Irish contractors here warned each other about Carillion
Some leading Irish construction sub-contractors in London and the UK put the word out among themselves “four or five years ago” not to do business with Carillion because of unconscionable delays in paying invoices, industry sources told the Irish World this week.
Carillion, one of the UK government’s biggest contractors, collapsed, threatening the jobs of more than 43,000 employees as well as hundreds of subcontractors and smaller businesses. The Wolverhampton-based company owes more than £900m in debts and has a £587m pension deficit.
Private equity companies began to short Carillion when they learned it was routinely taking 120 days or more to pay invoices.
The London Irish Construction Network’s Frank O’Hare said: “there was a meeting or conference at the Embassy of Ireland back when Bobby McDonagh was Ambassador about four or five years ago when this first came up and the word went around.
“Everybody in this business talks to everybody else.”
He said there would be a special meeting of the Construction Network to see if any of its members are or will be affected by the repercussions of the collapse of the UK’s second biggest construction and services firm which was spun out of the original Tarmac company.
Sean Fitzpatrick who set up his civil engineering and facilities firm VGC, based in Ruislip, nearly 40 years ago said: “It’s been an open secret in the industry for quite a long time that they were having difficulties. It will cause disruption in the short term but I am sure other contractors will come in and renegotiate.”
His £75m VGC employs directly, and indirectly, some 1400 people and has been involved in every major civil engineering project in the past few decades.
“We haven’t had anything to do with Carillion since we did some work on the East London line four or five years ago, that was a joint venture with Balfour Beatty,” he said.
Asked directly if his company had avoided doing any work for Carillion he replied: “Yes, we would have avoided doing work with them.”
“Since the economic crisis a lot of companies took contracts at very tight margins or even negative margins to get the work. There have been a lot of major projects, Crossrail was huge and there’s been the Smart Motorways but there are signs that a few of the more recent major projects have been delayed or slow to start,” he said of the industry. “It’s very unfortunate. I feel sorry for the staff and everybody else who are going to be directly affected by the liquidation.”
Jacqui O’Donovan, MD of O’Donovan Waste, said her own company “is too far down the supply chain to be directly affected” and she did not immediately know of companies that would be hurt by the Carillion collapse.
She said that in London especially continuing uncertainty over Brexit was slowing down the construction industry.
“We are living in uncertain times, London is so unique but it is holding back and this uncertainty is affecting the industry which is very disappointing,” she said.
A ring around of several mid-sized Irish contractors and sub-contractors, all of whom asked not to be named or directly quoted, said they had not been affected. Some did not return calls but are not thought, as yet, to be directly affected either.
“But it is inevitable that there will be Irish guys with companies affected by this, like everybody else, when you think how many Irish are in the business,” said the Mayo owner of one large firm with projects in central London.
About 28,000 members of Carillion’s 13 UK pension schemes will now be transferred to the Pension Protection Fund, the lifeboat for collapsed companies. Pension scheme members who are transferred to the PPF and not yet retired will receive 90 per cent of the pension they were expecting, up to a cap.
Members already receiving their pensions will continue to receive 100 per cent of their benefits but may receive lower annual increases. The pension that a surviving spouse could inherit may also be smaller.
The Carillion pension scheme will be one of the largest the PPF has had to take over.
In 2017, the company estimated its pension deficit at £587m but on Monday, Carillion’s pension trustees estimated the scheme’s “PPF deficit” at up to £900m.
A PPF spokesperson said: “We want to reassure members of Carillion’s defined benefit pension schemes that their benefits are protected by the PPF.”
A spokesman for Prime Minister Theresa May said the collapse was “extremely regrettable” and the priority was “to keep public services running”.
All Carillion staff were told they should come to work. Private sector staff would only be funded by the government for 48 hours unlike public sector staff, the government said. Philip Green, the company chairman, said he understood the government would provide funding to maintain public services carried on by Carillion staff, subcontractors and suppliers.
Carillion is the biggest manager of military bases for the Ministry of Defence and provides facilities management for hospitals, courts and schools, and work on key infrastructure projects. The collapse could hit thousands of subcontractors owed money by the group and hundreds of smaller businesses could collapse.
Whitehall is preparing to take contracts in-house or ask Carillion’s joint venture partners if they can take them on.
Kier Group said it has contingency plans to take on Carillion’s critical work on the new HS2 railway line and on Britain’s motorways.
Amey, which is in a joint contract with Carillion to provide housing for military servicemen and women, said it would take over management of the contracts.
Balfour Beatty, which is in a joint venture with the company on three projects, said it would continue the work but would need to inject £35m to £45m in cash in 2018 to cover Carillion’s share.
The Public Administration and Constitutional Affairs committee of MPs said on Monday it would hold an inquiry into government sourcing practices. Rebecca Long-Bailey, shadow business secretary, said the government should step in and take contracts back into public control and expressed “extreme concerns” about why the government issued contracts worth £2bn after Carillion issued a profit warning last July.