Carillion Collapse – What does it mean for the Construction Industry?

Carillion Collapse – What does it mean for the Construction Industry?

23rd January 2018

The really big news in construction over the past week or so has been the collapse of Carillion, the UK’s leading construction services companies that went into compulsory liquidation on January 15th, sending shockwaves across the construction industry.  Because the liquidation of Carillion has such an immediate impact on so many other main construction contractors, we’re keeping our finger on the pulse and will be keeping our readers up to date with what’s going on with Carillion over the coming weeks.

Carillion, which has its headquarters in Wolverhampton, is the second largest supplier of construction services to Network Rail, the publicly owned company that’s responsible for the rail infrastructure here in the UK.  As a private company, Carillion is commissioned to do work on signalling, laying new track and other infrastructure projects and last year won the contract to build tunnels in the Chilterns for the High Speed 2 (HS2) rail project that will connect Birmingham with London in a bid to decrease the impact of the North-South Divide

Carillion is also a major provider of services to schools in the UK, being responsible for repairing and maintaining buildings and even providing school dinners via its catering arm.  The NHS relies heavily on the company as a provider of facilities management services to the health service with responsibilities ranging from finding and fixing faults in hospital buildings, through providing meals for patients to providing cleaning services in hospitals.  The company is also building the new Royal Liverpool Hospital which will provide more than 600 beds for patient care.  Carillion provides similar services in the UK’s prisons and maintains around 50% of them.

The company is blaming the collapse on unexpected labour and raw materials costs which has led to its contracts being less profitable than originally expected.  This has resulted in share prices reducing around 90% and slashed the company’s market value from around £850 million to just £70 million by the end of last year.  With around 20,000 employees here in the UK and a further 23,000 around the world, the collapse of Carillion has placed a lot of jobs at risk. 

The company has entered liquidation, rather than administration, which means that there’s no chance that another company will buy its assets, not great news for its employees.  However, with the government pledging to injecting the necessary funding to keep the public services provided by Carillion running, all employees are being advised to show up for work as usual.  Employees of Carillion who are still in work will be transferred to the state’s Pension Protection Fund for collapsed companies, which will result in an instant 10% cut to their future retirement entitlements.  Carillion employees who have already retired will continue to receive their full pension entitlements but annual increases may be lower than previously promised.

Carillion’s collapse has serious implications for the UK construction industry as a whole and industry pundits are warning that this should be an important lesson for government that big is not always best when it comes to awarding public sector work.  This may just be the right time for smaller construction companies to take advantage of a gap in the market and turn Carillion’s misfortune to their own advantage.  We will keep you updated with any new developments as they occur.