bounced he now has no means of paying for his petrol ⛽️
Frank Field MP, Chair of the Work and Pensions Select Committee, has condemned Carillion for allowing its pension deficit to swell (to at least £580m).
In a statement, Field says tougher rules are needed to prevent firms acting recklessly.
“Carillion took on mega borrowings while its pension deficit ballooned. We called over a year ago for The Pensions Regulator to have mandatory clearance powers for corporate activities like these that put pension schemes at risk, and powers to impose truly deterrent fines that would focus boardroom minds.
“If Government had acted then, the brakes might have been put on Carillion’s massive ramping up of debt and it never would have fallen into this sorry crisis. It seems we have a new case like this every week, and this one is particularly disastrous, with massive job losses and 28,000 current and future pensioners at risk.
I would like to ask the Government today: what more is it going to take?”
Carillion’s collapse is good news for one group -- its rivals.Carillion’s collapse is good news for one group -- its rivals.
Shares in outsourcing group Serco have surged by over 5% this morning, as traders predict that it will pick up some juicy contracts in the aftermath of Carillion’s demise.Shares in outsourcing group Serco have surged by over 5% this morning, as traders predict that it will pick up some juicy contracts in the aftermath of Carillion’s demise.
In the long-term, the loss of Carillion could allow the rest of the sector to push up their prices too.
Connor Campbell of Spreadex says:Connor Campbell of Spreadex says:
Of course there were plenty of vultures in the sector circling the Carillion carrion. Serco Group, which bought £47.7 million in healthcare contracts from the crisis-hit company back in December, jumped 4.5%, while Capita climbed 1% and Interserve rose 2.6%.Of course there were plenty of vultures in the sector circling the Carillion carrion. Serco Group, which bought £47.7 million in healthcare contracts from the crisis-hit company back in December, jumped 4.5%, while Capita climbed 1% and Interserve rose 2.6%.
As chancellor of the exchequer between 2010 and 2016, George Osborne had a tight grip on the nation’s purse strings.As chancellor of the exchequer between 2010 and 2016, George Osborne had a tight grip on the nation’s purse strings.
Now, in his new role as editor of the Evening Standard, Osborne blames the civil service for handing too many contracts to big firms like Carillion.Now, in his new role as editor of the Evening Standard, Osborne blames the civil service for handing too many contracts to big firms like Carillion.
Today’s Standard editorial explains:Today’s Standard editorial explains:
The failure to use a variety of smaller, mid-size companies undermines innovation and leaves services hostage when things go wrong.The failure to use a variety of smaller, mid-size companies undermines innovation and leaves services hostage when things go wrong.
Why was Carillion awarded huge contracts by the civil service, with whom rather than ministers almost all procurement decisions lie after they knew it was struggling last year?Why was Carillion awarded huge contracts by the civil service, with whom rather than ministers almost all procurement decisions lie after they knew it was struggling last year?
Above all, how we will insist — as we must — that shareholders are bailed in before the taxpayer is asked to fund any kind of bailout?Above all, how we will insist — as we must — that shareholders are bailed in before the taxpayer is asked to fund any kind of bailout?
We wait for answers.We wait for answers.
Today’s editorials @EveningStandard on banning plastic straws and the collapse of Carillion https://t.co/PgYlNhR4juToday’s editorials @EveningStandard on banning plastic straws and the collapse of Carillion https://t.co/PgYlNhR4ju
Back in December 2014, Osborne took a tour of a Carillion training centre in Middlesborough, where he learned how to lay bricks and hang a door. Perhaps he could offer his services to those local authorities struggling to replace Carillion today....Back in December 2014, Osborne took a tour of a Carillion training centre in Middlesborough, where he learned how to lay bricks and hang a door. Perhaps he could offer his services to those local authorities struggling to replace Carillion today....
Peter Kitson, Partner at law firm Russell-Cooke, says Carillion may have caused its own demise by pitching its services at an uncompetitively low rate - to win business.Peter Kitson, Partner at law firm Russell-Cooke, says Carillion may have caused its own demise by pitching its services at an uncompetitively low rate - to win business.
”The procurement rules (the Public Contracts Regulations) which govern public sector procurement are central to understanding what has happened here. Almost all Carillion contracts have been competitively tendered under those procurement rules.”The procurement rules (the Public Contracts Regulations) which govern public sector procurement are central to understanding what has happened here. Almost all Carillion contracts have been competitively tendered under those procurement rules.
The rules require public sector clients to investigate and possibly to exclude any tenderer whose bid is ‘abnormally low’. One contributory factor here may be that Carillion has tendered at very low margins, possibly unsustainably low, in order to win these huge volumes of work.The rules require public sector clients to investigate and possibly to exclude any tenderer whose bid is ‘abnormally low’. One contributory factor here may be that Carillion has tendered at very low margins, possibly unsustainably low, in order to win these huge volumes of work.
If such bids have succeeded, that can only mean either than the Regulations themselves are ineffective or that public sector clients lack the confidence or the expertise properly to enforce those rules.If such bids have succeeded, that can only mean either than the Regulations themselves are ineffective or that public sector clients lack the confidence or the expertise properly to enforce those rules.
Following this morning’s announcement, I am sure that many of those public sector clients will be seeking advice on the extent to which those same procurement rules allow short term emergency replacement contracts to be let without formal procurement.”Following this morning’s announcement, I am sure that many of those public sector clients will be seeking advice on the extent to which those same procurement rules allow short term emergency replacement contracts to be let without formal procurement.”
The British Army is reassuring military families that Carillion’s collapse won’t hurt them:The British Army is reassuring military families that Carillion’s collapse won’t hurt them:
The financial situation of Carillion has no direct impact on services provided directly to those working for Armed Forces or their families. Housing will continue to be serviced, catering facilities run, and buildings and offices cleaned.The financial situation of Carillion has no direct impact on services provided directly to those working for Armed Forces or their families. Housing will continue to be serviced, catering facilities run, and buildings and offices cleaned.
Carillion was employed by the government to manage around 50,000 homes used by armed forces personnel and their families.Carillion was employed by the government to manage around 50,000 homes used by armed forces personnel and their families.
Carillion’s collapse will have widespread consequences for local authorities and housing associations across the UK.Carillion’s collapse will have widespread consequences for local authorities and housing associations across the UK.
Andrew Lancaster, partner at Anthony Collins Solicitors, says organisations may face extra costs as they scramble to find new contractors to step in.Andrew Lancaster, partner at Anthony Collins Solicitors, says organisations may face extra costs as they scramble to find new contractors to step in.
While it’s likely some key public sector contracts will be ring-fenced and supported in some way by the government, local authorities and housing associations still need to provide their residents and communities with resilient public services in the coming week. This means back up contractors need to be found immediately, requiring huge amounts of time, resource and additional expenditure.While it’s likely some key public sector contracts will be ring-fenced and supported in some way by the government, local authorities and housing associations still need to provide their residents and communities with resilient public services in the coming week. This means back up contractors need to be found immediately, requiring huge amounts of time, resource and additional expenditure.
“I would urge such organisations to read their contracts’ payment and termination clauses and, crucially, to comply with them to avoid any claims from the liquidator later on for any breach“I would urge such organisations to read their contracts’ payment and termination clauses and, crucially, to comply with them to avoid any claims from the liquidator later on for any breach
Here’s my colleague Dan Sabbagh, reporting from today’s House of Commons lobby briefing on Carillion:Here’s my colleague Dan Sabbagh, reporting from today’s House of Commons lobby briefing on Carillion:
The prime minister’s official spokesman said that some of Carillion 450 public sector contracts could be taken in house, although that was “a decision for further down the line”.The prime minister’s official spokesman said that some of Carillion 450 public sector contracts could be taken in house, although that was “a decision for further down the line”.
However, the contracts for building part of the HS2 rail link would remain in the private sector, he added. Kier and Eiffage, the other two construction partners, had given ministers assurances they could take the work to build the London to Birmingham part of the line without Carillion.However, the contracts for building part of the HS2 rail link would remain in the private sector, he added. Kier and Eiffage, the other two construction partners, had given ministers assurances they could take the work to build the London to Birmingham part of the line without Carillion.
He described the collapse of the company as “very regrettable” and said that ministers had been monitoring the situation since the company’s profits warning in July. Only a “single figure” number of contracts had been let to Carillion since then, including those for the HS2 build, and in the case of joint ventures assurances had been sought in all circumstances.He described the collapse of the company as “very regrettable” and said that ministers had been monitoring the situation since the company’s profits warning in July. Only a “single figure” number of contracts had been let to Carillion since then, including those for the HS2 build, and in the case of joint ventures assurances had been sought in all circumstances.
Number 10 added there would be no significant extra costs in servicing contracts held by the collapsed company bar paying for the expenses of the Official Receiver which has taken control of the firm.Number 10 added there would be no significant extra costs in servicing contracts held by the collapsed company bar paying for the expenses of the Official Receiver which has taken control of the firm.
There were no plans for an official inquiry into the company’s collapse beyond an already announced investigation to be held by the receiver whose job it is to ‘investigate the cause of failure’.There were no plans for an official inquiry into the company’s collapse beyond an already announced investigation to be held by the receiver whose job it is to ‘investigate the cause of failure’.
The Institute of Directors has issued a stinging rebuke to Carillion’s top executives and directors over its pay policies.
Roger Barker, head of corporate governance at the IoD, is particularly alarmed that the company changed its bonus rules to protect top bosses.
Today’s outcome suggests that effective governance was lacking at Carillion, and we must now consider if the board and shareholders have exercised appropriate oversight prior to the collapse.
“There are some worrying signs. The relaxation of clawback conditions for executive bonuses in 2016 appears in retrospect to be highly inappropriate. It does no good to the reputation of UK business when top managers appear to benefit in spite of the collapse of the organisations that they are responsible for.
Those bonus changes meant that money could only be clawed back if Carillion misstated its results or if an executive committed gross misconduct.
Lord Adonis - who earlier suggested Carillion could be a British Enron - says the government should consider taking its contracts back into state control.
It may be best value for the government to take over public sector contracts, rather than hand them to other companies who will demand a “King’s Ransom”, Adonis tells Sky News.
That might be an ideological switch for the Conservative government, but Adonis insists that they have a duty to protect the taxpayer.
Carillion’s shocking collapse should trigger a full review of the privatisation of public services in the UK, says Guardian columnist Simon Jenkins:
What the Carillion saga demonstrates is the rampant indiscipline in the contracts themselves. The company’s demise is attributable to favouritism, cost escalation, excessive risk, obscene remuneration and reckless indebtedness. Carillion and its bankers clearly thought it too big to fail. Whitehall behaved accordingly. It was like a pre-2008 bank.
There must now be a review of how privatisation is working. Its so-called parastatal companies are not true private entities. They depend on the state, and the state depends on them. Their lobbyists develop an unholy relationship with ministers and officials – witness the uncontrolled revolving door between Whitehall and the boardrooms.
Lee Causer, partner at accountancy firm Moore Stephens, predicts that Carillion’s failure will have “huge ramifications” across the construction sector.
He expects contracts to be delayed, and some suppliers to go bust.
“Many of Carillion’s suppliers will have automatically assumed that a group the size of Carillion would be rescued. Therefore, many will not have prepared for its collapse and will struggle to get alternative contracts in place.
“The failure of Carillion will inevitably lead to disruption across the supply chain, and financial turmoil for sub-contractors who relied on business from Carillion.
“Its collapse could trigger a number of insolvencies across the construction sector, in an industry that already experiences the highest levels of insolvency per year in the UK.”
Professor John Colley of Warwick Business School says Carillion was sunk by two serious mistakes:
Too many contracts were taken at poor margins and terms, which prevented any subsequent profitability under competitive pressure. Some were allocated during the recession when it was win work at all costs.
“The other key issue is project accounting, which tends to recognise losses late in the project, effectively when the project starts to run out of money. There will no doubt be serious retrospective scrutiny of the accounting.
Sarah Beale, chief executive at the Construction Industry Training Board (CITB), fears that Carillion’s apprentices could soon be out of work.
She is pushing the Official Receiver to support Carillion’s trainees:
“The news of Carillion entering insolvency is clearly a significant blow to the UK construction sector. While this will present the sector with a number of challenges, CITB’s priority is to do all it can to ensure that Carillion apprentices can continue their training so their skills are not lost.
“We have established a project team to work with the apprentices and will be offering in principle grant and apprenticeship transfer incentives to our employer base in order to retain these learners.
Newsflash: Theresa May’s spokesman is briefing journalists about Carillion’s collapse.
He says it is ‘regrettable’ that Carillion couldn’t find the funding required to keep operating, but taxpayers can’t be expected to bail it out
But he also confirms that some costs will be incurred from the liquidation, as the government will cover the costs of the Official Receiver.
He says the HS2 high-speed rail project is not at risk, and will be delivered.
Some Carillion contracts may have to be taken back in house "further down the line" says the PM's official spox. But not HS2, which the other contractors will take on.
Carillion’s army of workers are suffering a ‘terribly time’ today, says UNISON general secretary Dave Prentis.
“Staff need assurances about whether they have a job, who will pay their wages, and what’s going to happen to their pensions.
“The government needs to move quickly to bring these contracts back in-house – to safeguard our services and to protect the many staff in schools, hospitals, local authorities and libraries.
“It’s disgraceful that Carillion was lining the pockets of its shareholders, even though the company’s future was increasingly uncertain.
Prentis also fears that taxpayers will pick up the bill for the company’s failure.
“Crucial public services have been put at risk, and the taxpayer is going to be stuck picking up the bill for yet another failed privatisation experiment.
“Carillion holds key contracts across the health service – with the current winter pressures, staff shortages and underfunding, further uncertainty puts the NHS in a precarious position.”