Cabinet minister David Lidington has defended the Government’s decision to award contracts worth more than £2bn to Carillion after the crisis-hit construction firm had issued a series of profit warnings last year.
The news comes as Number 10 held a Cobra committee meeting on 15 January to discuss the crisis and thousands of jobs hang in the balance.
Public sector rescue but private sector jobs at risk
The Government has made an open-ended commitment to ensure the delivery of public sector contracts in what could amount to a bill of hundreds of millions of pounds for the taxpayer.
Through the Official Receiver, the Government plans to continue to make payments to Carillion’s workers, suppliers and sub-contractors delivering public sector contracts.
Those working on private sector contracts face tense days ahead as no such commitment was made outside of a 48-hour ‘period of grace’.
‘Private sector employees will not be getting the same protection we offer to public sector employees beyond a 48-hour period of grace, during which the government will sustain the Official Receiver to give time for the private sector counterparties to Carillion to decide whether they want to accept termination of those contracts or themselves to pay for the ongoing costs. I think that is a reasonable gesture.’
Around 20,000 people are employed by Carillion in the UK, with 62% of its revenue coming from the private sector.
Investigation and monitoring
In a statement to the House, Mr Lidington confirmed that there would be an investigation into how Carillion collapsed, including examination of the behaviour of past and present directors, under the statutory obligations of the Official Receiver tasked with managing the insolvency.
He warned than those who had been involved could face ‘severe penalties’.
Elsewhere, Britain’s Public Administration and Constitutional Affairs Committee is launching a new inquiry following Carillion’s liquidation called: ‘Sourcing public services: lessons to be learned from the collapse of Carillion.’
Mr Lidington said: ‘We have been monitoring Carillion closely since its first profit warning in July 2017 and since then have planned extensively in case of the current situation and have robust and deliverable contingency plans in place.’
The majority of contracts awarded to Carillion after July 2017 ‘were joint ventures where the other companies are now contractually bound to take on Carillion’s share of the work’ he said and cited Kier as one company that had already released a statement saying it was ready to take on the extra work.
‘There are a number of tests of financial capability for potential contractors. At the time at which all of those contracts post July-2017 were bid for and awarded, Carillion had met all of the those mandated tests and therefore it would have been, to put it mildly, a legal risk to have treated Carillion any different to other bidders,’ the minister said.
However he added that ‘in light of what was in the public domain about the profit warning those government departments responsible for such contracts made sure there were arrangements, such as the joint venture provision, that gave protection in the event of Carillion being unsuccessful in their attempt to secure agreement with their bankers.’
Shadow cabinet minister Jon Trickett pointed out that the company had three CEOs in a short space of time and three separate profit warnings. He accused the Government of failing to act on information in the public domain, and pointed out that short selling on Carillion shares – betting against the company in the City – went back to 2015.
He asked why, if it had been monitoring the situation closely, did the Government ‘leave the position of crown representative observing Carillion vacant for more than three months?’
The Department for Transport left with ‘questions to answer’
Mr Trickett said the Department for Transport (DfT) in particular has questions to answer. DfT awarded Carillion a place on a £1.4bn HS2 contract just days after its first profit warning.
When questioned directly by Transport Network the DfT did not reveal how many contracts it had with Carillion as a single contractor and refused to answer questions on why it awarded Carillion the extra work after the profit warning.
It also made no comment to Carillion’s fellow contractors, like Balfour Beatty, that now expect to lose money as a result of the collapse.
A DfT spokeswoman said: ‘In terms of what will happen to contracts with Carillion, our agencies are now activating their contingency plans to move key work and projects to other suppliers where possible, and ensure any impact is kept to a minimum. This is a complex situation, and each contract will be dealt with on a case-by-case basis.
‘In relation to your subsequent questions, HS2 has carried out additional due diligence and sought re-assurance of both it and its two partners in the joint venture – Kier and Eiffage – that they remained committed and able to deliver the contract.
‘Each company’s boards have both given that assurance and confirmed that they underwrite the performance of each other in delivering the contract. And that is the key point. HS2, of course, will continue to monitor the situation. Following additional checks, we are also confident that, even without Carillion, Kier and Eiffage would still be capable of passing the relevant financial capability and standing tests.’
Mr Lidlington said he expected some of Carillion’s contracts to go to other suppliers while some would be renationalised.
‘The Government will be in discussions with the Official Receiver about the future provision of those services. I belive we will end up with a situation in which some our transferred to an external alternative contrtactor but some are taken in-house by the government department or other agency of government.