[News] Carillion...what would you have done?

[Dave the OAP]

I was listening to a very interesting call on the radio yesterday and a lot of people made very good points, but one particular lady raises a very interesting point that hasn't really been answered.

The scenario is that carillion had been in trouble for a while and was dependant on the support of the banks. So it was obvious it was teatering....they were paying people between 60 and 90+ days to keep money in the business and to service their debts. They hadn't paid VAT and PAYE deducted for many months and were under negotiated payment plans.

So, the government has a set of contracts that carillion had bidder for and were the cheapest ( remember we are in austerity and everyone wants something as cheap as possible) So to keep the company going and as they are running the country's biggest developments, would it have been economically practicle of the government to award the contracts elsewhere and let the company go six months ago, or was it pragmatic that they thought that if the contracts were awarded, at least it could keep the company going and people would remain in employment?

So, and I suppose it depends on your politics, but what would you have done if you were in government. Would you have tried to help the company out by continuing support and awarding contracts and extensions to contracts, or would you have cut them loose and seen them crash and burn earlier than now?

 

[Beach Hut]

Any UK Government should try to help otherwise people losing jobs means no tax collected and paying out benefits if people are unemployed

 

[DavidinSouthampton]

Tending towards the crash and burn argument.

But if the government were aware of their precarious position, and I would hope they were through due diligence and the like, could they not have found some way to work with them to get through it. At the very least they should have questioned (probably did?) how the senior management deserved such big salaries when they were not actually performing, or more to the point how they were finding themselves able to pay out big shareholder dividends when they obviously could not afford to.

I am very happy that they are fast-tracking the investigation in to the dealings of the Directors, but also aware that vast numbers of people all over the place are going to be hurt by the knock-on effects of this. There was mention on the BBC website yesterday of a garden design compamy which is owed £800,000 by Carillion and has just had to make 10 people redundant.

 

[CheeseRolls]

Seems pretty straightforward to me.

You don't award contracts based purely on price and need to consider ability to execute. Carillion's track record on delivery may have stood up to scrutiny, but a cheap bid from a company in financial difficulty should have been flashing red on the risk register.

From a free market perspective the government has no role in propping up failing businesses.
From a planned economy perspective, the objective is to transfer risk from government to commercial organisations. If government ends up paying a premium and then acts as ultimate guarantor when the business fails, you have to question the benefit of the strategy.

 

[Herr Tubthumper]

I would have gone elsewhere. Keeping a private company afloat by awarding it contracts is corrupt; I can only assume there are some Tory donors on the board at Carillion. I would have worked with them to resolve the outstanding Government contracts though. And as it was obvious they were struggling some time ago so I would have ensured that, if I helped them, in return dividends and bonuses would cease. Easy if you’re not spending all your time and resources on the folly of Brexit.

 

[Hamilton]

Maybe worked within my means?

 

[GreersElbow]

I would want to know what Carillion said the government after their first few profit warnings, because the government would surely have needed reassurances on their financial state. I would also want to know if the government had an insurance on the projects, like a business disruption insurance.

What certainly should have been done was cancel all dividends paid out, chase debtors up and a wind down in their middle eastern operations which from what I gather: were atrociously managed.

The FT had a great article on it yesterday, suggesting eventually Carillion begun operating like a ponzi scheme - this would ultimately explain the under priced contracts. They would use that cash to pay off old debts and the cycle would continue.

 

[zefarelly]

Much like the BHS scenario. The Directors should be nailed up and their assets seized.

I think that's fair.

 

[Beach Hut]

Have to say the pension deficit is inexcusable

 

[AmexRuislip]

Have to say the pension deficit is inexcusable

I've a couple of mates who will be affected by this issue, been told to keep on working until a decision is made!

 

[Kalimantan Gull]

I would have made the contracts contingent on reforms within the company. Certain debts would have had to be settled, lay-offs made or contracts cancelled where they are costing money. They would have had to change their dividend and bonus structure.

Then I wouldn't have awarded a contract at a price that obviously wasn't sustainable, and would have agreed to certain rises in the contract price for the hospitals and the transport infrastructure projects. Just because a tender is the lowest bid doesn't mean you accept it if you know they cannot do it for that price. So I would have made sure that I employed consultants to give a proper costing and a proper evaluation of the bids, including the state of the company making the bid.

Maybe that couldn't save it, if it was indeed a ponzi scheme that got floored by the failure to pay up by the middle-eastern company. But I certainly would have tried to get it saved without massive state handouts.

I suppose that's what the government tried to do, but as they appear to be the most incompetent government in living memory, I'm not surprised they couldn't get it done

 

[Blackadder]

I would have made the contracts contingent on reforms within the company. Certain debts would have had to be settled, lay-offs made or contracts cancelled where they are costing money. They would have had to change their dividend and bonus structure.

Then I wouldn't have awarded a contract at a price that obviously wasn't sustainable, and would have agreed to certain rises in the contract price for the hospitals and the transport infrastructure projects. Just because a tender is the lowest bid doesn't mean you accept it if you know they cannot do it for that price. So I would have made sure that I employed consultants to give a proper costing and a proper evaluation of the bids, including the state of the company making the bid.

Maybe that couldn't save it, if it was indeed a ponzi scheme that got floored by the failure to pay up by the middle-eastern company. But I certainly would have tried to get it saved without massive state handouts.

I suppose that's what the government tried to do, but as they appear to be the most incompetent government in living memory, I'm not surprised they couldn't get it done

Don't think many could argue with that. We had some pretty poor governments in the 70s (on both sides of the house) but this one is definitely up there.

 

[beorhthelm]

Have to say the pension deficit is inexcusable

pension deficits are technical issues, and may even be the cause of company in financial problems, as they become little more than a host for the pension fund. they are often in deficit on paper while being secure.

general finance management seems to be the problem here, its not unusual for companies to carry large debts if there's large cash flow but that cash flow apparently didn't keep up. government would have due diligence and found the company solvent and would probably risk court action if they denied a contract on basis of an opinion their financial position was not as good as claimed. Also, seems to be overlooked that they were joint bidders on the contract for HS2 i suspect on others too.

the only real lessons is to not have business bid outside areas of specialisation (let builders build not run meals services), and to build contingency into projects (maybe insurance against bankruptcy?). some focus on non-price metrics would help of course but might not be delivered on. more direct involvement of smaller business is also a solution. government makes it difficult through red tape for smaller business to even compete for work, so it goes to the large companies who then sub-contract to the same smaller business anyway.

 

[portslade seagull]

Public company. How much money due you throw into the pit until you admit failure. All taxpayers money as well. The void will soon be filled

 

[B-right-on]

Easy if you’re not spending all your time and resources on the folly of Brexit.

Ah, Brexits fault. Of course.

 

[Simster]

Any UK Government should try to help otherwise people losing jobs means no tax collected and paying out benefits if people are unemployed

Funny that this didn't apply to the miners under Thatch. She just left entire communities to rot and right wingers like you lapped it up.

 

[Two Professors]

Another disaster brought about by reckless lending from the usual suspects,RBS being the biggest this time.Plus incompetent auditing from KPMG for Carillion,and,judging by the sums,D.Abbott for the banks.Apparently,when Carillion took over contracts,it's usual model was to tell sub-contractors they still had a job as long as they took a 20% pay cut.Ran into trouble when they were told to get stuffed!

 

[Pavilionaire]

The scenario is that carillion had been in trouble for a while and was dependant on the support of the banks. So it was obvious it was teatering....they were paying people between 60 and 90+ days to keep money in the business and to service their debts. They hadn't paid VAT and PAYE deducted for many months and were under negotiated payment plans.

What is being described here is insolvency, i.e. the inability to discharge the liabilities of the company as and when they fall due.

Clearly, the company was wrongfully trading, i.e. insolvent but desperately hoping that things will improve even though they continue to spiral downward. In wrongful trading there is no intent to defraud the company’s creditors but merely a case of poor judgement or the failure of directors to carry out their responsibilities.

Indeed, if the company was paying dividends to shareholders and bonuses to themselves whilst wrongfully trading then you're in the territory of fraudulently trading.

Wrongful trading alone can get a company director disqualified for 7 years.

 

[B-right-on]

I would want to know what Carillion said the government after their first few profit warnings, because the government would surely have needed reassurances on their financial state. I would also want to know if the government had an insurance on the projects, like a business disruption insurance.

What certainly should have been done was cancel all dividends paid out, chase debtors up and a wind down in their middle eastern operations which from what I gather: were atrociously managed.

This. I've run my own business in various forms through many ups and downs. When it's been good, I've paid myself well. When it's been tight, I've not.

At the end if the day, those at the top are culpable and should be strung up.

The Government were just blindly throwing contracts at Carillion hoping for the best.

Insanity: doing the same thing over and over again and expecting different results.

 

[Official Old Man]

As a self employed person, what anoys me more than anything is that this company just fold owing billions and all the people at the top just walk away. There are going to be small businesses who cant take the hit of not getting their money and will also go bust. But in their case they will lose everything.