Carillion Collapse Could Lead to Thousands of Job Losses in U.K.
Posted January 17, 2018 12:21 p.m. EST
LONDON — The fate of thousands of workers hung in the balance Wednesday after the collapse of Carillion, a major construction and services company that has a vast network of subcontractors and reaches deep into many facets of British life.
Work has slowed on a range of Carillion projects, and some subcontractors, unsure if they will be paid or continue working, have begun curtailing assignments. The cracks appearing in Carillion’s sprawling network of services to the public and private sectors amplified fears that its failure could lead to the downfall of other companies that relied on it, putting tens of thousands of people out of work.
The demise of Carillion, which entered liquidation Monday, poses a political as well as economic challenge to the Conservative government of Prime Minister Theresa May, which declined to bail out the company. Even after it became clear last year that the company was in trouble, the government continued to award Carillion major contracts.
“It looks like the government was handing Carillion public contracts either to keep the company afloat, which clearly hasn’t worked, or it was just deeply negligent of the crisis that was coming down the line,” Jeremy Corbyn, leader of the opposition Labour Party, said in Parliament on Wednesday.
May replied that if the government had withheld business from Carillion, “that would be the best way to ensure that companies failed and jobs were lost.”
“We ensured that all but one of those contracts was a joint venture,” she added, meaning that “there is another company available to step in and take over the contract.”
The Insolvency Service, a government agency, said Wednesday that it had halted bonus and severance payments to former Carillion executives.
The Financial Times reported Wednesday that the government was closely monitoring Interserve, another big construction and services company that has struggled financially, prompting a sharp drop in its share price. But Interserve, business analysts and the government all said that concerns about the company were overstated; in a statement, the Cabinet Office said, “We do not believe that any of our strategic suppliers are in a comparable position to Carillion.”
Carillion, with about 20,000 employees in Britain, touched myriad sectors of British life, as well as operating overseas. It managed or co-managed major, unfinished construction projects for the government, like a high-speed rail link among English cities; a hospital near Birmingham; another hospital, in Liverpool; and a highway near Aberdeen, Scotland. Carillion also helped operate an array of government services, including running prisons, delivering school lunches, and maintaining schools and courthouses.
The government has vowed that all public-sector work by Carillion will continue and that the company’s workers on those contracts will be paid, adding that other contractors were being sought to take over those jobs. But the government has said that it could not ensure that thousands of the company’s employees working on private-sector projects would be paid past Wednesday.
“That’s a scandal,” Tim Roache, the leader of GMB, a major trade union, told BBC Radio. He said that the government should ensure a longer period of pay for those workers, while other companies explored taking on Carillion contracts and Carillion employees.
The company had about $1.7 billion in debt and an $800 million pension deficit. By Monday, it had cash reserves of less than $40 million.
Carillion’s subcontractors, who complained that the company was behind on its bills, face being paid only a small fraction of what they were owed before the collapse.
Flora-tec, a landscaping company, said it would lay off 10 workers because it could never recoup most of the $1.3 million it was owed by Carillion.
PwC, also known as PricewaterhouseCoopers, the firm handling the liquidation, has told the subcontractors, who employ tens of thousands in Britain, to continue working for now, pledging that “you will get paid for goods and services you supply” after Monday’s liquidation filing, but that those contracts could be terminated.
“Over the coming days, we will review supplier contracts and we’ll contact you concerning these soon,” it said. But some subcontractors are leery of even the short-term assurances. Shaun Weeks, who runs a cleaning company, told the BBC that it had stopped sending one of its workers to a prison, under a contract with Carillion, until it knew more.
At the construction site of the new Royal Liverpool University Hospital — where activity slowed sharply Monday and some workers reported finding the site locked — work resumed Tuesday, but some subcontractors said they expected delays as Carillion’s obligations were reviewed.