The former head of Carillion has hit back at the findings of a parliamentary inquiry into the company’s collapse.
Richard Howson, former chief executive of the firm, contested claims made in a report by the Work and Pensions Committee and Business, Energy and Industrial Strategy (BEIS) Committee as part of their joint inquiry into why the firm failed.
As well as accusing the inquiry of having “omitted or ignored” significant evidence in the company's favour, Howson criticised the government for the way it procured services and managed contracts and said this contributed to the company's downfall.
In a letter responding to an invitation by the inquiry to comment on the report, Howson said any analysis into the collapse of Carillion was “not complete without looking at the way in which government and the wider public sector procured services… and failed to administer pay”.
Howson said government had “completely underestimated” the size of the estate while tendering the National Offender Management Service contract, which ended up being 60% larger in terms of the number of assets, and left Carillion reliant on change mechanisms in the contract to pay for work done. “Carillion did this and bore the significant additional costs as a result. Despite the fact that Carillion was not being paid for this additional work, it continued to deliver the daily services and pay its own suppliers as it should,” he said.
Howson also blamed government for issues around late payment, and said payment problems started “at the top”. He said government was right to mandate 30-day payment terms but it should be prepared to make its monthly payment applications “holistically” to allow “all parties in the supply chain” to be paid on time.
“Hiding behind spurious disputes around scope, changed or varied works, eligibility for legitimate additional costs or punitive levying of performance penalties, and therefore effectively using its supply chain as a bank, is not acceptable,” he said, adding: “Be under no illusion that this problem starts at the top.”
During its time trading, and subsequently in various inquiries, Carillion was criticised for being a notorious late payer and for using its supplier base as a source of credit.
Hawson also denied claims in the report that the company’s early payment facility (EFP) charged suppliers for early payment. “EPF allowed suppliers to choose when they took payments on approved invoices, which they could do at no cost to themselves on 30 days on government contracts and on 45 days on non-government contracts,” he said. The quoted 120-day payment time was the time contractually agreed to pay EFP partner banks, and not suppliers, he added.
Howson’s letter was published by the joint inquiry alongside other replies received via requests for comment on the report. Former finance director Richard Adam, former interim chief executive Keith Cochrane and former non-executive chairman Philip Green all sent short responses stating a general disagreement with the report’s findings, but none elaborated, citing potential conflicts with other ongoing investigations.
Also published was the response of Bill Michael, chairman and senior partner of KPMG, who contested the report’s characterisation of the auditing firm as being “complacent”. While all the big four auditors worked with Carillion at one point, KPMG was its auditor for 19 years and was criticised in the report as being too close to the company. He added it did not “automatically mean the auditor did a bad job” if a company failed after being issued a clean, unqualified audit, as Carillion did.
Michael also hit back at calls by the inquiry for the competition watchdog to intervene in the auditing market. “We do not share the view that changing the audit market structure is the key to driving up quality but we will, of course, take part in any debate on these complex issues,” he said.
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