Carillion in Liquidation

[Oxfordblues]

Work on the track remodelling and station enhancements here in Oxford seems to be suspended, and therefore completion delayed. Is it likely to resume soon? Will Network Rail take it hack in-house? I've no idea!

 

[rebmcr]

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

Good!

 

[hwl]

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

If the interest rate was suitably high they haven't given all that money away as some will certainly have earned a very good return given some of their recent lending was with the commercial equivalent of payday lenders...

One of the reason RBS probably pulled the plug is that more recent "innovative" lenders that Carillion had turned to were still lending and making it even less likely that RBS would get anything back.

 

[gwr4090]

What were the major rail projects held by Carillion ?

 

[DavidGrain]

What were the major rail projects held by Carillion ?

HS2 C2 & C3
Midland Main line Improvement Electrificatipon
Midland Main line Improvement Trackwork

These are the only rail contracts in the list of the largest 17 as listed by Construction News. Other contracts relate to buildings and roads

 

[Domh245]

HS2 C2 & C3
Midland Main line Improvement Electrificatipon
Midland Main line Improvement Trackwork

These are the only rail contracts in the list of the largest 17 as listed by Construction News. Other contracts relate to buildings and roads

Three of those were JVs, and so are better described as "Carillion have a part in" rather than "Carillion hold". The 2 HS2 contracts were JVs with Kier and Eiffage, whilst the MML electrification (but not the track work) was a JV with SPL powerlines.

 

[theageofthetra]

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.

I would certainly hope that those in the public sector spending my money would have the intelligence to at least look at the share price and last published results. It's called due diligence and appears to have been lacking.

 

[fowler9]

I would certainly hope that those in the public sector spending my money would have the intelligence to at least look at the share price and last published results. It's called due diligence and appears to have been lacking.

Good luck with that.

 

[Dai Corner]

I would certainly hope that those in the public sector spending my money would have the intelligence to at least look at the share price and last published results. It's called due diligence and appears to have been lacking.

It could be argued that the company making the least profits is the best value. See all the complaints that about shareholders of TOCs and others 'creaming off profits' at the expense of the taxpayer.

 

[6Gman]

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.

I've been involved from the other side as both a councillor and as a council officer. It is possible to ignore the lowest tender price and award the contract to a more expensive bidder but you have to have a very good justification to get it past your auditor(s) and the public.

 

[6Gman]

I would certainly hope that those in the public sector spending my money would have the intelligence to at least look at the share price and last published results. It's called due diligence and appears to have been lacking.

When I was in that position we would only place investments/ award contracts to companies which met a certain standard of credit rating. Two problems:-

1. You're at the mercy of the competence of the ratings agency;
2. You have to decide on where to place the standard. If you place it at - say - A Grade you'll have someone on the committee who says it should be at A+ to protect the public, but someone else who will say that if you accepted that B+ contractor you could save £50k.

No easy answer.

 

[Bromley boy]

I would certainly hope that those in the public sector spending my money would have the intelligence to at least look at the share price and last published results. It's called due diligence and appears to have been lacking.

But would looking at those bits of information about Carillion (say) six months ago have told them the company would shortly collapse? I doubt it. Something like that is impossible to predict.

Tesco’s issued profits warnings in the recent past. Would you now say that company is a bad investment?

And as has been stated above, remember the headline value of these contracts will not represent an amount that has actually been spent. It’s the amount that would have been spent during the life of the contract as services were delivered.

The cost to the government will be stepping in to keep public services running in the short term and then presumably starting the tendering process again.

 

[CarlSilva]

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.

Could be true there. Although Id bet they govt was hoping Carillion would be able to hang on long enough that they are in opposition by the time the tits went up and they could blame Comrade Jezza.

 

[edwin_m]

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.

I would certainly hope that those in the public sector spending my money would have the intelligence to at least look at the share price and last published results. It's called due diligence and appears to have been lacking.

Unless the contracts involve big up front payments I don't actually see a problem generally with placing a service contract with a company that is in some level of financial difficulty. They are paid in arrears so if they go under they will be paid (via the administrator/liquidator chasing debts) only for the work they actually delivered. There will be some risk of disruption while the work is transferred to another supplier, and this might be a concern for highly critical activities but not for more run-of-the-mill work.

On the other hand (and I'm somewhat worried to find myself in agreement with Theresa May) excluding a company showing signs of financial strain from future contracts makes the collapse of that company more likely. It would also be illegal unless the contract terms specifically required a bidder to satisfy some objective measure of viability (but so would giving contracts to a troubled company to keep it afloat, if they didn't win according to the scoring criteria in the invitation to tender).

I'd be interested to hear any refutations of this view, provided they also give reasons why you think I'm wrong.

 

[MotCO]

It would also be illegal unless the contract terms specifically required a bidder to satisfy some objective measure of viability (but so would giving contracts to a troubled company to keep it afloat, if they didn't win according to the scoring criteria in the invitation to tender).

I'd be interested to hear any refutations of this view, provided they also give reasons why you think I'm wrong.

When we receive tenders, we do undertake basic financial checks to ensure that the bidders are of sufficient size to undertake a contract. For example, if a company's turnover was £1m, we wouldn't offer them a contract for £5m - the risk is potentially too great. (Which then begs the question, given the large scale projects Carillion was involved in, there are not that many companies large enough to undertake the work (hence the number of Joint Ventures), so if Carillion was barred from bidding, would the other large companies have enough capacity to take the work on?)

We also review the last three years' accounts of the bidders. This has the benefit of being based on fact, rather than share prices which can fluctuate for reasons unconnected to the company being considered. However, it can relate to a period of time 18 months ago, during which time a lot could happen.

At the end of the day, unless the financial checks identify clear reasons why a company is not financially strong, the bidder will go through to the next round, and the decision will effectively be based on non-financial factors.

 

[Bromley boy]

We also review the last three years' accounts of the bidders. This has the benefit of being based on fact, rather than share prices which can fluctuate for reasons unconnected to the company being considered. However, it can relate to a period of time 18 months ago, during which time a lot could happen.

At the end of the day, unless the financial checks identify clear reasons why a company is not financially strong, the bidder will go through to the next round, and the decision will effectively be based on non-financial factors.

You presumably work in the relevant civil service/government division responsible for the tendering process.

Thanks for sharing this. It should settle the debate in terms of establishing that the Carillion affair really isn’t the fault of the government. What more could they reasonably be expected to do in terms of due diligence?

It’s obvious that many posters here do not understand this. I find it somewhat more worrying that the leader of the opposition doesn’t appear to understand it either.

 

[Andrewh32]

As a boring accountant type let me say this:-

Timeline (all readily viewable in various places on the internet)

Accounts are filed at Companies House on the 12th May 2017, these accounts are for upto 31st December 2016 & have been signed off by KPMG

First Profit Warning is on the 10th July and includes a Contract Write down of £845m

Second Profit Warning is on the 29 September and includes a further write down of £200m

Third Profit Warning on the 17 November with a note to say it is likely to break it banking covenants by the end of the year.

So what does that tell us:-

The accounts filed at Companies House which whilst not fantastic really aren't that bad & wouldn't show a Company heading out of business to anyone, yes they would probably raise one eyebrow but nothing more.

The first profit warning coming so close to when the audited accounts have been filed asks a question about how much KPMG knew about this when signing off the accounts, so are the accounts to 31st December 2016 a true and fair view & who told who what when. As others have said plenty of Companies issue profit warnings and carry on trading Tesco being an example used higher up in this thread so nobody would assume this profit warning would mean the end of the company is fast approaching.

The second profit would certainly start to raise peoples doubts but again isn't a sign of a company about to cease trading.

The third profit warning is the killer but that isn't until the middle of November, that is the time that serious doubts appear & yes is a sign of a company in serious trouble. It is the first time that you can truly justify stopping handing out contracts to them and is a time to start thinking about what to do if they stop trading. To be clear even when a company says it will breach it's banking arrangements they often come to agreement with the banks and carry on trading so it's not a given they will cease trading.

So what I am saying is that any contract awarded before the 17th November is perfectly valid from the information publicly available, it is only after then it is difficult to justify contracts being awarded to them.

In short the audited accounts weren't that bad & it is not unusual for companies to issue profit warnings so no big alarm bells would have rung until that third profit warning.

My only question is what did KPMG know about the contract write downs when they signed off the audited accounts, that is not to suggest any wrong doing on either side

I suspect I will need my tin hat saying all that but from my job & view of the world that us how I see it.

 

[MarlowDonkey]

Accounts are filed at Companies House on the 12th May 2017, these accounts are for upto 31st December 2016 & have been signed off by KPMG

But yet in less than a year, the Company is so short of money, that accountants refused to act as administrators (because there wasn't enough to ensure they got paid) and the likely payout to creditors is reported as being 1p per £1.

 

[Bromley boy]

But yet in less than a year, the Company is so short of money, that accountants refused to act as administrators (because there wasn't enough to ensure they got paid) and the likely payout to creditors is reported as being 1p per £1.

But, in the absence of a crystal ball, how could anyone know those subsequent facts from a review of the most recently filed accounts in May 2017, from what was a hitherto profitable and reliable company?!

 

[bnm]

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.

Feel free to tell me by PM. I'm sure there are many in CarillionAmey who do a sterling job despite being hamstrung by the cheapness of the contract the MOD awarded.

An old schoolfriend living on a base in the West Country, with his wife and three young children, has been waiting 9 months for a leaking flat roof to be fixed. The leak has left their kitchen all but unusable due to water ingress making electrics dangerous. To say nothing of the mould that has grown.

One 'fix' left them without electricity, and consequently heating, for 2 weeks in November. My friends wife and the children are currently living with her parents over 100 miles away. The eldest two have had to change schools. Before that the children were sharing bedrooms with a neighbouring army family. All thanks to CarillionAmey failing to do what they are supposedly contracted to - maintain properties to a habitable standard.

 

[Bromley boy]

Feel free to tell me by PM. I'm sure there are many in CarillionAmey who do a sterling job despite being hamstrung by the cheapness of the contract the MOD awarded.

An old schoolfriend living on a base in the West Country, with his wife and three young children, has been waiting 9 months for a leaking flat roof to be fixed. The leak has left their kitchen all but unusable due to water ingress making electrics dangerous. To say nothing of the mould that has grown.

One 'fix' left them without electricity, and consequently heating, for 2 weeks in November. My friends wife and the children are currently living with her parents over 100 miles away. Before that the children were sharing bedrooms with a neighbouring army family. All thanks to CarillionAmey failing to do what they are supposedly contracted to - maintain properties to a habitable standard.

You probably already realise this.

Just in case you don’t, CarrilionAmey is seperate from Carillion, and hasn’t gone bust!

 

[Andrewh32]

But yet in less than a year, the Company is so short of money, that accountants refused to act as administrators (because there wasn't enough to ensure they got paid) and the likely payout to creditors is reported as being 1p per £1.

An audit of accounts is supposed to show a true and fair view of the company upto the date shown.

It doesn't mean that the company has money in the bank as many companies owe money to the banks and are successful audited

As I said in my post my only question regarding the audit is the timing of the first write down so close to the audit being finished.

 

[Andrewh32]

But, in the absence of a crystal ball, how could anyone know those subsequent facts from a review of the most recently filed accounts in May 2017, from what was a hitherto profitable and reliable company?!

Agreed nothing in those accounts rang any alarm bells with anyone

 

[bnm]

You probably already realise this.

Just in case you don’t, CarrilionAmey is seperate from Carillion, and hasn’t gone bust!

I am aware. Post #167.

The only conflation I make is that the MOD contracts with CarillionAmey have all the same hallmarks of those that HMG awarded to Carillion.

One can but hope that the Carillion way of doing (or rather, going out of) business is not shared by CarillionAmey. The companies were, and are, legally seperate. Some senior management, and a couple of directors, worked for both though.

 

[Bromley boy]

I am aware. Post #167.

The only conflation I make is that the MOD contracts with CarillionAmey have all the same hallmarks of those that HMG awarded to Carillion.

One can but hope that the Carillion way of doing (or rather, going out of) business is not shared by CarillionAmey. The companies were, and are, legally seperate. Some senior management, and a couple of directors, worked for both though.

Apologies, I missed that.

Yes indeed. Let’s hope there’s no contagion within or without the group, and that the financial management of CarrilionAmey was rather better.

 

[Bromley boy]

Agreed nothing in those accounts rang any alarm bells with anyone

God forbid, you sound like a rare forum poster, who actually knows their onions.

Don’t go and spoil things by letting the facts get in the way of an anti-Tory rant .

 

[MarlowDonkey]

But, in the absence of a crystal ball, how could anyone know those subsequent facts from a review of the most recently filed accounts in May 2017, from what was a hitherto profitable and reliable company?!

What they were claiming to be assets weren't. They were reporting profits from revenues due years in the future that may not have been achieved. A genuinely profitable company will accumulate cash which enables it to pay dividends to shareholders. Carillion were paying dividends, which is real money to the recipients, out of fantasy profits. No wonder their borrowings were going through the roof.

It happens far too often that Companies are given a clean bill of health by their auditors, only to collapse within a year.

 

[Bromley boy]

What they were claiming to be assets weren't. They were reporting profits from revenues due years in the future that may not have been achieved. A genuinely profitable company will accumulate cash which enables it to pay dividends to shareholders. Carillion were paying dividends, which is real money to the recipients, out of fantasy profits. No wonder their borrowings were going through the roof.

Cor blimey! Falsely claimed assets?! Fantasy profits?! I assume you’re a qualified accountant, then, in order to level these accusations?!

In which case, I’ll defer to your expertise and leave it to you to point out the ways in which Carillion’s published 2017 accounts, as crawled over and agreed by their auditors KPMG (who don’t exactly come cheap given their big shiny office in Canary Wharf), were in some way incorrect/fraudulent... or pointed to impending collapse?

The floor is yours...

 

[Xenophon PCDGS]

This Carillion matter also highlights the naively-held beliefs of some very large companies that they are "too big to fail". A hark-back to 2008 when Lehman Brothers filed for Chapter 11 bankruptcy showed that even free-market countries of the size of the USA sometimes show that they can refuse company-expected financial help with the knowledge of the said organisation going to the wall.

 

[snowball]

What were the major rail projects held by Carillion ?

HS2 C2 & C3
Midland Main line Improvement Electrificatipon
Midland Main line Improvement Trackwork

These are the only rail contracts in the list of the largest 17 as listed by Construction News. Other contracts relate to buildings and roads

No doubt not among the biggest 17 but Manchester-Preston electrification (Preston-Blackpool is Volker).