Carillion plc is a British multinational facilities management and construction services company headquartered in Wolverhampton in the United Kingdom.
The company experienced financial difficulties in 2017, and went into compulsory liquidation on 15 January 2018, the most drastic procedure in UK insolvency law. Prior to its liquidation, it was the second largest construction company in the United Kingdom, listed on the London Stock Exchange, and had some 43,000 employees (around 20,000 of them in the United Kingdom).
In the United Kingdom, the insolvency has caused project shutdowns, job losses (in Carillion - 989 UK redundancies up to 12 February 2018 - and its suppliers), and potential financial losses to Carillion's 30,000 suppliers and 28,500 pensioners. It has also led to questions and parliamentary enquiries about the conduct of the firm's directors and auditors, and about the UK Government's relationships with major suppliers working on Private Finance Initiative (PFI) schemes and other privatised provision of public services.
PFI projects in Ireland have also been suspended, while four of Carillion's Canadian businesses sought legal bankruptcy protection.
Video Carillion
History
Foundation
Carillion was created in July 1999, following a demerger from Tarmac, which had been founded in 1903. Tarmac focused on its core heavy building materials business, while Carillion included the former Tarmac Construction contracting business and the Tarmac Professional Services group of businesses.
The name 'Carillion', a corruption of the word 'carillon' (a peal of bells), was intended to give the construction business a clearly defined, separate identity, and to distance it from its construction roots. It was proposed by London branding consultancy Sampson Tyrell (later Enterprise IG, part of WPP).
Acquisitions
Under CEO John McDonough (formerly at Johnson Controls, and appointed Carillion CEO in 2000), Carillion expanded into the facilities management services sector.
In September 2001, Carillion acquired the 51% of GT Rail Maintenance it did not already own, thereby creating Carillion Rail. Carillion Rail carried out track renewals on the rail network, and contract work for Network Rail.
In August 2002, Carillion bought Citex Management Services for £11.5 million and, in March 2005, it acquired Planned Maintenance Group for circa £40 million. After that, Carillion went on to acquire two more United Kingdom support services firms: Mowlem, for circa £350 million in February 2006, and Alfred McAlpine, for £572 million in February 2008. Then, in October 2008, Carillion bought Vanbots Construction in Canada for £14.3 million.
Carillion bought Eaga, an energy efficiency business, for £306 million in April 2011, and in December 2012, it acquired a 49% interest in The Bouchier Group, a company providing services in the Athabasca oil sands area, for £24m. Then, in October 2013, the company bought the facilities management business of John Laing.
In August 2014, the company spent several weeks attempting a merger with rival Balfour Beatty. Three offers were made; the last bid, which valued Balfour Beatty at £2.1 billion, was unanimously rejected by the Balfour Beatty board on 19 August 2014. Balfour refused to allow an extension of time for negotiations that could have prompted a fourth bid. Carillion announced later that day that it would no longer pursue a merger with its rival.
In December 2014, Carillion acquired a 60% stake in Rokstad Power Corporation, a Canadian transmission and distribution business, for £33 million. Carillion acquired 100% of the Outland Group, a specialist supplier of camps and catering at remote locations in Canada, in May 2015 and a majority stake in Ask Real Estate, a Manchester based developer, in January 2016.
Blacklisting involvement
In 2009, Carillion was revealed as a subscriber to an illegal construction industry blacklisting body, The Consulting Association (TCA), though its inclusion on the list was mainly due to its previous ownership of Crown House Engineering (acquired by Laing O'Rourke in 2004), and previous use of TCA by Mowlem (acquired by Carillion in 2006). Carillion made two voluntary submissions to the House of Commons' Scottish Affairs Select Committee, one in September 2012, and another in March 2013, relating to its involvement with TCA.
In July 2014, Carillion was one of eight businesses involved in the 2014 launch of the Construction Workers Compensation Scheme, though this was condemned as a "PR stunt" by the GMB union, and described by the Scottish Affairs Select Committee as "an act of bad faith". As one of the contributors to the scheme, Carillion reported in August 2016 "a non-recurring operating charge of £10.5 million" representing the compensation and associated costs it expected to pay. In December 2017, Unite announced that it had issued High Court proceedings against 12 major contractors including Carillion.
Financial difficulties
On 10 July 2017, Carillion issued a trading update that referred to a £845 million impairment charge in its construction services division, mainly relating to three loss-making UK PFI projects and costs arising from Middle East projects. Chief executive Richard Howson (appointed CEO in December 2011) stepped down but was retained as operations director, with Keith Cochrane temporarily becoming CEO (Carillion's search for a new CEO led to the appointment of Andrew Davies, CEO of Wates - announced on 27 October 2017 - with Davies set to join the firm in April 2018).
As a result, the contractor was demoted from the FTSE 250 Index, and five directors (including Howson and finance director Zafar Khan) left the company as it tried to close a refinancing deal. On 27 September 2017, a Middle Eastern firm was said to be considering a takeover bid. Two days later, it was revealed that Carillion's losses for the six months ended 30 June 2017 totalled £1.15 billion, following a further write down of £200 million, this time in its support services division.
In dialog with investors in September 2017, Keith Cochrane stated that in his view, the business had accepted too many projects which had turned out unprofitable and for which the amount paid was insufficient for the cost of work done ("we were building a Rolls Royce but only getting paid to build a Mini"), and its management structure and internal organisation had been over complex and lacking sufficient regard to contractual risk assessment and overly optimistic assumptions, and that as a result the company had "burned through cash" in trying to deliver to a high standard without assessing the possible implications. In January 2018, The Times commented that its problems were not a secret and had been known for around four years, with too many poorly managed contracts, delays to works, and monies withheld by clients.
On 24 October 2017, it was reported that Carillion was preparing to sell its healthcare facilities management business to Serco (the deal included 15 contracts, with annual revenues of approximately £90m for which Serco was to pay £47.7m - later cut to £29.7m - with Carillion losing £1bn from the value of its order book), and was planning to dispose of its Canadian operations to help shore up its finances. A week later, it was announced Carillion was selling its interest in developer Ask Real Estate to West Midlands developers Richardsons Developments for £14 million. In December 2017, the Richardsons also acquired Carillion's interest in the Milburngate development in Durham.
In a further profit warning, on 17 November 2017, Carillion said it would breach banking covenants the following month, with full year debts set to reach up to £925m. A recapitalisation plan was to be implemented in early 2018. The company's share price fell over 50% in early trading to just 18p - valuing the business at £73m. Unite the Union sought urgent talks with the company, concerned about the future of around 1,000 Carillion workers plus others employed by subcontractors and agencies. On 20 December, Carillion announced it had brought forward the arrival of new CEO Andrew Davies to 22 January 2018.
On 3 January 2018, it was reported that the UK Financial Conduct Authority was to investigate the timeliness and content of Carillion announcements from December 2016 regarding its financial situation. Ten days later, the BBC reported that the company had "a matter of days" to avoid collapse and that Carillion was the subject of "high level government meetings".
These meetings continued throughout the weekend of 13-14 January--covering the company's £900m debts, a £580m pension deficit, and many ongoing contracts for government departments--but broke up without a rescue deal agreed, with a potential administration process set to start on 15 January 2018. The Financial Times later reported Carillion had just £29m in cash when it collapsed, and would have run out of cash by 18 January 2018. Consultants PricewaterhouseCoopers (PwC) and EY had both rejected roles as administrators amid concerns they would not be paid.
Liquidation
Around 7 a.m. on 15 January 2018, the BBC reported Carillion was to go into liquidation (as opposed to administration), the company having issued a notice to the London Stock Exchange "that it had no choice but to take steps to enter into compulsory liquidation with immediate effect". The notice anticipated an application to the High Court for PwC to be appointed as Special Managers, to act on behalf of the Official Receiver. Carillion chairman Philip Green said:
This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years. [...] 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. We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers.
Six Carillion businesses, including Carillion plc and Carillion Construction Ltd, were liquidated in the first phase. On 19 January, Carillion (AMBS) Limited was placed in provisional liquidation, and on 25 and 26 January 2018 ten further companies went into liquidation.
Impacts of liquidation
Industry impacts
The liquidation announcement had an immediate impact on Carillion employees and pensioners, 30,000 subcontractors and suppliers, plus joint venture partners and customers in the UK, Canada and other states. Main contractors Balfour Beatty and Galliford Try (partners on three highway projects) were now jointly liable for additional cash contribution totalling between £60m and £80m; Balfour Beatty estimated a cost of between £35m and £45m, while Galliford Try sought to raise £150m and cut its dividend to support its balance sheet claiming Carillion's collapse had "increased the group's total cash commitments on the project by in excess of £150m". Subcontractors were also said to be vulnerable: the Specialist Engineering Contractors Group said Carillion's failure could lead to many smaller firms going under. Up to 30,000 small businesses were reportedly owed money by Carillion, who used 'delay tactics' and withheld payments to suppliers, sometimes for as long as 120 days.
Within 24 hours, equipment hire firm Speedy Hire and piling contractor Van Elle were reporting potential losses of £2m and £1.6m respectively; Van Elle also reported uncertainty relating to £2.5m worth of future work for Network Rail. A survey of 133 companies by the Building Engineering Services Association and the Electrical Contractors' Association found that 80 of them were collectively owed £30 million by Carillion, an average exposure of £375,000. Average debts owed to micro businesses (fewer than 10 employees) were £98,000; medium-sized businesses (50 to 249 employees) were owed on average £236,000, with the most exposed firm owed almost £1.4 million. Only £31m of the estimated £1bn-plus owed by Carillion was covered by trade credit insurance.
On 29 January 2018, CCP, a Slough-based dry lining contractor with a 350-strong site-based labour force, called in liquidators due to debts owed by Carillion.
A week after the liquidation, the Official Receiver's managers, PwC, agreed with Network Rail that Carillion Construction employees to its projects would have their wages guaranteed through to at least mid April 2018, while Carillion suppliers on Network Rail projects would also be paid.
150 Carillion workers employed on motorway joint ventures with Kier were set to become Kier employees; 51 Carillion employees working on seven HS2 civil engineering packages awarded to the CEK joint venture were offered the opportunity to join Kier/Eiffage. Nationwide Building Society took on around 250 former Carillion employees engaged in facilities management work at its offices and branches. Around 1,000 Carillion staff engaged on prison facilities management work for the Ministry of Justice were transferred to a new government-owned company, while 22 workers from Carillion's power network business joined J Murphy & Sons.
In early February 2018, private equity groups Greybull Capital, Brookfield and Endless were said to be interested in acquiring parts of Carillion that might be ringfenced for auction. On 8 February, PwC opened bidding for Carillion's rail division and several of the company's road maintenance and facilities management contracts. Canadian FM firm BGIS, a subsidiary of Brookfield, negotiated to take on 2,500 workers engaged on UK hospital, education, justice, transport and emergency services contracts.
Liquidator PwC began staff consultations over planned redundancies and transfers to further new employers. On 2 February 2018, the Official Receiver announced an initial 377 redundancies; a further 452 redundancies were announced on 5 February, 101 on 8 February and 59 on 12 February, bringing the redundancy total to 989. In parallel, 6,668 jobs had been safeguarded through transfers. Staff made redundant claimed PwC did not provide information necessary for them to claim redundancy pay and statutory notice pay, causing financial hardship and threatening mortgages.
Outside the UK, the completion and handover of six schools being constructed under PFI arrangements in Ireland was also suspended following Carillion's liquidation, with Irish suppliers fearing non-payment of Carillion debts. Four of Carillion's Canadian businesses sought protection from creditors under the Companies' Creditors Arrangement Act by an Ontario court so that the businesses, employing 6,000 people and including maintenance contracts in hospitals and roadways plus public-private partnership construction of hospitals, could continue. On 5 February 2018 Fairfax Financial announced it had taken over several Carillion Canada facilities management contracts, with over 4,500 Carillion Canada employees joining Fairfax; the deal excluded highway maintenance contracts in Ontario and Alberta.
Political impacts
There were immediate calls for a public inquiry from politicians and financial analysts in the United Kingdom. On 16 January 2018, the UK government ordered a fast track investigation into the directors at the construction firm to look into possible misconduct. Carillion's auditor KPMG will have its role examined by the Financial Reporting Council.
The company's liquidation raised political questions about the award of UK Government contracts to a financially-troubled business, and about Private Finance Initiative projects and wider privatisation of public services. At Prime Minister's Questions on 17 January 2018, Labour leader Jeremy Corbyn challenged Prime Minister Theresa May over Carillion, asking why over £2bn of contracts had been awarded to Carillion even after the company had issued three profit warnings.
Transport Secretary Chris Grayling faced calls to resign, having awarded a major HS2 rail contract to Carillion in July 2017.
Particular concerns were raised about the National Health Service where 14 hospital trusts had relied on Carillion services and where construction of two major hospital PFI projects - the new Royal Liverpool University Hospital and the Midland Metropolitan Hospital in Birmingham - faced shutdowns and further delays. The British Medical Association and Labour Shadow Health Secretary Jon Ashworth were among those who called for urgent action following Carillion's collapse.
The UK Government established a Carillion task force, including representatives from business, construction trade associations, trade unions, lenders and government, chaired by Business Secretary Greg Clark. On 18 January 2018, Clark welcomed the creation of a £225 million fund established by HSBC, Royal Bank of Scotland and Lloyds Bank to support suppliers, particularly SMEs, affected by Carillion's insolvency; a further £100m of lending was offered by the state-owned British Business Bank. Around 30,000 suppliers were reported to be owed approximately £1 billion.
MPs began an investigation into Carillion's pension deficit, amid suggestions that The Pensions Regulator and the firm's pension trustees failed to act after the 2017 profit warnings, putting pensions at risk. Carillion operated 13 UK pension schemes, with around 28,500 members, of whom over 12,000 already received pensions. Despite initial estimates of a £587m deficit, reports suggested the true figure could be between £800m and £2.6bn; on 29 January 2018, Frank Field, chair of the Work and Pensions Select Committee accused Carillion of trying to "wriggle out" of pension payments, resulting in a £990m deficit. Pensions advisers were said to have repeatedly warned that Carillion was prioritising shareholder dividends over the funding of its pension scheme.
Carillion directors, trustees of the company's pension scheme, and the Financial Reporting Council were summoned to appear before the House of Commons Business, and the Work and Pensions Select Committees on 30 January and 6 February. The two select committees also wrote to the 'Big 4' financial services firms KPMG, EY, PwC and Deloitte, asking for detailed accounts of services offered to Carillion, its subsidiaries and pension scheme since 2008, and what fees were received. At 30 January hearing, Frank Field asked the FRC's head Stephen Hadrill whether the 'Big 4' should be broken up in the wake of Carillion's collapse. On 13 February, the 'Big 4' were described by Field as "feasting on what was soon to become a carcass" after collecting fees of £72m for Carillion work during the years leading up to its collapse.
In 6 February hearings, Carillion directors blamed the company's collapse on problem contracts (including two hospital PFI projects - in Liverpool and Birmingham - with cost overruns), high levels of debt arising from the 2011 acquisition of Eaga, plus Brexit, the 2017 General Election and interest rates. The company also claimed it was owed £200m in relation to the Msheireb Downtown Doha project in Qatar - former CEO Richard Howson said he felt like "a bailiff" in chasing the debt - though the claim was subsequently disputed by Msheireb Properties, with the Qataris prepared to testify to the Parliamentary committee. MPs on the two select committees also discussed documents showing that Carillion investor Standard Life had expressed concerns over the company's financial management, strategy and corporate governance in 2015. After the session, committee chairs Frank Field and Rachel Reeves said:
"This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong. We heard variously that this was the fault of the Bank of England, the foreign exchange markets, advisers, Brexit, the snap election, investors, suppliers, the construction industry, the business culture of the Middle East and professional designers of concrete beams. Everything we have seen points the fingers in another direction - to the people who built a giant company on sand in a desperate dash for cash."
Mark Farmer, the author of an October 2016 report calling for industry modernisation, repeated accusations that Carillion and many of its rivals had failed to modernise, innovate or cut down on wasteful inefficiencies in their business models and worksite practices. He also warned that Carillion's collapse could be the first of several if the industry did not overhaul itself. This followed a Financial Times report that the Cabinet Office had established a team to monitor Interserve, another financially troubled firm (though a market analyst said: "in the case of Interserve the arithmetic doesn't look anything like as bad as Carillion") and delayed publication of the March 2017 annual accounts of Laing O'Rourke.
Maps Carillion
Operations
Carillion provided facilities management services (including cleaning, school meals, hospital maintenance, and defence accommodation - it maintained around 50,000 service family homes in 360 defence establishments), provided architectural and engineering design and project management services (through TPS Consult), and undertook a range of construction projects in sectors including: aviation; central government; commercial, retail, residential and leisure; corporate; defence; education; financial services; healthcare, local government; oil and gas; and transport.
Most of its business was in the United Kingdom, but it also operated in several other regions including Canada, the Middle East and the Caribbean. As of January 2018, the UK Government has been required to provide funding for Carillion's public sector work, which continues despite the company's entry into compulsory liquidiation.
Carillion comprised 326 subsidiary companies, joint ventures (a mix of majority and minority shareholdings) and holding companies, 199 in the United Kingdom, plus others in Canada and other countries. Sarah Albon, chief executive of the Insolvency Service told MPs on 30 January 2018 that Carillion had 169 directors in total but poor Carillion record keeping had made determining that number difficult.
Board of directors
As of 16 January 2018, Carillion plc's board comprised (in order of appointment to board):
- Philip Nevill Green, chairman (director since June 2011)*
- Andrew Dougal (non-executive director since October 2011)
- Alison Horner (non-executive director since December 2013)*
- Keith Cochrane, interim CEO (director since July 2015)*
- Sally Morgan, Baroness Morgan of Huyton (non-executive director since July 2017)
- Alan Lovell (non-executive director since November 2017)
- Justin Read (non-executive director since December 2017)
Previous directors included (in order of resignation from board):
- Richard Adam (finance director, appointed April 2007, resigned 31 December 2016)*
- Ceri Powell (non-executive director, appointed April 2014, resigned 31 March 2017)
- One-time CEO Richard Howson (appointed December 2009, resigned 10 July 2017)*
- Zafar Khan (finance director, 1 January - 10 September 2017)*
(* The directors marked with an asterisk gave evidence to the House of Commons Business and Work and Pensions select committees on 6 February 2018.)
Problem contracts and prosecutions
In November 2013, Carillion was fined £180,000 plus £28,551 in costs for breaches of health and safety regulations which led to a motorcyclist being completely paralysed in an accident on the A12 in England. The Health and Safety Executive said that Carillion had failed to put up signs to warn motorists of a road closure in good time.
Its subsidiary Clinicenta had a contract to run a treatment centre at Lister Hospital in Stevenage which was terminated in 2013, after the Care Quality Commission found the unit was not meeting minimum standards.
In January 2016, Carillion was fined $900,000 for failing to clear Canada's Queen Elizabeth Way of snow on two occasions following winter storms in November 2015. In October 2016, Carillion's Canadian operation was convicted and fined $80,000 plus a $20,000 victim surcharge by the Government of Ontario for improperly disposing of waste material in an unapproved area.
In November 2016, it was reported that Nottingham University Hospitals NHS Trust planned to end its estates and facilities services contract, awarded in April 2014 to the company, after nurses had been forced to clean the wards because of a shortage of seventy cleaning staff.
Awards
In 2017, the company received the Queen's Award for Enterprise in the Sustainable Development category.
Major projects
Major projects involving Carillion have included:
- New facilities for the Royal Opera House (completed in 2000)
- The Tate Modern (completed in 2000)
- Darent Valley Hospital in Kent (completed in 2000)
- Star City in Birmingham (completed in 2000)
- The Grand Mosque in Oman (completed in 2001)
- The Copenhagen Metro (completed in 2002)
- The Great Western Hospital in Swindon (completed in 2002)
- The M6 Toll (completed in 2003)
- Government Communications Headquarters (GCHQ) (completed in 2003)
- Marina Towers, Dubai (completed in 2004)
- The Sheppey Crossing (completed in 2006)
- New facilities for the John Radcliffe Hospital (completed in 2006)
- Beetham Tower Manchester (completed in 2006)
- Royal Ottawa Hospital (completed in 2006)
- High Speed 1 (completed in 2007)
- Brampton Civic Hospital in Canada (completed in 2007)
- Dubai Festival City Shopping Centre and InterContinental Hotel facility (completed in 2008)
- Aylesbury Vale Parkway (completed in 2008)
- New facilities at the Queen Alexandra Hospital in Portsmouth (completed in 2009)
- The Yas Viceroy Abu Dhabi Hotel in Abu Dhabi (completed in 2009)
- New York University Abu Dhabi (completed in 2010)
- Sault Area Hospital (completed in 2010)
- Redevelopment of Northwood Headquarters (completed in 2010)
- The Royal Opera House Muscat (completed in 2011)
- The Rolls Building in London (completed in 2011)
- London Heathrow Terminal 5C (completed in 2011)
- The London Olympics Media Centre (completed in 2011)
- The Majlis Oman (completed in 2013)
- The Library of Birmingham (completed in 2013)
- Cairo Festival City, Cairo (completed in 2013)
- New facilities for Southmead Hospital in Bristol (completed in 2014)
- Union Station reconstruction, Toronto (completed in 2014)
- Oakville-Trafalgar Memorial Hospital in Oakville, Canada (completed in 2015)
- Al Jalila Children's Specialty Hospital in Dubai (completed in 2016)
- Liverpool FC's Anfield stadium expansion (completed in 2016)
- One Chamberlain Square, Birmingham city centre (completed in 2017)
- New offices for HM Passport Office, Durham (completed in 2017)
- Msheireb Downtown Doha Phase 1B in Qatar (completed in 2017)
- Former Sunderland brewery site redevelopment (due to complete in 2018)
- Aberdeen Western Peripheral Route (due to complete in 2018)
- New facilities for Royal Liverpool University Hospital (due to complete in 2018 but a year behind schedule in January 2018)
- Midland Metropolitan Hospital (due to complete in 2019)
- High Speed 2 lots C2 and C3, working as part of a joint venture (main construction work due to start in 2018/9)
- Angel Gardens, Manchester (due to complete in 2019; following Carillion's liquidation in January 2018, the contract was transferred to Caddick Construction)
- Airport City Manchester, working in partnership with Chinese firm Beijing Construction Engineering Group (BCEG) (due to be completed in phases)
See also
- UK insolvency law
- UK labour law
References
External links
- Carillion plc Official site, diverts to PWC
- 2016 Annual report
- Yahoo profile
- Carillion Rail Official site, diverts to PWC
Source of article : Wikipedia
0 Comments