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Carillion to go into liquidation after talks fail

Following a weekend of extensive talks with government representatives, bankers and other stakeholders, Carillion is to enter compulsory liquidation after failing to reach an agreement with lenders to keep it afloat.

This morning’s announcement came after talks between the firm, its lenders and the government failed to reach a deal to save the UK's second biggest construction company. PwC has been appointed to carry out the liquidation. 

It is believed that the government will provide the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers, such as managing schools and prisons and further talks are expected in the days ahead.

Carillion is also involved in major infrastructure projects like HS2, is the second biggest supplier of maintenance services to Network Rail and also maintains 50,000 homes for the Ministry of Defence.

With 43,000 staff worldwide, including 20,000 in the UK, it is not known how those workers will be affected by the company’s liquidation. It seems likely that some of Carillion’s contracts will be taken over by other companies involved in joint ventures with the stricken firm and others may have to be renationalised by the government.

In a statement this morning, Philip Green, chairman of Carillion, said: “This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years. In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.”

Trade unions representing Carillion workers reacted with anger to news of the firm’s liquidation. Rehana Azam, GMB national secretary, said: “The fact such a massive government contractor like Carillion has been allowed to go into administration shows the complete failure of a system that has put our public services in the grip of shady profit-making contractors.

"The priority now for the Government and administrators is making sure kids in schools still get fed to day - and our members still have jobs and pensions,” Azam said.

The liquidation inevitably raises a big question mark over a number of major government contracts and thousands of jobs which will now be at risk. There are also questions to answer for the government, which continued to award contracts to Carillion despite the company’s financial difficulties being widely known.

Carillion’s downfall is also sure to lead to some debate in the industry about the most effective way to manage and run major construction and infrastructure projects, with many calling for a construction management approach where risk is more equally shared with project bank accounts and insurance supporting major schemes.

Rudi Klein, head of the Specialist Engineering Contractors’ Group, said: “Consideration now needs to be given to how public sector clients should be engaging more fully with the supply chain to mitigate risk in terms of the design, construction and longer term maintenance of projects and my view is that you’ve got to look at arrangements such as construction management where you can then engage people directly. 

“We also need to look at more cost efficient processes that knock out waste in the delivery process and that’s looking at engaging people at the forefront through an alliancing arrangement where people are working together to achieve a common aim, which is the client’s success factors.”

The Association for Consultancy and Engineering chief executive, Nelson Ogunshakin, said that Carillion’s demise should be a wake up call for the industry and the government. “In the long term, this is an awakening for major structural change in the construction industry," he added. "The challenges of low profitability and negative cashflow experienced by the contracting sector confirm that the current procurement process is broken. A new business model, coupled with client leadership, is urgently required to make our industry fit-for-the-future and ensure we won’t experience difficulties with other major players.”