UK politics: Quick View - Construction giant Carillion collapses

Content Type
Country Data and Maps
Institution
Economist Intelligence Unit
Abstract
No abstract is available.
Topic
Politics, News Analysis, Forecast, Political stability
Political Geography
United Kingdom

Event

On January 15th Carillion, the UK's second-largest construction and outsourcing firm, went into liquidation after rescue talks involving the government, the company and its creditors failed. The company is contracted to manage hundreds of public-sector projects and provide crucial public-sector services related to schools, hospitals and prisons, and employs almost 20,000 people in the UK.

Analysis

The impact of Carillion's collapse will be far-reaching. The big five UK banks are creditors to the company, which has estimated debts of about £900m (US$1.2bn) and a pension deficit worth almost £600m, which will now be managed by the Pension Protection Fund (PPF). David Lidington, the cabinet office minister, has provided assurances that the government will continue to pay Carillion's estimated 11,000 staff in the public sector. Its private-sector employees, who number more than 8,400, will be paid by the government for a 48-hour grace period while Carillion's private-sector counterparties decide whether to terminate their contracts. Work on some big projects, such as the Royal Liverpool Hospital, has been stopped.

Mr Lidington has said that shareholders and creditors, rather than tax-payers, will bear most of the costs associated with ensuring that public services are not disrupted. However, the episode has raised serious questions about the government's due diligence; Carillion was awarded government contracts worth almost £2bn (US$2.8bn) during the second half of 2017 (including a contract with joint venture partners to work on the High Speed 2 rail network), despite having issued the first of three profit warnings in July that led to the resignation of its chief executive and a collapse. Rather than signifying a lack of financial oversight, it is thought that the government awarded the contracts to Carillion to support its survival. However, that a "crown representative" was reportedly not brought in to help the company to improve its performance-the usual procedure when a government supplier is in financial trouble-has led some to accuse the government of carelessness.

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