The Government must
learn from Carillion’s demise and assess its over-reliance on major
contractors, according to the Federation of Master Builders (FMB).
Brian Berry, Chief
Executive of the FMB, described Carillion’s liquidation as "terrible
news" for all those who work for the company.
But he also said it
will have serious knock-on effects for the many smaller firms in its supply
chain, some of which will be in serious financial danger as a result of
Carillion’s demise.
“Carillion’s
liquidation raises serious questions for the Government, not least about its
over-reliance on major contractors," he continued. "The Government
needs to open up public sector construction contracts to small and micro firms
by breaking larger contracts down into smaller lots.
"That way, it can
spread its risk while also reaping the benefits that come from procuring a
greater proportion of its work from a broad range of small companies.
Construction SMEs train two-thirds of all apprentices and are a sure-fire way
of spreading economic growth more evenly throughout the UK.”
Carillion chairman
Philip Green said it was a "very sad day" for the company's workers,
suppliers and customers.
The company has
43,000 staff worldwide - 20,000 in the UK. It is not clear yet how those staff
will be affected. Carillion also employs thousands of smaller firms, who will
be keen to know how they are affected by its collapse. Some of Carillion's
contracts will be taken on by other firms and some could be taken back into the
public sector.
Bernard Jenkin, the
Conservative chairman of the House of Commons Public Administration Committee,
said Carillion's collapse "really shakes public confidence in the ability
of the private sector to deliver public services and infrastructure".
He said there needed
to be a change of "mindset" at companies that do a lot of work for
the taxpayer.
"You've got to
treat yourself much more as a branch of the public service, not as a private
company just there to enrich the shareholders and the directors," he said.
"Ironically,
Whitehall tends to do contracts with companies that it always does contracts
with, because that's the safe thing to do - that's the perception. A great many
small and medium-sized companies feel excluded."
Richard
Beresford, chief executive of the National Federation of Builders, said: “When
a major contractor goes into liquidation, it highlights the importance of
diversifying those to whom you award contracts. When a company does go into
administration, those suppliers owed money in retentions are unlikely to be
paid, even though they have already provided skilled services.”
Beresford
added: “Many large regional contractors miss out on work simply because they
are not among the usual suspects. Let’s not forget that £10.5 billion of the UK
construction industry’s annual turnover is withheld in retentions by clients
and large contractors from regional SMEs in their supply chain.”
There are
two government consultations on retention payments in construction open until
19 January. It is important that everyone with an interest makes their voice
heard so the impact of companies going into liquidation can be minimised.
Iain McIlwee, CEO British Woodworking
Federation, a sector which employs approximately 60,000 people around the
country, said the liquidations comes at a time when it was submitting final
comments to the Government's consultation into retention payments in the
construction industry.
"This debate is not about whether the state
should bail out Carillion, but whether Government can in all conscience turn
its back on a supply chain of SMEs who will end up carrying the can for poor
procurement, bad business management and an endemic failure by the Government
to address some of the archaic procurement practices surrounding late payments
and retentions that place risk unfairly on SME sub-contractors," he said.
"Many of the creditors are SMEs and the sums,
whilst likely to be significantly lower than the liquidators will take, could
define the future of these businesses - it would be a gross injustice if their
money unfairly held is lost in this process.
“Frankly to my mind the Government is complicit in the
sorry saga that is unfolding and we need decisions fast. As a short term
we need to see some security against these retentions and unjust payment
clauses. Moving forward we urge the Government to develop a structured and
more consistent legislative process to deal with market failures, be they
banks, construction firms or steel manufacturers.
"We cannot rely on arbitrary decision making and
political posturing. There needs to be clear process to ensure those
responsible foot the bill and ensure society and supply chains do not suffer
unduly. The Government consistently fails to recognise the stress of
running a small business and keeping people employed - a lot of business owners
in this supply chain won’t be sleeping soundly until this is resolved."
Sarah Beale, Chief
Executive at the Construction Industry Training Board (CITB), said: “The news
of Carillion entering insolvency is clearly a significant blow to the UK
construction sector. While this will present the sector with a number of
challenges, CITB’s priority is to do all it can to ensure that Carillion
apprentices can continue their training so their skills are not lost.
“We have established
a project team to work with the apprentices and will be offering in principle
grant and apprenticeship transfer incentives to our employer base in order to
retain these learners.
“We will be working
closely with the ESFA, the Official Receiver and our network of college
providers so that every possible support is in place to help these apprentices
continue their training.
“We will be liaising
with the Official Receiver with a view to contacting the apprentices as soon as
possible.”
According
to its latest set of accounts, Carillion was holding over £800m in retentions
payments owed to sub-contractors. There is growing alarm that much of this
money will be lost leaving many more firms at risk of financial collapse.
Peter
Aldous, MP for Waveney and longstanding champion of SMEs in industry,
introduced a draft Bill to Parliament just last week, which seeks to amend the
1996 Construction Act to ensure retention money is held in a deposit protection
scheme – avoiding just this kind of situation.
“The Bill
was developed precisely with just this kind of nightmare scenario in mind,”
said BESA President Tim Hopkinson. “We are aware of the frantic attempts going
on behind the scenes to rescue Carillion’s projects and switch them to other
contractors, but unless retention money is protected – there is a danger that
the problem is just being moved to another place and that SMEs will remain
equally vulnerable.”
“Carillion’s
move into liquidation places their huge supply chain – which includes many
electrical and other specialist contractors - at risk of losing millions of
pounds, which will threaten companies and jobs”, comments ECA Director of
Business Paul Reeve. “While 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?”
