Law firm warns NHS bodies over Carillion collapse

19 Jan 18

Law firm DAC Beachcroft has warned NHS bodies that PFI contracts involving the failed Carillion firm could be at risk even where it was part of a consortium.

In advice for the NHS, the lawyers said where Carillion was part of a larger PFI consortium, the responsibility for replacing it would be governed mainly by the consortium’s contractual relationship with Carillion.

Public sector clients would normally have to consent to any firm chosen to replace Carillion.

PFI consortiums were “likely to be deliberating termination for insolvency-based default on the part of Carillion” but might also face difficult questions from their own lenders, “as the liquidation of Carillion is also likely to trigger events of default under the financing arrangements”.

Meanwhile, Birmingham City Council has called on work and pensions secretary Esther McVey to help businesses in the city, as Carillion was a partner in its main regeneration project the Paradise redevelopment, which would provide 1.8m square feet of office, hotel and retail space.

Council leader Ian Ward wrote: “The primary concern is of course the workforce and supply chain, but Carillion was a key player in a number of major regeneration projects across Birmingham and the West Midlands and we need urgent reassurance that the delivery of those projects will not be affected.

"Major projects such as HS2 and the Metro extension are about the creation of jobs and skills.

“They're about improving the prospects of people across Birmingham and that must not be adversely affected by the mismanagement at Carillion."

In the continuing fall out from the Carillion collapse, the school catering trade body LACA said Carillion had provided 32,000 meals a day to 200 schools in Leeds, Barnsley, Redcar, Oxfordshire, Gateshead and Tameside.

In the health sector, Hospital Caterers Association chair Stewart McKenzie said: “We understand that Carillion’s healthcare portfolio was responsible for preparing more than 18,500 patient meals per day.

“Alongside that, buildings they were responsible for included 200 operating theatres, 300 critical care beds and just under 11,500 in-patient beds. They were also responsible for the new, under construction Royal Liverpool Hospital.”

A report issued yesterday by the National Audit Office on the private finance initiative, and its successor PF2, revealed that the Midland Metropolitan Hospital project in Smethwick was the only one under PF2 to have used an equity funding competition to raise money.

This saw Carillion hold a 50% stake and the government 10%, with other investors accounting for the rest.

Cabinet Office minister David Lidington has told parliament talks were in hand “so that in coming days construction activities can continue without material disruption on crucial projects that the government strongly support”.

See here for DAC Beachcroft's full advisory note. 

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