‘Catastrophic’ losses forecast for Carillion suppliers

The liquidation of Carillion could result in widespread casualties among its suppliers, industry groups have warned.

The Building Engineering Services Association (BESA) and the Electrical Contractors’ Association (ECA) said the collapse of the construction giant could have a “catastrophic” effect on SMEs which worked for the firm.

According to its latest set of accounts, Carillion was holding more than £800m in payments owed to the supply chain. BESA and the ECA said there was “growing alarm that much of this money will be lost leaving many more firms at risk of financial collapse”.

“Carillion’s move into liquidation places their huge supply chain at risk of losing millions of pounds, which will threaten companies and jobs,” said ECA director Paul Reeve. “While this is a clear and present disaster for construction and wider maintenance, the question will ultimately follow, why did Carillion appear so attractive to clients even as they moved towards collapse?”

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Industry umbrella body Build UK said that Carillion’s collapse “raises further serious questions about the construction industry’s business model and Build UK is committed to working with the industry and its clients and investors to learn lessons and embed change through the supply chain”.

Build UK said that it was “in ongoing dialogue with the government, providing information to support its decision making” and was “collating information on the supply chain’s exposure across various sectors”.

“In particular, how much money businesses are owed and what percentage of their total revenue this represents”, it added.

Last week, a draft bill was introduced to Parliament by Peter Aldous, MP for Waveney, seeking to amend the 1996 Construction Act to ensure retention money is held in a deposit protection scheme. 

“The bill was developed precisely with just this kind of nightmare scenario in mind,” said BESA President Tim Hopkinson. “We are aware of the frantic attempts going on behind the scenes to rescue Carillion’s projects and switch them to other contractors, but unless retention money is protected – there is a danger that the problem is just being moved to another place and that SMEs will remain equally vulnerable.”

BESA and ECA have called for a five-point action plan following Carillion’s liquidation:

• Any SME contractors already working on Carillion projects should be allowed to continue on these projects and be paid directly.
• The UK government must actively support the Peter Aldous Bill on retentions and ensure it is allocated enough Parliamentary time to progress.
• Major public sector suppliers like Carillion should be precluded from winning any further contracts unless it can prove it pays its supply chain promptly.
• Major corporate public sector suppliers like Carillion must be made to implement transparent supply-chain payment systems, statutory public sector payment requirements, project bank accounts and no retentions, throughout the supply chain.
• Government must monitor and enforce the public sector 30-day payment supply chain model as opposed to Carillion’s own 126-day payment terms, which leaves thousands of SMEs struggling for cash flow to pay staff and suppliers.