What caused the Carillion collapse?
If you follow the news you’ll probably be aware of the Carillion collapse, which has resulted in the UK’s second-largest construction company buckling, due to a colossal £1.5 million debt pile. Despite numerous discussions taking place between the company, its lenders and the government, nothing could be done to save Carillon, who employ around 20,000 in the UK and even more abroad.
So, where did it all go wrong for Carillion and what exactly caused this epic collapse?
Who are Carillion?
Carillion is a company that specialises in construction but also deals with management and maintenance. The firm has a plethora of experience on large private sector projects such as the Battersea Power station redevelopment and the Anfield Stadium expansion, both of which have contributed to the corporation becoming a household name.
While Carillion does work on private sector projects, it is perhaps best known for being one of the largest suppliers of services to the public sector. One of the company’s most notable achievements is being part of a consortium that holds a contract to build part of the forthcoming HS2 high-speed railway line, and it is the second largest supplier of maintenance services to Network Rail. Furthermore, Carillion also maintains 50,000 homes for the Ministry of Defence, manages nearly 900 schools and manages highways and prisons.
Just this week, the BBC announced that the collapse of Carillion will lead to the delayed opening of Liverpool’s new Royal Hospital. A spokesperson for the BBC confirmed that it will be unlikely that the £335 million infrastructure will be completed in 2018.
What went wrong for the firm?
Carillion employs 43, 000 staff globally, and a large company like that is often not as averse to taking risks as smaller ones might be.
It has been suggested that the company overreached itself and was drawn into a number of risky contracts, such as the new Midland Metropolitan Hospital, that didn’t pay off in the way that was initially expected.
Carillion were facing payment delays in the Middle East that hit its accounts hard, causing them to issue three profit warnings in five months and wrote down more than £1bn from the value of contracts. These actions meant that it was much harder for the company to manage its huge £900m debt pile and £600m pension deficit.
Why does the collapse matter so much?
The failure of Carillion is significant because the company is such a large supplier of goods to the public sector, meaning that massive disruption could be set to take place. Furthermore, a lot of jobs hang in the balance and there is potential for redundancies.
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