Why did Carillion collapse and what happens next, asks Kalyeena Makortoff.

What does Carillion do?

CARILLION is one of the UK’s largest construction companies – employing about 43,000 staff globally including 20,000 in Britain – and is known for having worked on the Royal Opera House, the Channel Tunnel, Tate Modern, and the famous doughnut building of the UK’s Government Communications Headquarters (GCHQ) in Cheltenham.

But the Wolverhampton-based company also offers many outsourcing services for the public sector, with contracts to provide school dinners, maintain and operate buildings and estates, security and housekeeping, as well as cleaning and catering at NHS hospitals.

Why is Carillion in so much debt and how did it get this bad?

CARILLION – which reported half-year losses of £1.15bn – was struggling under nearly £900m of debt and last year reported a £587m pension deficit. The company was forced to issued a string of profit warnings in 2017, after a review of its construction contracts found them to be much less valuable than previously thought, resulting in a £845m write-off.

It prompted the resignation of chief executive Richard Howson, who said the group needed to bolster its balance sheet and was struggling to stay within its borrowing limits.

In December, the firm struck an agreement with its lenders to defer a crucial financial covenant test, but failed this past week to secure more money from banks and the Government that would help keep it afloat.

Neil Wilson, senior market analyst at ETX Capital, said: “This was a case of bad management and pitching for contracts at any price, but the Government and banks could, or maybe should, have done more.”

Why did the Government fail to provide funding?

CARILLION is believed to have asked the Government to provide funds of £20m to help it secure more money from the banks and avoid going into liquidation, but it is understood that ministers were unwilling to offer financial support.

While the Cabinet Office has declined to comment, there are questions as to whether this was an issue of perception, as funding would look like the Government was bailing out yet another private firm.

What upcoming projects is Carillion involved with?

THE HS2 high speed rail project was one of the most high profile on Carillion’s plate, though it held approximately 450 Government contracts involving the Department for Education, Ministry of Justice and Ministry of Defence.

Over the past six months, the troubled infrastructure giant had secured contracts worth £158m to deliver facilities management services at more than 230 military sites across the north of England, Scotland and Northern Ireland, and two Network Rail contracts to upgrade infrastructure in the Midlands.

Are any projects in jeopardy?

A NUMBER of Carillion’s contracts are likely to be put back out for tender by the Government, including HS2, analysts have said. Oxfordshire County Council – which struck a ten-year contract with Carillion in 2012 – has said it will take over the company’s services, which includes delivering schools meals, and promised no child would go hungry as a result of the firm’s collapse.

But there is also the question of how its project partnerships will be delivered despite its liquidations.

For example, construction firm Galliford Try has said Carillion’s collapse has left a £60-£80m hole in a joint venture between the two firms and Balfour Beatty to deliver the Aberdeen Western Peripheral Route road project.

Will anybody lose their job?

THE Government is set to “provide the necessary funding” to maintain public services and told workers to turn up as usual, assuring them they will be paid. While Carillion is set to continue operating “until further notice”, its pending liquidation puts an unclear number of its 20,000 UK jobs as well as international staff at risk.

Those worried about their job have been told that JobCentre Plus “stands ready” to support any affected employees through its rapid response service. Staff working directly for liquidated companies will be entitled to redundancy payments.

Which companies stand to benefit?

BALFOUR Beatty’s rail and highways business, as well as Kier’s highways and telecoms operations could be in line for new work, alongside Serco’s facilities management services.

Those firms – as well as Mitie, Interserve, and Mears – “are likely to form a key part of client contingency/emergency planning” and be “beneficiaries of market share gain,” according to Peel Hunt analyst Andrew Nussey.