Carillion: A reminder of how and why a giant fell

15/01/2019
Dom Browne

Carillion's collapse led to the largest ever trading liquidation in UK history. We give a quick recap on the what, how and why behind it.

The collapse

  • On 10 July Carillion 2017 announced that its contracts were worth £845m less than stated in its accounts. Share prices collapsed.
  • On 29 September 2017 a further profit warning of an additional £200m meant that Carillion’s losses in 2017 wiped out the company’s previous seven years of profits. A further profit warning was issued in December 2017.
  • On 13 January 2018 the firm made a final request to the Government for £160m, including £10m immediately. The Government refused and two days later the company was in liquidation.

The size of the collapse

When it stopped trading Carillion had around 450 government contracts, in everything from roads to local authority civil engineering, to civil aviation and prisons. 

Its fall has cost the taxpayer in excess of £150m at least, and that is in direct costs, according to Unite.

Accountants PwC have been paid in excess of £50m to act as ‘special managers’ to break up the company, make workers redundant and transfer outsourced contracts to new providers.

At the time of its final collapse Carillion had total liabilities of £7bn,including £2.6bn of pension liabilities, and just £29m left in the bank

It directly employed 19,000 workers with an additional 35,000 people working for the company via sub-contractors and supply chain. Build UK, the leading representative organisation for the construction industry, has suggested that Carillion’s supply chain involved 30,000 companies. 

Failing contracts

Some have said the firm was effectively insolvent since at least 2016, as it continued to chase work at the lowest prices to cover existing problems, putting more risk onto its books. 

Unite has given the example of the Royal Liverpool Hospital project, which was projected to make Carillion a 5.5% profit. However a peer review of the project indicated a loss of 12.7%, making the company’s accounts £53m worse.

This contract fell behind schedule, cracks appeared in concrete beams and claadding was revealed to be unsafe and did not meet fire safety standards.

Some have suggested it could cost £100m to put the problems right - a sum the hospital trust has not rejected. The initial contract to build the hospital was for £325m.

Failing leadership

The accounting issues around the firm's failure have also raised concerns, with furious unions calling for a public inquiry and criminal investigations.

Putting the most forgiving interpretation on the situation, the board seem to have been paralysed by the fear of the frightening the market and therefore felt unable to take action. 

In 2013 a review of the firm's pension scheme found that the various Carillion schemes had deficits of £439m, and the triennial review for December 2016 was expected to identify a deficit of £990m. However the board declined to make substantial payments to bring down this debt.

Despite this, the firm continued to pay dividends to shareholders and pay increases, including major ones to bosses.

Chief executive Richard Howson received basic pay increases of 8% in 2015 and 9% in 2016 and chair Philip Green saw his fees increase by 10% in 2016, with his salary increasing from £193,000 to £215,000.

The workforce received a 2% pay increase of just in 2016.

In 2017 shareholders were awarded a record dividend of £79m, £55m of which was paid in June, just a month before Carillion’s first profit warning. This in a year when EY were brought in to analyse the precarious financial situation and suggest remedies.

In mid-December 2017, EY gave two options to the board.

1) break up the firm and sell off the profitable parts, placing the rest of the company into liquidation to generate £364m to pay into pension funds or debts

2) involuntary liquidation with little or no money for creditors, pensioners and administrators.

The board rejected EY’s advice and allowed Carillion to collapse.

Failing accounting

Unite reports that Carillion’s 2016 balance sheet was propped up by £1.6bn (35% of the entire company’s assets) of 'goodwil' - described as 'an intangible asset which includes a company brand and the workforce’s skills and experience'. 

Carillion’s accounts also included considerable amounts of construction revenue that was ‘trade not certified’ - revenue that clients had not yet signed off and so there was no guarantee it would ever be secured.

Companies could be paid earlier through Carillion’s early repayment facility (EPF) which was provided by the banks; however, this meant it did not receive 100% of what it was owed.

According to Unite, this amounted to an additional financial liability to the banks of £498m, placing further pressure on struggling margins. 

Highways jobs

Senior Structures Engineer

Kent County Council
£33,678 per annum
We are looking to recruit a Senior Structures Engineer to provide engineering support for maintenance of highway structures, liaising and... Kent
Recruiter: Kent County Council

Contracts and Strategy Manager

Royal Borough of Greenwich
£42684 - £45585 per annum
The Directorate of Communities & Environment prides itself on the service it provides to the residents of Royal Greenwich. We are looking to recruit s England, London, Greenwich
Recruiter: Royal Borough of Greenwich

Regeneration Delivery Manager - Heritage Action Zone

Royal Borough of Greenwich
£42684 - £45585 per annum
(Fixed Term Opportunity until March 2024)Woolwich town is undergoing a period of intensive regeneration with huge investment in new housing, transport England, London, Woolwich
Recruiter: Royal Borough of Greenwich

Senior Local Engineer

Birmingham City Council
£27,741 - £34,728
The Senior Local Engineer role is to provide technical service at senior level to Local Engineering teams Birmingham, West Midlands
Recruiter: Birmingham City Council

Traffic & Transportation Engineer

Conwy County Borough Council
£41,881 - £44,863 per annum
You should have a degree or diploma in civil engineering or other relevant discipline, and extensive experience in... North Wales
Recruiter: Conwy County Borough Council

Principal Development Co-ordinator

Gloucestershire County Council
£33,799.00 - £38,813.00 + 12% MRS
Leading on the review of Major Development Proposals. Gloucester, Gloucestershire
Recruiter: Gloucestershire County Council

Highways Development Management (HDM) Manager

Gloucestershire County Council
£53,445.00 - £58,008.00 + MRS
To oversee all aspects of Highways Development Management from pre application discussions to road adoption. Gloucester, Gloucestershire
Recruiter: Gloucestershire County Council

Principal Development Engineer

Gloucestershire County Council
£33,799.00 - £38,813.00 + 12% MRS
You will be responsible for undertaking design audit of third party developer works under Section 38 and 278 of the Highways Act 1980. Gloucester, Gloucestershire
Recruiter: Gloucestershire County Council

Director of Environment

Southwark London Borough Council
Up to £136,000
A fairer future for all A fairer future for all Southwark, London (Greater)
Recruiter: Southwark London Borough Council

Director of Public Health

Southwark London Borough Council
Up to £136,000
A fairer future for all Southwark, London (Greater)
Recruiter: Southwark London Borough Council

Parks Development Officer

Kirklees Metropolitan Council
£26,999 - £29,636 per annum
You will work with community groups, organisations, ward members, residents and colleagues in order to... Kirklees, West Yorkshire
Recruiter: Kirklees Metropolitan Council

Head of Infrastructure & Facilities

East Riding of Yorkshire Council
circa 100k
We are seeking a Head of Infrastructure & Facilities to lead the strategic management of the service in a unique and exciting opportunity for a... Beverley, East Riding of Yorkshire
Recruiter: East Riding of Yorkshire Council

Senior Professional and Technical Officer – Project Manager

Bristol City Council
£32,910 - £34,728
We are seeking to appoint a Project Manager, to work in the Transport Service, to help support the delivery of the above plans. Bristol
Recruiter: Bristol City Council

Skilled Road Worker (TRR)

London Borough of Richmond upon Thames and London Borough of Wandsworth
£26,025 - £31,536 depending on knowledge, skills and experience
Do you want to be part of a supportive team and use an innovative method of working on the highway? London (Greater)
Recruiter: London Borough of Richmond upon Thames and London Borough of Wandsworth

Executive Officer

London Borough of Richmond upon Thames and London Borough of Wandsworth
£26,025 - £34,479 depending on skills
Are you looking for an opportunity within a friendly and supporting team? London (Greater)
Recruiter: London Borough of Richmond upon Thames and London Borough of Wandsworth

Assistant Director of Transport & Sustainability

Royal Borough of Greenwich
£93,098 - £102,841
This dynamic role will see you provide strategic leadership to our transport strategy Greenwich, London (Greater)
Recruiter: Royal Borough of Greenwich

Highways Customer Communications Officer

North Yorkshire County Council
£27,741 to £30,451
We are looking for a strong communicator to join our Highways Team in Boroughbridge.   Boroughbridge, York
Recruiter: North Yorkshire County Council

Street Cleaning Operative / Driver

Barnet London Borough Council
Competitive Salary
We are looking for hard working, motivated, reliable people to join our team. Barnet (City/Town), London (Greater)
Recruiter: Barnet London Borough Council

Senior Network Support Engineer

The Royal Borough of Kensington & Chelsea Council
£36,600 - £49,600 per annum
We are looking for an experienced Senior Networks Support Engineer to provide up to date... Kensington and Chelsea, London (Greater)
Recruiter: The Royal Borough of Kensington & Chelsea Council

Group Engineer Highway Development Management

Wakefield Council
£42,683.00 to £45,591.00
We are looking for an enthusiastic, committed, and experienced highway engineer to join and manage our successful Highways team. Wakefield, West Yorkshire
Recruiter: Wakefield Council

Highways on Fridays

Register now!

Latest Issue

latest magazine issue
  • Shell celebrates 100 years of bitumen
  • Why we need to be more strategic about safety
  • Major reforms aim to close cycling gap
View the latest issue

Latest Video