Carillion announced its insolvency after a weekend of crisis talks ©Carillion PLC
Carillion announced its insolvency after a weekend of crisis talks ©Carillion PLC

Government defends Carillion contracting decisions

15 January 2018

The government said it will continue to deliver all public sector services after major contractor Carillion announced its insolvency.

The firm, which holds contracts across Whitehall, announced its compulsory liquidation this morning after failing to secure financial support. The courts have appointed an official receiver and accountancy firm PwC has been appointed as special manager.

Carillion was struggling under an estimated debt of £900m and had reported a pension deficit of £571m. It issued three profit warnings in 2017: in July, September and November. The news followed a weekend of crisis talks between the government and the firm. Its collapse threatens the jobs of around 20,000 UK employees as well as thousands more internationally.

The government said it will provide the necessary funding required to maintain public services and David Lidington, minister for the Cabinet Office, told all Carillion employees to continue going to work as their wages would be paid. 

Labour’s shadow business secretary Rebecca Long-Bailey criticised the government’s decision to award contracts worth £2bn to the firm even after it had issued profit warnings, and called for Carillion contracts to be brought back in house. Speaking on BBC Radio 4’s Today programme, she said: “There needs to be a seamless provision of services and that can only happen if the government brings these contracts back in house.”

Long-Bailey also called for a transparent investigation into why the government appeared to have not followed its own risk management policies.

“[Carillion was awarded contracts] despite it being government policy to designate a company high risk if it issues a profit warning. In such cases the government was expected to reconsider awarding additional contracts and develop an improvement plan. None of this appears to have happened,” she said.

Defending the decision to award Carillion further contracts despite its financial problems, Lidington, speaking separately on the Today programme, said there were “rules on the type of information” government could consider when awarding contracts.

He said contracts awarded after the profit warnings were only won as part of joint ventures (JVs) where the other JV partners would guarantee the provision of services. Departments that contracted Carillion after its profit warning “did so with the legal confidence in the structure of that contract that the public service would be protected and would continue… if any of those [joint venture] contractors got into trouble”.

He also said government would continue to pay for public services through the official receiver “as they are received” but that it would not bail out Carillion. “As we go forward, some services will be taken in house, some services will go out to other contractors in a managed, orderly fashion,” he said. There would not be any quick fire sale of assets, he added. 

Philip Green, chairman of Carillion, said: “Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future… 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.”

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