Carillion Construction Company's Rise and Fall

Carillion Construction Company's Rise and Fall was a remarkable story of growth and ultimate collapse. Carillion was founded in 1999 through the merger of Tarmac and Balfour Beatty's construction businesses.

The company quickly expanded its operations, becoming one of the UK's largest construction companies. By 2015, Carillion had a turnover of £4.9 billion and employed over 43,000 people worldwide.

Carillion's success was built on its ability to deliver large-scale infrastructure projects, including the construction of the Channel Tunnel Rail Link. However, the company's financial troubles began to mount in the mid-2010s.

Carillion's debt had grown to £1.5 billion by 2017, and the company was struggling to meet its financial obligations.

Worth a look: Philippine National Construction Corporation

Carillion was a massive operation with a wide range of services, including facilities management, architectural and engineering design, and construction projects.

The company maintained around 50,000 service family homes in 360 defence establishments, which is a staggering number of properties. It also provided school meals, hospital maintenance, and defence accommodation services.

Curious to learn more? Check out: Defence Industries Corporation of Nigeria

Carillion operated in many sectors, including aviation, central government, commercial, and education, among others. Its business was primarily based in the United Kingdom, but it also had a presence in Canada, the Middle East, and the Caribbean.

Carillion was a complex organization with 326 subsidiary companies, joint ventures, and holding companies, including 199 in the UK and others in Canada and other countries.

Carillion made a significant acquisition in September 2001, buying 51% of GT Rail Maintenance to create 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 £11.5M.

Carillion went on to acquire Planned Maintenance Group for circa £40M in March 2005.

It acquired Mowlem for circa £350M in February 2006 and Alfred McAlpine for £572M in February 2008.

In October 2008, Carillion bought Vanbots Construction in Canada for £14.3M.

Carillion bought Eaga, an energy efficiency business, for £306M in April 2011.

However, by December 2011 the UK Government had significantly reduced the feed-in tariffs for green energy and Carillion had to rationalise the business.

In December 2012, it acquired a 49% interest in The Bouchier Group for £24m.

Carillion bought the facilities management business of John Laing in October 2013.

The company attempted to merge with rival Balfour Beatty in August 2014, but the bid was unanimously rejected.

Carillion acquired a 60% stake in Rokstad Power Corporation, a Canadian transmission and distribution business, for £33M in December 2014.

In May 2015, Carillion acquired 100% of the Outland Group, a specialist supplier of camps and catering at remote locations in Canada.

It also acquired a majority stake in Ask Real Estate, a Manchester-based developer, in January 2016.

Additional reading: Philippine Business Bank

Main contractors Balfour Beatty and Galliford Try were jointly liable for additional cash contributions on highway projects, with Balfour Beatty estimating a cost of between £35M and £45M across three schemes.

Related reading: Balfour Beatty

Balfour Beatty's liabilities on the Aberdeen project rose by a further £23M, and were forecast to reach £135M in August 2018.

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.

Powerlines bought Carillion's 50% stake in their rail electrification JV, safeguarding 300 jobs.

KBR acquired Carillion's interests in relation to the Project Allenby Connaught PFI deal as part of their joint venture with Aspire Defence.

Amey completed the acquisition of Ministry of Defence housing maintenance contracts previously run in joint venture with Carillion in August 2018.

Emaar and Al-Futtaim Group acquired Carillion's stake in Dubai's Emrill, a facilities management company founded in 2002, in September 2018.

Arlington Real Estate completed the acquisition of Carillion's 50% interest in the Durham Gate mixed-use regeneration projects south of Durham in October 2018.

Curious to learn more? Check out: Terra Venture Partners

30,000 subcontractors and suppliers were directly impacted by Carillion's liquidation.

Their businesses were affected, and they were left to deal with the consequences of Carillion's collapse.

Carillion's liquidation announcement had an immediate impact on these suppliers, who were left to navigate the aftermath.

The liquidation announcement also affected joint venture partners and customers in the UK, Canada, and other countries.

The board of directors plays a crucial role in a company's operations. Philip Nevill Green has been the chairman since June 2011.

As of January 2018, the board comprised seven members. Andrew Dougal has been a non-executive director since October 2011.

The board has undergone changes over the years. Alison Horner joined as a non-executive director in December 2013.

Here's a list of the board members as of January 2018:

Richard Adam served as the finance director from April 2007 to December 2016.

Carillion provided facilities management services, including cleaning, school meals, hospital maintenance, and defence accommodation, with a focus on maintaining around 50,000 service family homes in 360 defence establishments.

The company also offered architectural and engineering design and project management services through its subsidiary TPS Consult.

Carillion undertook a range of construction projects across various sectors, including aviation, central government, commercial, retail, residential, and leisure.

It operated in the United Kingdom, but also had a presence in Canada, the Middle East, and the Caribbean.

Carillion comprised 326 subsidiary companies, joint ventures, and holding companies, with 199 of them located in the United Kingdom.

The company had a total of 169 directors, but poor record keeping made it difficult to determine this number.

The UK Government was required to provide funding for Carillion's public sector work from January 2018, which continued despite the company's entry into compulsory liquidation.

Carillion was a major player in the construction industry, with a wide range of high-profile projects under its belt. The company's portfolio included the redevelopment of the Royal Opera House, which was completed in 2000.

Some of Carillion's most notable projects include the Tate Modern, Darent Valley Hospital, and Star City in Birmingham, all of which were completed in 2000. These projects showcase the company's ability to deliver complex and high-profile projects on time and on budget.

Carillion also worked on the Copenhagen Metro, which was completed in 2002. This project demonstrates the company's expertise in delivering large-scale infrastructure projects.

Here are some of the key details of Carillion's major projects:

These projects demonstrate Carillion's ability to deliver complex and high-profile projects across a range of sectors.

Carillion faced significant challenges in its business operations, particularly in the area of cost overruns on public sector construction contracts.

One notable example is the £350m Midland Metropolitan Hospital in Sandwell, which was delayed due to difficulties with the heating, lighting, and ventilation systems.

The project's original opening date was set for October 2018, but it was pushed back to spring 2019.

The £335m Royal Liverpool Hospital was another project that faced significant delays, with its completion date repeatedly pushed back amid reports of cracks in the building.

The project was initially due to be finished by March 2017, but it's still ongoing.

A £745m Aberdeen bypass project, being built by a consortium that includes Balfour Beatty and Morrison Construction alongside Carillion, was also plagued by problems.

One key stretch was due to open a year earlier, but it was delayed due to slow progress in completing initial earthworks.

The consortium was slapped with a £280,000 penalty for polluting two of Scotland's most important salmon rivers.

If this caught your attention, see: Campus Consortium

Carillion had £900 million in debt and a £587 million pension deficit by the time it went bankrupt.

The company's debts and pension obligations far outweighed its value, which had dropped to £61 million by Friday, down from £2 billion in 2016.

Carillion's lenders, including Santander UK, HSBC, and Barclays, were reluctant to lend it more cash, and the company's banks incurred heavy losses on loans to Carillion.

Royal Bank of Scotland, HSBC, Santander, Lloyds, and Barclays had provided £140 million of emergency loans to Carillion in September 2017.

Carillion's collapse cost Barclays £127 million, and Santander revealed a £60 million impairment charge attributed mainly to Carillion.

A fresh viewpoint: Banco Santander Sa

Carillion had a massive £900 million in debt by the time it went bankrupt.

The company's financial woes were sparked by payment delays from Middle East contracts and taking on too many unprofitable projects.

By 2017, Carillion was already in trouble, having announced it was losing money and its debts were rising.

In the subsequent five months, it issued two more profit warnings, making it clear that the company was struggling to stay afloat.

Carillion's debts and pension obligations outweighed its value, leading to a £61 million market capitalization by Friday, down from £2 billion in 2016.

The company's banks, including Santander UK, HSBC, and Barclays, were reluctant to lend it any more cash.

Carillion was unable to reach a deal with the government and its lenders for a bail-out, leading to its eventual bankruptcy.

The company's £587 million pension deficit was a significant contributor to its financial difficulties.

Carillion's lenders incurred heavy losses on loans to the company, with Royal Bank of Scotland (RBS) revealing a £127 million loss attributed to Carillion's collapse.

Consider reading: 2018 Russian Pension Protests

Employees often struggle with financial issues due to a lack of transparency and communication from their employers.

Many employees don't understand their company's financial situation, which can lead to misconceptions and anxiety.

According to the article, 70% of employees feel that their company's financial struggles are not being transparently communicated.

This lack of transparency can lead to decreased trust and morale among employees.

Companies can improve financial literacy among employees by providing regular updates and explanations of financial decisions.

In fact, 60% of employees want to learn more about their company's financial situation, but are not being given the opportunity.

Employees who feel informed and involved in their company's financial decisions tend to be more engaged and productive.

Carillion's liquidation had a profound impact on many people and businesses. The company went into liquidation on January 15, 2018, after issuing 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 liquidation announcement affected 30,000 subcontractors and suppliers, Carillion employees, apprentices, and pensioners, plus shareholders, lenders, joint venture partners, and customers in the UK, Canada, and other countries. This was a devastating blow to these individuals and businesses.

Carillion's collapse led to a small number of redundancies at law firm RPC, which had a construction and projects team that was impacted by the company's collapse. This is just one example of how Carillion's liquidation had a ripple effect on other businesses.

The Official Receiver estimated the total liabilities of the 27 liquidated UK companies at £6.9 billion, a figure over three times higher than given in Carillion's accounts at the end of 2016. This staggering amount gives an idea of the scale of Carillion's financial problems.

In total, 91 Carillion companies had been liquidated by the end of 2018. This includes six UK Carillion businesses, including Carillion plc and Carillion Construction Ltd, which were liquidated in the first phase.

Here's a breakdown of the number of Carillion companies that went into liquidation in the UK:

The National Audit Office published an investigation into Carillion's collapse in June 2018, criticizing the government for not spotting financial problems sooner.

The report highlighted that accountants and lawyers managing the liquidation were set to earn £70M in fees, with PwC alone set to receive £50M.

The collapse was forecast to cost the UK taxpayer £148M, but later estimates put the cost at over £150M, potentially £180M.

Frank Field and Rachel Reeves, chairs of the Parliamentary select committees enquiry, responded to the NAO report, with Field viewing PwC's involvement as a potential conflict of interest.

Reeves said the Big Four firms, including PwC, make a killing in fees advising struggling companies and then pocket millions tidying up when their advice fails.

In August 2018, PwC billed £20.4M in fees during the first eight weeks of the insolvency, charging an average of £356 an hour.

Parliamentary Investigations are a crucial tool for uncovering the truth. They allow lawmakers to scrutinize government actions and hold those in power accountable.

In the UK, parliamentary investigations are typically led by select committees, which have the power to summon witnesses and gather evidence. These committees are made up of MPs from different parties, ensuring a balanced and impartial approach.

The Public Accounts Committee, for example, has the power to investigate government spending and recommend improvements. They have a strong track record of identifying waste and inefficiency.

The UK's parliamentary system is designed to promote transparency and accountability, with investigations often leading to significant changes in policy or practice.

The National Audit Office published a scathing report in June 2018, criticizing the government for not spotting financial problems at Carillion sooner. The report highlighted that accountants and lawyers managing the liquidation were set to earn £70M in fees, with PwC alone expected to receive £50M.

The government's inaction was seen as a major contributor to the collapse, which was forecast to cost the UK taxpayer £148M. Later estimates put the cost at over £150M, potentially as high as £180M.

PwC's involvement in managing the liquidation was viewed as a potential conflict of interest by some. The firm billed for £20.4M in fees during the first eight weeks of the insolvency, charging an average of £356 an hour.

Former Auditor-General Sir John Bourn likened Carillion to a Ponzi scheme, while criticizing government scrutiny as "inadequate".

In November 2020, 143 former Carillion staff, supported by Unite, argued that they were not properly consulted on the redundancy process.

Their plea for compensation was rejected at an Employment Appeal Tribunal.

The tribunal's decision was upheld by an appeal judge in January 2022.

Some individuals sought support to bring a class action against the former directors in spring 2021.

A different take: Superannuation Complaints Tribunal

Carillion's involvement with the government was a significant aspect of its business. The company was awarded a number of large government contracts, including a £6.9 billion PFI deal to manage and maintain 14 hospitals in the UK.

Carillion's government contracts were not without controversy, however. The company was criticized for its handling of a £328 million contract to build a new justice centre in Wales.

The company's government contracts were not the only significant aspect of its business, as it also had a strong presence in the private sector, particularly in the construction and facilities management industries.

Carillion's collapse had a significant impact on 30,000 subcontractors and suppliers in the UK, Canada, and other countries, including employees, apprentices, pensioners, shareholders, lenders, joint venture partners, and customers.

The government's outsourcing practices came under scrutiny, with some SMEs claiming they were misled by the government's association with Carillion. This highlights the importance of responsible behavior in government procurement.

The Crown Commercial Service, established around five years ago, was designed to closely monitor key suppliers for signs of financial weakness. This included Carillion, which was one of the select group of suppliers subject to close financial monitoring.

However, despite this capability, Carillion's collapse raises questions about why this didn't work out. This may be due to the vulnerability of these schemes to political interference and rapid entropy.

The constant rotation of officials means that knowledge and expertise can be easily lost, making it challenging to maintain effective oversight. This was noted in the article, which mentioned that the government had stopped sending officials to London Business School to learn about commercial skills.

Carillion was revealed as a subscriber to an illegal construction industry blacklisting body, The Consulting Association (TCA), in 2009.

This involvement was mainly due to its previous ownership of Crown House Engineering, which was acquired by Laing O'Rourke in 2004, and previous use of TCA by Mowlem, which was 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.

Carillion's collapse will likely cause massive disruption to public services due to its large supplier role. Thousands of jobs are at risk as unions urge the government to safeguard workers' jobs and bring contracts back in house.

The government has praised Carillion's work on projects like Crossrail, but now faces the challenge of maintaining public services run by the firm. Analysts say Carillion had a large order book of business lined up, but it's unclear who will pick up its loss-making public contracts.

The government has promised to provide funding to maintain public services, but it's unclear how this will work in practice. Unions are pushing for the government to take over contracts, but it's unclear what this would mean for the public sector.

Intriguing read: Central Illinois Public Service Company