Carillion on the brink as UK government prepares for firm\'s collapse

Construction firm Carillion is on the brink of collapse, raising fears for the future of a host of major government projects and day-to-day services, from schools to hospitals, prisons and the army.

The Cabinet Office hosted emergency talks aimed at mapping out a future for a company that employs 43,000 people – including nearly 20,000 in the UK – but the meeting broke up without a rescue deal being announced.

Accountancy firm EY has been drafted in to manage a potential administration process, which could be triggered as soon as Monday morning.

Trade unions branded Carillion a “textbook example of the failures of privatisation,” and urged the government to step in to guarantee jobs and services.

Opposition MPs are expected to grill the government on Monday on why it awarded Carillion lucrative public sector contracts, including £1.4bn of work on the HS2 rail project, even after it became clear the company was struggling.

The government has insisted it has “contingency plans” to protect vital public services currently provided by Carillion, such as cleaning and catering in NHS hospitals, providing school dinners in nearly 900 schools and prison maintenance.

Some of the Wolverhampton-based company’s partners on multimillion-pound projects have been primed to take over the firm’s share of their joint-venture contracts.

Thousands of staff could be transferred to new employers under TUPE regulations that preserve staff pay and conditions when a business changes hands.

The Pension Protection Fund is also on alert to take on the multiple pension schemes, which have 28,500 members and a £580m deficit which experts predict could balloon to £800m if the firm collapses.

Carillion stunned the City of London by issuing a profit warning in July, in an announcement that sent its shares tumbling 39% and prompted the resignation of chief executive Richard Howson, who earned £1.5m in pay and bonuses in 2016.

It has since downgraded its profit forecasts twice more. Four months ago it reported a £1.15bn loss for just six months, after taking hits of more than £1bn on unprofitable contracts.

Its bank lenders – including HSBC, Barclays and Santander – are unwilling to inject more money without a government bailout for a company with debts of £900m and whose stockmarket value is just £61m. Just three years ago Carillion was valued at £1.6bn.

Cabinet office minister David Lidington has been leading the crisis talks, assisted by civil service chief executive John Manzoni, a former board member at BP.

Shadow health secretary Jon Ashworth urged opposite number Jeremy Hunt to make a public statement to guarantee that hospital services will not be affected.

Fellow Labour MP Stella Creasy said the affair raised concerns about other public-private contracts, which she said were a “way of transferring the risks arising from major projects to the private sector”.

Trade unions called on Downing Street to reassure workers and the public.

“There are not only thousands of jobs on the line here,” said the GMB national secretary, Rehana Azam. “Crucial services that hundreds of thousands of people rely on every day are at immediate risk.

“The prime minister must stop dithering and delaying, and immediately launch a taskforce bringing together employers and unions to safeguard these vital jobs and services.

TUC deputy general secretary Paul Nowak said Carillion was a “textbook example of the failures of privatisation and outsourcing”.

As well as managing services across education, the NHS, the prison service – and working on transport projects – Carillion is also a major contractor building the Midland Metropolitan and Royal Liverpool University hospital. The new Liverpool hospital, a £335m flagship development which is unfinished and overdue, is among projects that have caused problems for the company.

One former banker with experience of similar public-private partnership contracts warned that the government may have limited legal powers to intervene to ensure these two projects are not severely disrupted. He said costs were now likely to escalate.

“My experience in work-outs of this kind is that the cost of completion spirals out of control,” he said. “Any replacement construction company will immediately declare that half of what has been done so far is defective and ‘you might as well start from scratch’.”

Independent pension expert John Ralfe said that the pension deficit is likely to swell to £800m when it is valued for the purposes of the government’s pensions lifeboat, the Pension Protection Fund (PPF).

“The good news is that the 28,000 Carillion pension scheme members would receive PPF compensation – around 85% of the pension promise end-to-end – and the PPF surplus is big enough to cope,” he said.

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