Carillion in Liquidation

Discussion in 'UK Railway Discussion' started by Buspilot, 7 Jan 2018.

  1. PHILIPE

    PHILIPE Established Member

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    G4S made their made big bungle over the 2012 Olympics and problems with prisons and prisoners in the past, especially when they fouled up over Electronic tags. Yet the Government still awarded them contracts. Some specialist things may have to be outsourced but this could be a wake up call for all the Companies who are obsessed with out sourcing to the private sector.
     
  2. tomatwark

    tomatwark Member

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    There won't be any real assets as everything will be leased, either on a straight 3 year term in the case of vans etc or for the duration of the contract for items such as site cabins and large plant.

    There may be small items such power tools, computers and stock but in the scheme of things you are talking peanuts from an auction point of view.

    Unless they own offices and land, but I suspect that that will be either leased or have loan against it.
     
  3. Red Dragon

    Red Dragon Member

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    I agree with your appraisal, but I also know (from a Contractor's point of view) that it is very difficult for Public Servants to justify not accepting the lowest bid.

    The only time I ever experienced this with a public sector client was in the award of the tunnel and bridge contracts for the Oresund Crossing between Copenhagen and Malmo. One of the groups bidding were lowest on both the bridge and the tunnel contracts and the client was concerned this would stretch the resources of the consortium too far. The bridge and tunnel contracts were then awarded to two different groups of bidders, one of which was not the lowest bidder. An enlightened client who understood the risk and acted accordingly to ensure the road and rail link would be completed on time.

    On many occasions during my career in construction we found ourselves on a tender list against "lightweight" contractors, who we considered would be unable to properly assess the risks.

    The key to the bidding process is in the hands of the client, in drawing up a tender list of competent, financially stable contractors, and defining the scope of works accurately. The client also needs to identify the risks and decide which party is best suited to carry these risks, either individually or jointly.

    For those who remember the bidding process for the IMUs at the time of Rail Privatisation, Jarvis were awarded the East Coast contract simply because many of the major UK contractors declined to bid for the contract, or heavily qualified their bids. It was seen as far too risky because there was no asset register. In other words the bidders didn't know what length of track or how many sets of points needed to be maintained under the contract, so how could they price the work?
    Many of the major UK Contractors, mine included, were not prepared to accept this risk.

    Contracting, particularly at the higher end, comes down to risk assessment at the various stages, pre-tender by the client's team, during the tender process by the contractor and their team when pricing the work, and again at the pre-award stage by the client's team. Decisions have to be made as to which party is best suited to competently manage the risk at least overall cost.

    I don't believe a comprehensive risk assessment regarding the financial standing of Carillion was carried out before drawing up the lists of contractors selected to tender, or again before awarding the contracts.

    The directors' remuneration packages, conditions of employment, and bonuses will now be examined to assess what contribution these "drivers" will have made to the collapse.
    Also, I ask, was the reporting of losses carried out in a timely and proper manner.

    The hedge funds were obviously well aware of the situation, as they have been "shorting" Carrillion for a long time.

    Sad times for a lot of innocent individuals, and a massive impact on many lives.
     
  4. Wivenswold

    Wivenswold Member

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    Worth mentioning that Balfour Beatty walked away from the Metronet weeks before being awarded an Olympic construction contract. And let's not forget that the landlord of one of the HMRC offices has non-dom status and banks taxpayers funds in Jersey. It's fair to say that successive Governments have led us to this point. Still, at least there's Brexit to distract us all from how hopeless the governing classes really are.
     
  5. Abpj17

    Abpj17 Member

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    I believe this was a case of Carillion itself applying for compulsory liquidation. Its major creditors - banks that had lent to it and HMG where taxes were due - had got to the point of not wanting to extend extra credit/additional terms.

    It's implicit in the release 'the Board...concluded...it had no choice but to take steps to enter into compulsory liquidation'. So I think they applied to the High Court. This would have been choreographed. The final distress call was made to HMG on New Year's Eve.

    And as I think mentioned elsewhere, its liquidation not administration. Two major accountants refused to act as administrators due to lack of funds (only #29mn left). As a service/contracting company, it doesn't have much in the way of real-world assets to provide as security etc. Just future revenue streams from contracts. Its share price had fallen 93% over the course of 2017 so it was a matter of time...

    http://otp.investis.com/clients/uk/carillion1/rns/regulatory-story.aspx?cid=376&newsid=966343 is the formal stock market announcement.
    https://www.fool.co.uk/investing/2018/01/15/what-carillion-plc-liquidation-means-for-shareholders/ has some clear numbers and history.
     
  6. fowler9

    fowler9 Established Member

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    Well mate, I work for them but there is very little i can say to you on here. Needless to say I would love to be able to say more about everything you said.
     
  7. YorkshireBear

    YorkshireBear Established Member

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    Good to see the directors taking home good wages for a year or so after stepping down.

    Why look for corruption around the world when we have it in spades in this country.
     
  8. theageofthetra

    theageofthetra Established Member

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    So despite this why did the public sector continue to award them contracts?
     
  9. Dai Corner

    Dai Corner Established Member

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    I have heard it said that if the Government had stopped awarding contracts to Carillion on the grounds of financial weakness that would have in itself precipitated a crisis. If they carried on, there was still a chance it could recover. The Government were between a rock and a hard place.
     
  10. jdxn

    jdxn Member

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    No it isn't, it's 'just' a private company failing. Throwing taxpayers' money away isn't the preserve of the private sector. Remember the huge NHS IT project under Labour that was a complete failure to the tune of £10bn? https://www.theguardian.com/society/2013/sep/18/nhs-records-system-10bn
    Probably not in reality. The only route back to the directors will only be if it can be proved that they have acted inappropriately. 'Making a mess of it' (understatement) by making bad decisions isn't necessarily wrongdoing unless people have been misled. Even if that is the case, going after a 'rich' director is fraught with difficulty because even their expensive homes and cars are small change compared with big contracts and 1bn holes. Lawyers don't go after things when there are no significant funds to go for. There is only 29m left apparently - not even a month's wages for 18,000 staff.
     
  11. HowardGWR

    HowardGWR Established Member

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    Yes but those contracts were private firm supplied if you look down the article, as indeed they all are, because governments do not or choose not to commit civil service employment to capital projects. The discussion area is to what extent one contracts out the management of these contracts and the degree of risk specified in them. At its simplest government could just say, 'here's 10 billion, give us an East West railway and don't worry about cost overruns, we'll pick up the tab', as against something like the PFI IET project with Hitachi. Hitachi take the risk there. However, note the add-ons for bi-modes, already being incurred, due to the late GWML electrification project.

    It's just a question of how tightly the government lawyers draw up these contracts. Are the lawyers civil servants or are they hired in - ooh, dodgy! See USA practice, a licence to print taxpayers money!
     
  12. InOban

    InOban Established Member

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    The main reason for going after the Bosses is fairness. This is the latest in an endless series of business failures or near failures where the decision makers have walked away unscathed and the ordinary employees have paid the price.
     
  13. Bromley boy

    Bromley boy Established Member

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    But nobody can "go after" the bosses unless they've acted illegally, or the directors have breached their fiduciary duties etc. Fairness doesn't come into it.

    When a company collapses any remaining assets are divided amongst the various different creditors, with shareholders last in the queue. Employees are preferential creditors up to a certain level of unpaid wages.
     
  14. snowball

    snowball Established Member

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    Under the present law, but the present law is crap. Hundreds of subcontractors may go bust but the directors of Carillion ringfenced their bonuses.
     
  15. Marklund

    Marklund Member

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    And that's the problem with these mega-conglomerates who don't actually own many assets and out-source to others.
     
  16. yorksrob

    yorksrob Veteran Member

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    I wonder how many of Carrillion's takeovers were financed through debt placed ultimately back on the company being taken over.

    This seems to be a blind spot in modern day business.
     
  17. Marklund

    Marklund Member

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    Especially if there is no tangible asset that the debt is being financed on, in my opinion.
     
  18. rebmcr

    rebmcr Established Member

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    And yet, somehow, the finance industry allowed them to accumulate £900bn £900m in debt. Surely a banker somewhere is sweating at the prospect of having (effectively) given away all of that money?

    Edit:
    Exactly!
     
    Last edited: 17 Jan 2018
  19. Marklund

    Marklund Member

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    Shades of the housing market meltdown again. The Big Short is a good film incidentally...
     
  20. rebmcr

    rebmcr Established Member

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    Yeah, I watched it at the cinema and again at home.
     
  21. takno

    takno Established Member

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    They should definitely be sweating about that much - it's nearly half of GDP
     
  22. notlob.divad

    notlob.divad Established Member

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    So did the government give contracts to Carillion over their competitors in order to keep them afloat? If so that is a misuse of public money and the minister(s) responsible should be held to account. I don't agree they were between a rock and a hard place. There was no need to pull out of ongoing contracts but there certainly should not have been any more placed until Carillion had stabilised their financial position.
     
  23. Bromley boy

    Bromley boy Established Member

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    I don’t think anyone has suggested that.

    How long have the financial problems been known about?

    I don’t suppose the people awarding contracts on behalf of the government are privy to the day to day financial situation of the contractors they are engaging.
     
  24. rebmcr

    rebmcr Established Member

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    Oops! Corrected.
     
  25. al78

    al78 Established Member

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    Ah yes, those at the top cock up and dump the consequences onto others. A sociopaths wet dream.
     
  26. snowball

    snowball Established Member

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  27. Bookd

    Bookd Member

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    Back in the dark ages, when I was taught how to be a Captain Mainwaring style bank manager, one key rule was to not lend money to a contractor unless 100 % secured. Whether it be Carillion or a local subbie with a handful of staff they are only as good as their last contract, and if their client fails to pay as seems to be the case here (either because they can't or because the work wasn't up to standard) then it all falls apart.
    This rule has now fallen away and most major projects are financed by debt, so contractors survive only if they can keep a positive cash flow - the same issue arises and Carillion evidently have not been paid for some large projects, so kept going by delaying payment on their bills until the cash ran out.
    This has always been an issue in the contractor business and it could be said that without debt finance a lot of infrastructure work would not have been possible, but at the same time all businesses in this sector could be said to be accidents waiting to happen.
     
  28. Bookd

    Bookd Member

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    As a further thought the directors cannot be charged for being incompetent; that would be the shareholders problem.
    Trading while insolvent, however, is illegal which is probably while they called it a day.
     
  29. Bromley boy

    Bromley boy Established Member

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    Fair enough there have been warning signs for some months.

    Still, companies frequently go through periods of financial difficulty and don't end up collapsing, so a profits warning, high levels of borrowing etc. wouldn't necessarily justify the decision to pull contracts.

    As noted upthread taking the decision not to award further contracts at an earlier stage might simply have triggered an earlier collapse. It seems a little irrational to blame the government entirely for this collapse, which has been primarily been caused by poor financial management on the part of Carillion.
     
  30. LNW-GW Joint

    LNW-GW Joint Veteran Member

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    Payments to directors after liquidation, including severance payments, will be stopped, the Insolvency Service has just told the BBC.
     

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