The UK’s second biggest construction company Carillion has gone into liquidation with the Government pledging to step in to deliver its public sector contracts.
Crisis talks between the firm, its lenders and the government failed to reach a deal to save the giant, which is involved in major projects such as the Highways England smart motorway programme and HS2.
It is also the second biggest supplier of maintenance services to Network Rail and maintains schools and homes for the public sector.
The firm is reported to have run into trouble after losing money on big contracts and running up huge debts of some £1.5bn, this includes a £600m pension deficit.
One of the key contracts that led to Carillion’s demise was the £745m Aberdeen bypass, which is being built by the Aberdeen Roads Ltd consortium, a joint venture that includes Balfour Beatty and Morrison Construction alongside Carillion.
It is due to open in spring 2018 but one key stretch was due to open a year earlier and has suffered delays because of slow progress in initial earthworks. The consortium was also hit with a £280,000 penalty on for polluting two of Scotland’s most important salmon rivers.
Cabinet minister David Lidington announced the government will continue to deliver all public sector services following the insolvency of Carillion PLC and sought to reassure anxious staff, however he added there would be no bailout for the entire firm.
All employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do.
It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company.
Since profit warnings were first issued in July, the Government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business. We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality. It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been keep our essential public services running safely.”
Following profit warnings and share collapses, the last straw in the saga could have come early this year when it was announced Carillion was being investigated by the Financial Conduct Authority (FCA) in connection with statements it made over a seven-month period leading up to the removal of its then chief executive last year.
While the firm had a large order book and is reported to have been given more time to pay off its debts, it struggled to secure any more lending from its banks.
Balfour Beatty has announced it faces a hit of up to £45m from the collapse of Carillion. The company is in a joint venture with Carillion on three projects: the Aberdeen Western Peripheral Route, the A14 in Cambridgeshire and the M60 Junction 8 to M62 Junction 20 scheme.
The firm said it will continue to work with its customers and will meet its contractual commitments.
Kier Group was also in partnership with Carillion through a joint venture on HS2 and the Highways England smart motorways programme.
In a statement it said, “We have put in place contingency plans for each of these projects and are working closely with clients so as to achieve continuity of service.
“Following today’s announcement and after a short period of transition for these contracts, we do not expect there to be an adverse financial impact on the Group arising from these joint venture contracts.”