Firms working with failed Carillion on private sector deals about to lose government support
Firms working for failed construction giant Carillion on purely private sector deals will only have two days of government support, Cabinet Office Minister David Lidington has warned.
Carillion spent £952m with local suppliers in 2016 and used an extensive network of small firms, who are now waiting to learn if they will be paid.
One industry group estimates that up to 30,000 firms are owed money by Carillion.Critics want a review into the crisis.
Britain’s second largest construction firm, which employs 20,000 people in the UK, went bust on Monday with debts of about £1.5bn.
Carillion’s work stretched from the HS2 rail project and military contracts to maintaining hospitals, schools, and prisons.
On Monday, Mr Lidington said there would be government support for public sector contracts.
Carillion had previously said it used a wide range of small companies because it was “committed to generating regional economic growth and development”.
But the head of the Federation of Small Businesses said thousands of jobs and livelihoods were now at risk because those firms would be at the back of the queue for payment.
Mike Cherry said it was a situation made worse because Carillion extended its payment schedule to suppliers last year.
“These unpaid bills may well go back several months,” he continued. “I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.”
Trade body Build UK estimates that between 25,000 and 30,000 businesses are owed money by Carillion.
It said that in the past, when other big contractors have failed, around 18% of businesses who were creditors did not survive the next five years.
A partner at one accountancy firm, who asked not to be named, said small firms were looking at total losses stretching into hundreds of millions of pounds.
“Asset sales won’t even raise enough to cover the debts of senior bank creditors, so many small firms won’t see a bean,” he said.
Rudi Klein, head of Specialist Engineering Contractor, an umbrella group representing suppliers to the construction industry, said Carillion outsourced virtually all its work.
He said the government knew of Carillion’s reliance on sub-contractors, but continued to award the company lucrative work despite growing concerns about its finances.
“It’s that supply chain who is going to bear the massive loss,” he said. “There could be a large number of firms that will experience substantial financial distress.”
Carillion was one of the contractors working on HS2 – the high-speed rail network, which will run from London to Birmingham and to Manchester and Leeds.
Sir David Higgins, chairman of the HS2 project, said that he was “hopeful” that Carillion’s failure would not delay the project.
He said that HS2 only has a “very minor” exposure to Carillion as other big firms working on HS2 will pick up its work.