Business as usual?

Construction giant Carillion’s dramatic collapse today (January 15) has raised fears that tens of thousands of jobs could be at risk, while the public services and projects the firm was contracted to undertake also hang in the balance.

Carillion will now go into liquidation – its assets will be sold before shutting down for good.

The government has said that workers should continue going to work and have pledged to pay workers’ wages for now through the Official Receiver. An official spokesperson for the prime minister said the government could take about 450 public sector contracts in-house at some point in the future; other contracts such as HS2 would remain in the private sector.

As a major government contractor of both construction and facilities management, Carillion’s projects are wide-ranging – the firm builds hospitals, serves schools dinners, maintains 50,000 homes for people in the armed services, has £200m in prison contracts and it’s the largest second largest supplier of maintenance services for Network Rail, among other contracts.

Carillion’s collapse has been blamed on reckless mismanagement of the company’s finances as it piled on debt even as it handed out ever-increasing dividends to shareholders and skyrocketing pay and bonuses to its executives.

The company took on a string of large contracts that weren’t as profitable as they thought they would be – by the end Carillion amassed £900m in debt and needed a £300m cash injection to continue operating but the banks refused to lend it any more money.

Last ditch talks between the government, the company and its lenders at the weekend yielded no results and so the firm was forced to go into liquidation.

Undercutting

The government has been slammed for the role it has played in the firm’s demise – despite Carillion issuing profit warnings last summer the government continued giving the company contracts.

“We’ve had concerns about the company’s finances since last summer when they issued their first profit warning and their share prices started to tumble,” explained Unite national officer for construction Jerry Swain.

Concerning too, Swain added, is the growing practice of bidding low on contracts simply to win work. This became standard for Carillion before it went bust and the government colluded in this process because it awarded the company huge volumes of work even when the bids were dubiously low.

“In the construction market, what we face is this tendering process, where we’re sinking to the lowest common denominator instead of checking in the first instance whether companies can actually do the job,” Swain said. “Then we should have a tendering list made up of companies that are capable of carrying out the job – that they’re both financially sound and have the technical capacity to complete the job.

“We need to make it clear what we expect them to price – we need to check that they’re pricing what they should be. The industry is becoming full of undercutters – we’re seeing a race to the bottom and in many instances suicidal bids.”

End privatisation call

If anything is to be learned from Carillion’s collapse, Swain added, it’s that we “need to stop inviting private companies to make money out of public services.”

“When you privatise public services, you bring in companies whose sole purpose is to make a profit under a government that wants to run these services as cheaply as possible – in many ways what’s happened today to Carillion under privatisation is perhaps inevitable.

“There’s a key moral question here too,” he added. “Should companies be reaping profits from locking people up or from running our health service, which is meant to be run for the benefit of the people?”

Labour has called on the government to explain why it was awarding contracts to Carillion even after it had issued multiple profit warnings and to give reassurance to tens of thousands of workers by bringing all government Carillion contracts back in-house.

“The Government must act quickly to bring these public sector contracts back in-house to protect public services and ensure employees, supply chain companies, taxpayers and pension fund members are protected,” said Labour’s shadow cabinet office minister Jon Tricket.

“Given ÂŁ2bn worth of Government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the Government’s handling of this matter,” he added.

“It is vital that shareholders and creditors are not allowed to walk away with the rewards from profitable contracts while the taxpayer bails out loss-making parts of the business.”

Reassurances

Swain agreed – and added that the government must go even further and protect wages for the thousands more in the supply chain.

“The government needs to safeguard the wages of not only those directly employed by Carillion but work for companies that are reliant on business with Carillion,” he said. “While it’s easy for the government to protect the wages of those who are directly employed in hospitals, prison cells and various other government organisations, we’re facing a major problem with those who work in the supply chain for Carillion.

“We run the real risk of companies going into receivership, if for example, they have debts with the bank secured on money that Carillion owes them. There’s a whole list of unforeseen events that are going to take place and the government now must reassure us that they’re going to take appropriate action to ensure contractors get paid and our members receive their wages.”

Unite national officer for local government Jim Kennedy echoed Swain.

“The administrator must provide reassurances to the workforce as a matter of urgency, and also that vital public services on which many depend will continue to be provided,” he added.

“We will be seeking a meeting with the administrator today to press home that that the priorities now are not the shareholders but the workers who provide the service and the people relying on them.

“One thing is evidently clear from this: there must be no business as usual for big business.  There has to be an urgent inquiry into how a company that loaded itself with debt, which undercut competitors with unsustainable bids, which hoovered up vats of public money, and that had repeatedly alerted the government to its own financial shortcomings got its hands on so much of the public sector and taxpayers’ cash.”

Stay tuned on UNITElive for more on Carillion’s collapse as the story develops.