The scandal of Carillion exposed failings in the construction sector’s commercial activities and abuse of the supply chain. Projects across the country halted when the giant collapsed and nearly three years on two major PFI hospitals are still suffering. Rudi Klein, barrister and chief executive of SEC Group considers the impact and warns that it could happen again.
As I was ordering some books from Amazon recently I couldn’t help noticing a new book on Carillion. It had a rather dramatic title: Bandit Capitalism, Carillion and the Corruption of the British State. The book written by Bob Wylie, an ex-BBC journalist, catalogues the rise and fall of a £5 billion turnover company that ended up with just £29 million in its bank account.
It is now almost 2¾ years since the collapse of Carillion, a company which represented all that was dysfunctional in UK construction/infrastructure procurement. For at least 10 years prior to its demise Carillion was technically insolvent with its liabilities far exceeding its assets. Over eight years from December 2009 to January 2018 the total owed by Carillion in loans shot up from £242 million to an estimated £1.3 billion. But, over roughly the same period, it had paid out almost £600 million in dividends, three quarters of the cash it made from its operations!
Carillion was an outsourcer par excellence. It treated its supply chain with “contempt” according to the House of Commons’ Business Select Committee.
Yet public sector procurers kept feeding Carillion with contracts seemingly oblivious to the state of its balance sheet. This was because Carillion was always able to offer the lowest price since it always managed to pass every conceivable risk to its supply chain (which always considered themselves lucky to be paid).
The question I pose is this. Has any public sector decision-maker been “hauled over the coals” for letting contracts to Carillion? Answer: No! Two projects are worth mentioning – the Royal Liverpool and the Midlands Metropolitan Hospitals – “built” by Carillion under PFI/PPP arrangements. Both hospitals suffered major delays and serious defects were discovered in the works at the Royal Liverpool. Yet, those who decided to let these contracts to Carillion have not been called to proper account.
Until we have a robust system for holding to account those responsible for making key procurement decisions relating to large construction/infrastructure projects the prospect of another Carillion-type fiasco is ever present.
Rudi Klein is a barrister and CEO of SEC Group. He was a member of the Carillion Taskforce set up by Greg Clark, the (then) Secretary of State for the Department of Business, Energy and Industrial Strategy.