CU1801

COMMENT
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Comment
Carillion - the bubble has burst
by David Chadwick
There will hardly be a company in the
construction industry left untouched by
the demise of Carillion. It will impact the
thousands of contractors who will not now
be paid for work done on one of the many
projects that Carillion farmed out, the
contractors working on projects that will
be shelved or put into abeyance, not to
mention the companies that will pick up
the maintenance contracts for schools,
hospitals, prisons, etc. More still will feel
the wind of stable doors slamming shut
long after the many horses have bolted.
The laxity in rules, regulations and
oversight allowing one of the largest
contractors in the construction industry to
take the government and its
subcontractors to the cleaners will be the
focus of a turbulent 2018, and calls for
action will grow as the crisis deepens and
those caught up in look for help.
It has been suggested that the changing
role of Carillion, focusing on the
outsourcing of tenders won by the
company rather than concentrating on
managing the projects themselves, led to
this situation. If you look deeper into the
mechanics of such a business
philosophy, you will soon realise that the
expertise needed within such an
organisation has more to do with the
winning of tenders rather then the actual
management of successful construction
and asset maintenance projects.
Moreover, the success of individuals
within Carillion depends on contracts won
and farmed out to subcontractors, a role
substantially enhanced by the apparent
clout of the company.
The problem is that projects will be
taken on with less and less
understanding of their value, complexity
and cost, and newer markets will need to
be found in areas where the company
has little or no experience, such as
cooking school meals. There will be
failures, missed deadlines, budget
shortfalls and resourcing problems when
contractors don't get paid - but the
shareholders will be happy as they see
the value of the projects increase on a
regular basis, and the CEOs and other
principals are suitably rewarded. A
magnificent Ponzi scheme.
The Government says that it pays its
principal contractors, i.e. Carillion, on time
and can't understand why such payments
have not been handed on to the
subcontractors who are actually doing the
work. That boils down to a serious
amount of money being held up in an
organisation to feed its sales teams,
contract managers and others, rather
than filtering down to the construction site
to pay for the employees, the building
work being carried out, the materials
being sourced, and the management of
the project itself.
Over the next few years there are going
to be calls for more government
intervention, greater oversight, and
massive handouts to keep businesses
going and public services adequately
maintained. Companies engaged in
similar practices will come under greater
scrutiny, and may need to reassess their
business philosophy.
You might think that this comes under
the heading of 'unfortunate timing'. The
construction industry is already facing
problems in many areas after all, with the
uncertainties of Brexit, the lack of
affordable housing, falling house prices,
skill shortages and so on. The
construction industry is going to take
centre stage for a while, as the most
appropriate stick for beating the
government with - hence the decision to
pre-empt the furore by 'investigating the
'fat cats' within Carillion.
4 January/February 2018