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Large UK Construction Firm Financially Collapses

Wednesday, January 17, 2018

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The United Kingdom’s government is doing damage control after one of the largest construction and outsourcing firms financially collapsed on Monday (Jan. 15), prompting unions to call for an investigation and leaving some subcontractors left to wonder if they’ll be getting paid.

Carillion, a firm based in Wolverhampton, Midlands, employs 43,000 people worldwide and is responsible for construction efforts ranging from roads and pipelines to hospitals and schools. It’s also responsible for maintenance of prisons and military housing and even school lunches in some areas.

What Went Wrong?

Over the past year, the company had issued three profit warnings, signaling that the values of contracts that it had in the U.K., as well as the Middle East and Canada, were dwindling. On top of that, the company had debts of £1 billion ($1.4 billion) and a £600 million pension deficit.

Over the weekend, talks with Carillion’s lenders failed after the government refused to provide a £20 million bailout. (That money, in addition to swapping debt for shares, would have convinced the banks to give the rest of the funds needed to stay afloat.)

So, on Monday, a liquidation process began. Shareholders will not get anything, reports say, and the fate of some of the firm’s more high-profile projects, as well as workers, hangs in the balance even though many of the newer contracts were built with contingency plans in place in case Carillion were to go under.

In addition to the liquidation, unions have called for an inquiry into the company’s collapse, which the government has since said will be expedited.

“Given £2 billion worth of government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the government’s handling of this matter,” said Jon Trickett, the shadow Cabinet Office minister, according to The Guardian.

Accountancy firm PwC is handling the selling of assets and remaining money. The pending investigation will look into the behaviors of past and present executives, who are suspected of protecting their own bonuses as imminent company failure became inevitable. Accounts and auditors are also being investigated.

“This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years,” company chairman Philip Green said.

“Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future. In recent days, 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.”

What Happens to all the Work?

The Guardian reports that a spokesperson for the prime minister said that some of the company’s 450 public sector contracts could be taken in house, but that’s not confirmed.

One of the bigger projects, parts of the HS2 rail link, are remaining in the private sector and will be completed by the two other partners on the project, Kier and Eiffage.

Carillion was the lead contractor in public-private projects for Royal Liverpool University and Metropolitan Midland hospitals.

The West Midlands mayor has reportedly set up a taskforce to assist Carillion suppliers and subcontractors to find new contractors for projects such as these.

   

Tagged categories: Business conditions; Business matters; Business operations; Finance; Jobs

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