Carillion: “Thousands of pounds of unsecured debt will be lost by small businesses”
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Carillion: “Thousands of pounds of unsecured debt will be lost by small businesses”

Jan 2018 General, Latest News | Comments Off on Carillion: “Thousands of pounds of unsecured debt will be lost by small businesses”

A snap poll of Carillion engineering sub-contractors shows that many companies are facing huge financial losses from the collapse of the construction giant, according to data obtained by the Building Engineering Services Association (BESA) and the ECA.

Carillion owes around £75m to around 80 engineering services firms, which provide vital services such as electrical, plumbing, gas, fire and security, and heating and ventilation. The overall losses are likely to be far higher, given there are thousands of businesses operating in the industry.

The ECA and BESA survey shows that contractors of all sizes have been affected by Carillion’s demise:

  • The total value of ongoing contracts with Carillion is worth £47.2m, which are now at risk.
  • Micro businesses (less than 10 employees) are owed on average £98,000. One of these SMEs is owed more than £250,000.
  • Small firms (10-49 employees) are owed £141,000 on average. One of these contractors is owed £800,000 by Carillion.
  • Medium-sized businesses (50-249 employees) are owed on average £236,000. One of these firms is owed almost £1.4m.
  • Large businesses (250 employees +) are owed on average £15.6m. This figure includes Balfour Beatty’s £45m loss from joint ventures with Carillion.
  • BESA and ECA have met with liquidator PwC and the Government. PwC said any private sector work undertaken by Carillion suppliers before 15 January this year would be unpaid. Instead, it would be treated as ‘unsecured debt’, and placed at the back of the queue behind other creditors.

    “We knew the fall-out from this seismic episode would be extremely serious, but these figures give us a clearer picture of just how hard our sector is going to be hit in terms of the thousands of pounds of unsecured debt that will be lost by ordinary hard working small businesses, jeopardising their future and the future of their staff,” said BESA President Tim Hopkinson.

    “These findings underline the need for concerted action from the Government and banks to protect and support SMEs in the construction and services sector. The Government should also introduce legal measures to ensure SMEs are not continually exposed to upstream insolvency,” commented ECA director of business Paul Reeve.

    Both ECA and BESA have long called for reform to unfair payment practices within construction. Carillion was widely known to take over four months to pay suppliers, despite 30-day payment being industry good practice. To tackle this slow payment, the two trade bodies are calling on the Government to pay small and medium-sized businesses directly, using ‘project bank accounts’.

    BESA and ECA are also supporting a Bill tabled by Peter Aldous MP, which is currently going through Parliament. The Bill will prevent clients and main contractors, such as Carillion, from using their own accounts to store money held back from suppliers in case of defects – instead, ring-fenced independent accounts would be used.

    “The Bill was developed precisely with just this kind of nightmare scenario in mind,” said BESA President Tim Hopkinson. “We are aware of the frantic attempts going on behind the scenes to rescue Carillion’s projects and switch them to other contractors, but unless retention money is protected – there is a danger that the problem is just being moved to another place and that SMEs will remain equally vulnerable.”

    ECA and BESA are calling for the following five-point action plan:

  • Any SME contractors already working on Carillion projects should be allowed to continue on these projects and be paid directly.
  • The UK Government must actively support the Peter Aldous Bill on retentions and ensure it is allocated enough Parliamentary time to progress.
  • Major public sector suppliers like Carillion should be precluded from winning any further contracts unless it can prove it pays its supply chain promptly.
  • Major corporate public sector suppliers like Carillion worthy of their own Government account managers, and who rely on SME supply-chains for successful delivery, must be made to implement transparent supply-chain payment systems, statutory public sector payment requirements, Project Bank Accounts and no retentions, throughout the supply chain.
  • Government must monitor and enforce the public sector 30-day payment supply chain model as opposed to Carillion’s own 126-day payment terms, which leaves thousands of SMEs struggling for cash flow to pay staff and suppliers.