News

Labour calls for investigation into why Carillion was awarded contracts despite financial woe

Serious questions have been raised about why the government continued to hand out contracts to debt-ridden Carillion, following the construction giant going into liquidation today.

Approximately 20,000 jobs in the UK are at risk after last-ditch talks by Carillion’s bank lenders at the weekend collapsed, meaning the firm ran out of time to find a way to restructure its £1.5bn debt burden. However, questions have now been raised over why the construction giant was awarded more contracts after spiralling into decline. 

The warning signs have been apparent since as early as last July when Carillion’s chief executive Richard Howson stepped down and the company issued a profit warning that its annual results would be "below management's previous expectations”. Shares in the firm then plummeted by 39% following the announcement, leading Carillion bosses to say a "comprehensive review" of the business would be carried out. It’s estimated that over £2bn worth of government contracts were awarded to Carillion during the time that the firm gave three profit warnings. 

Rebecca Long-Bailey, the shadow business secretary, said that she has “extreme concerns” about why the government continued to hand out contracts to the construction firm and that a “full and transparent” investigation was necessary in order to examine every agreement put in place and to understand the reasoning behind them.

She added: “Government must answer serious questions on their handling of Carillion contracts urgently. They must be prepared to bring public sector contracts back in house to ensure public services, employees, supply chain, tax payers and pension fund members are protected. In the last six months Carillion has issued three profit warnings. In this time, the government awarded three separate contracts to Carillion worth nearly £2bn in total, despite government policy to designate a company as “high risk” and reconsider new contracts if profit warning issued. It is clear this matter now requires full and transparent scrutiny and it is essential that shareholders and creditors are not allowed to walk away with the most profitable contracts while the taxpayer bails out loss-making parts of the business.”

The cabinet office minister, David Lidington, has defended the government’s decision not to bail out the firm and has said some services will be taken in-house while others would be handed to other operators.

"This matter now requires full and transparent scrutiny and it is essential shareholders and creditors are not allowed to walk away with the most profitable contracts"
Rebecca Long-Bailey, shadow business secretary

Speaking to BBC Radio 4's Today programme, Lidington said: "Ever since the profits warnings were announced during the course of last year, the various government departments that have had business with Carillion have been drawing up contingency plans about how they might respond in the event there were the sort of crisis we have seen. Contracts that were awarded by some government agencies and departments after July last year you will see that those are joint venture arrangements."

Mick Whelan, general secretary of ASLEF, the train drivers’ union, has echoed the request of the Labour business secretary and called for a public inquiry into the collapse of Carillion. 

Whelan added: “Naturally, we are thinking of all the workers, in the public and private sectors, who have been impacted by the construction company Carillion going into administration today. We do wonder, though, how and why, after serial profits warnings, contracts came to be awarded to Carillion, particularly in the rail sector by Chris Grayling, and the impact this may have on the future of Crossrail and HS2.”

In response to Carillion’s downfall, infrastructure group Balfour Beatty has revealed it will take a hit of up to £45m due to three joint ventures it had with Carillion which include the Aberdeen Western Peripheral Route, the A14 in Cambridgeshire and the M60 Junction 8 to M62 Junction 20 scheme. Bosses have said it “will continue to work with its customers and will meet its contractual commitments” and profit impact would be “recorded as an exceptional non-underlying charge in the income statement”.