Frank Field: Carillion ‘hoodwinked’ government

7 Jun 18

The construction firm Carillion “hoodwinked” the government by publishing misleading accounts, according to the chair of the work and pensions committee.

Frank Field was speaking after publication of a National Audit Office report indicating that the government and taxpayers will now foot the £148m bill following the group’s collapse.

“This invaluable report adds new weight to what we found: Carillion hoodwinked the government as they did many others who were so naïve as to trust their published accounts,” Field said.

At the time of its liquidation, Carillion had about 420 contracts with the UK public sector, accounting for a third of its total revenue, the NAO has found.

The Cabinet Office has already provided £150m to help finance liquidation, although the NAO says in its report into how the government handled the collapse that the final overall cost will take time to establish.

The report said: “Carillion’s non-government creditors are unlikely to recover much of their investments, and the company’s extensive pension liabilities, totalling £2.6bn as of 30 June 2017, will need to be compensated through the Pension Protection Fund.”

The Cabinet Office began contingency planning for the possible failure of Carillion shortly after the company posted its first profit warning in July 2017, which came as a “surprise” to the government.

Carillion’s 2016 accounts had been published in March 2017 and showed the company as profitable and solvent.

The government raised Carillion’s risk rating from amber to red in September 2017, but failed to give it a black rating – the highest risk rating possible – after a further profit warning in November because Carillion said this would “risk precipitating its financial collapse.”

The NAO report stated Carillion announced £1.9bn of new government work after the July 2017 profit warning.

The supply chain costs of the collapse will be “significant” according the NAO, as 31 of Carillion’s 198 companies are in liquidation.

Amyas Morse, head of the NAO, said: “When a company becomes a strategic supplier, dependencies are created beyond the scope of specific contracts.

“Doing a thorough job of protecting the public interest means that government needs to understand the financial health and sustainability of its major suppliers, and avoid creating relationships with those which are already weakened.

“Government has further to go in developing in this direction.”

Rob Whiteman, chief executive of CIPFA, said the collapse of Carillion had left the government “asleep at the wheel.”

“Outsourcing has an important role to play in delivering public services and many contractors do provide value for money, but without intelligent commissioning and careful ongoing contract management we open ourselves up to expensive mistakes.”

He added: “One specific area that must be better understood by the public sector is contract valuation. In an age of austerity where contract prices are often forced to their lowest level, questions need to be asked about the sustainably of this model.” 

A Cabinet Office spokesperson said: “Throughout this process, the government has been clear that its priority is to ensure that public services continue to run smoothly and safely.

“The plans we put in place have ensured this, and we continue to work hard to minimise the impacts of the insolvency, having safeguarded over 11,700 jobs to date.”

Further comment on NAO report:

Rachel Reeves MP, Chair of the BEIS Committee: “Carillion was the gift that kept on giving – for the Big Four, at least, as they raked in millions for their audit and other work.

“The collapse of Carillion was a catastrophe for those who lost their jobs and the small businesses, contractors and suppliers left fighting for survival.

“The company’s failure has left the taxpayer with a bloody nose too as we are all left on the hook for the vast sums needed to clean up this mess

The Committee Chair, Meg Hillier MP: “Today’s investigation throws up a number of issues which PAC will explore further as part of our Strategic Suppliers inquiry later this month.

“The collapse is expected to cost the taxpayer more than £148 million and the effect on supply chain businesses and Carillion staff underlines the human impact of such a collapse.”

Tim Roache, GMB general secretary: “Carillion held £1.7 billion of public contracts, but this report suggests that ministers were working for the company, not the other way around.

“The same corporate bosses who are responsible for Carillion’s failure pocketed millions while going cap in hand to the taxpayer, begging for help to prop up their failing business model.”

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