There are fears that the situation could drag many other smaller companies down due to unpaid invoices
Crisis hit construction giant Carillion, one of the government's most important contractors, holding around 450 government contracts. Last week, the company fell into liquidation, after several days of tense negotiations, with its board saying that it had â€œno choice but to take steps to enter into compulsory liquidation with immediate effectâ€™â€™. The situation seems to influence the future of hundreds of major projects and thousands of jobs, as Carillion employs some 46,000 people worldwide, of which 20,000 are in the UK. It also holds major contracts for building schools, the HS2 rail link, prisons, the NHS, the Royal Liverpool University Hospital and the Library of Birmingham. Among the projects, there was the maintenance of 50,000 homes on military bases and the serving of school meals. However, for over a year now, Carillion has been suffering a meltdown with its shares having dropped 90%, it has issued profit warnings, and itâ€™s on to its third chief executive within six months. Now, Ministers are facing questions about how much the liquidation will cost taxpayers and the government has asked the Insolvency Service to fast-track an investigation into the conduct of the companyâ€™s directors, in order to understand the reasons that led to liquidation.
It is strange though how the situation was allowed to become so serious, because if Carillion goes under, the future of major infrastructure projects is unknown. Not to mention the huge chain of suppliers that will be harmed; as many as 30,000 UK businesses were owed in the region of Â£1bn in unpaid invoices, putting thousands of jobs and pensions at risk. The Building Engineering Services Association (BESA) and the Electrical Contractorsâ€™ Association (ECA) said the collapse of the construction giant could have a â€œcatastrophicâ€ effect on SMEs which worked for the firm and that there was â€œgrowing alarm that much of this money will be lost leaving many more firms at risk of financial collapseâ€. â€œCarillionâ€™s move into liquidation places their huge supply chain at risk of losing millions of pounds, which will threaten companies and jobs,â€ said ECA director Paul Reeve. â€œWhile this is a clear and present disaster for construction and wider maintenance, the question will ultimately follow, why did Carillion appear so attractive to clients even as they moved towards collapse?â€ Just to mention that landscaping and horticultural services company Flora-tec is owed almost Â£1m by Carillion for work carried out in November and December at schools, hospitals, prisons and courts. â€œWeâ€™ve got a profitable business but we canâ€™t trade out of a black hole of Â£1m,â€ the companyâ€™s managing director Andy Bradley said, adding that he felt â€œduped and betrayedâ€ by the government, which handed Carillion new contracts despite the company issuing two profit warnings last summer.