Carillion collapse – the risks and opportunities

Carillion’s collapse is generating risks and opportunities that will ripple across the construction industry over the coming weeks and months.

The failure of a firm of Carillion’s size has significant implications, not only for its clients and employees, but also its supply chain and competitors.

Glenigan is keeping under review all 188 active construction projects with which Carillion is involved, including frameworks and joint ventures. We will provide subscribers with updated contact details and status reports on individual projects as they become available, including the re-tendering of contracts.

Infrastructure and public sector projects account for the majority of Carillion’s project workload, although the firm is involved in a wide range of projects spread across the UK.

Encouragingly the Government has announced that it will provide “the necessary support to ensure that continuity of public sector services provided by the firm”. The Official Receiver, PwC, has also stated that its priority is to ensure the continuity of public services while securing the best outcome for creditors. PwC are asking all employees, agents and subcontractors to continue to work as normal, unless told otherwise, and have announced that they will be paid for the work they do during the liquidations.

Carillion’s collapse holds clear risks, not only for suppliers’ cash flow and balance sheets, but potentially for the wider industry’s supply chain. Whilst the official receiver has reassured subcontractors that they will be paid for future work on Carillion projects, subbies and suppliers will join the list of creditors for any payments on outstanding work. Main contractors will wish to assess the exposure of their own supply chain and to work with them to minimise any risks.

Carillion were partners on a number of joint ventures, including the Aberdeen Western Peripheral Route and HS2. The other contractors on these projects will be expected to take on the firm’s obligations. Whilst this will potentially boost their earnings, it will also be an additional and unscheduled call on their resources. Among other things the increased workload may dampen the firms’ appetite to bid for new projects in the near term.

Furthermore the loss of such a major player threatens to reduce overall industry capacity, particularly for the delivery of major projects. This has implications for clients, especially for the Government as it looks to increase infrastructure investment as part of its Brexit strategy. Clients may choose to re-organise major projects in the future in order to increase the opportunity of a wider range of contractors, including medium sized firms to undertake such work.