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Tuesday, 16 January 2018

Carillion - sub contractors and suppliers

For the construction arm far more than the FM concerns, intelligent journos have started to pick up on the impact of the firm's collapse on other than direct employees. The real pain is likely to be felt by sub contractors and suppliers - with an impact on tens of thousands of people working for smaller firms carrying out specialist works for the fallen behemoth.

Subbies are always the last to be paid anyway, and have the longest wait for their money as main contractors will generally not pay until their own monthly claims have been passed, and even then may pay only a percentage, with their own retention in place. Main contractors who have won work by underbidding will also squeeze subbies already contracted. I know from personal experience how very close to the edge many subbies on big jobs walk.

Ideally, if the job is to be finished, the subcontractors will be novated to the new main contractor on the same terms - but even this takes time, and when it is likely that Carillion haven't paid them for three months (and they may end up with nothing) the prospect of waiting another three for a payment from a new principal contractor will force many to the wall. 

Clients will only find main contractors to replace Carillion on cost-plus terms if continuity is to be maintained; there is simply no time to cost and negotiate new contracts. And rescue firms will know they must secure rock solid fee agreements now, up front; clients happy to agree crash costs at times of crisis will always backtrack once the hiatus of the rescue is over; getting it sewn up tight whilst you have the advantage is the only way. 

And make no mistake, it's the clients that will pay. As long as the crash costs now are equal to or less than costs of demobilising the schemes, mothballing, re-tendering and re-mobilising, with all the substantial costs of delayed delivery, they will pay. And that means us - taxpayers - in many cases. There really is no alternative. The least-cost options will still cost us a fortune.


Poisonedchalice said...

As I intimated in a previous post - lack of due diligence before and during the contract.

I feel very sorry for the smaller suppliers to Carillion, who were probably on bible-paper thin margins anyway.

Anonymous said...

What a Godawful mess, KPMG were their auditors 'we see no problems' - I wonder how much Carillion paid them?

There is no fun to be had here but certain newspapers are blaming "capitalism's failure" - it Britain were a free market, Carillion would have sunk without trace long ago and public/taxpayer funding 'private' companies - needs a very serious rethink, the shame of it is, liblavCON are incapable of cogent reasoning and stuck in their political straitjackets.

I do despair for the little boys, businesses will go to the wall and people will lose their jobs but this behemoth had to come crashing down.
As has been said elsewhere the fat cat directors were helping themselves, borrowing to fund the shortfalls and taking on new contracts to subsidize the rest of the failing empire - there's only one word for that - a Ponzi scheme.

In the end the taxpayer is on the hook and again.

Dave_G said...

We all know who WON'T be losing out - the banks.

Budgie said...

The Conservatives went for outsourcing (hence Carillion, etc) to try to halt the onward march of the cultural marxists through our establishment (local authorities, etc). Unfortunately that just took the productive parts of the government sector and privatised them, whilst leaving in place the cultural marxists (and their costs).

Now the cultural marxists don't even have to manage something real - like fixing council house heating or damp - they just sit around in their offices with their taxpayer provided laptops having "meetings". A whole generating of cultural marxists thinks work just means having meetings.

Bill Quango MP said...

Its sad, but not new.
Back when Woolworths went under, I wrote that the headline figure of 30,000 retail jobs had another 20,000 worth of related jobs with it.

I knew the head of the firm that did their fire extinguishers. F/Ex have to be tested every year. Replaced and repaired. It takes about 20 minutes to do each one.
Then the paperwork. A shop like a woolworths of old would have 20-30 to do. Plus the fire testing. An all day job for one man.
At the collapse, there were 800 stores and the warehouses and central offices.

The extinguisher firm had no other clients. Being barely able to keep up with the woolies work.

James Higham said...

We wait and see who goes next.

Anonymous said...

Not only do the Subbies have to suffer the whims of whether they get paid or not by their main contractors, there is also the Construction Industry Scheme working against them. Never mind those professionals who have to put up with the P35 racket (and that's another story), the CIS rules means that anybody working in the Construction Industry is deducted 20% tax from their invoiced fees whether they owe any money to Spreadsheet Phil or not. I'm surprised anybody bothers to work at all.


DeeDee99 said...

Yes .... I used to work for a Government Agency and they will want to continue with contracts as far as possible, using the subcontractors and others to get the works delivered.

When it comes to "Government" the taxpayer always ends up paying.

Like the banks, the Government not only allowed, but in this case helped facilitate a company to grow beyond its means. And once again, there will be no punishment of the Companies senior Executives, who recently awarded themselves huge bonuses despite the precarious state of the organisation they were running into the ground.

And they wonder why there's a crisis of capitalism in the UK with people turning to the likes of Corbyn in disgust at the exploitation of the taxpayer which these huge companies do with impunity - and the Conservatives do NOTHING to stop/prevent.

Unknown said...

I think they need some sort of Chapter 11 / Voluntary Administration process so they can wind down the business while they work out their book.

Carrillion is already bankrupt, so creditors are already on the hook.If the companies debt could be set aside while the projects are completed under supervision, creditors and shareholders will be pissed, but customers, clients, and subcontractors might get the least worst outcome.

Domo said...

Thats what "administration" is, but it requires cashflow which carrilon does not have.

You cant make travis perkins give them more building materials on credit, you cant make sub contractors work on credit.

They dont have the cadh to pay