With the likes of Carillion and Interserve both flagging up problem contracts and write-downs, small and medium-sized businesses have begun looking over their shoulders to assess their liability.
Carillion’s response to concerns from subcontractors worried about being paid is laughable. “We value the close relationship we have with our suppliers and we continue to be committed to business as usual with all of our partners,” it declared with the doubtful authority of an embattled football manager trying to reassure disgruntled fans. The manager in question is interim chief executive Keith Cochrane who has already admitted that Carillion’s problems could take years to resolve. With a £1bn write-down and analysts pointing to the company needing up to £800m just to fix its balance sheet, can we be forgiven for pointing out that this business is anything but usual?
Honest, hardworking and otherwise financially sound subcontractors working with Carillion are more than a little worried. Rudi Klein, head of the Specialist Engineering Contractors’ Group and a man who has been banging the late payment drum for more than two decades, reports that the members of his subbie trade body are already feeling the pain. He accuses Carillion of “looking for reasons not to pay”, and tells of firms shouting about increased incidences of money being held back.
The fear is that this issue is embedded in Carillion’s contracting practices and is a deep-rooted cultural problem that is only going to get worse. With the likes of Carillion and Interserve both flagging up problem contracts and write-downs, small and medium-sized businesses have begun looking over their shoulders to assess their liability. And little wonder: when large, dominant contractors fall ill, everyone connected to them is in danger of catching a cold.
With a £1bn write-down and analysts pointing to the company needing up to £800m just to fix its balance sheet, can we be forgiven for pointing out that this business is anything but usual?
It’s bad enough in the good times. After all, Carillion has £400m tied up in a supply chain financing scheme under which many suppliers have to pay small charges simply to be able to access their money in less than 120 days. That really does epitomise the spirit of partnership, doesn’t it?
Clients will have their say in this matter too, of course. And notably, the government, which has a bit of a headache due to the number of long-term infrastructure and services contracts it is committed to with Carillion. The bottom line is that the government cannot afford for Carillion to fail and it knows it. But, as a client and as a regulator, it needs to get its story straight. While the Cabinet Office publicly remains supportive of Carillion’s restructure and inevitably “looks forward to the progress updates”, the reality is that officials are probably sat in a dark room with a bottle of red desperately looking for a plan B while rewording their holding statements.
The Department for Business, meanwhile, says it is fully committed to prompt payment for supply chains and is taking a number of steps to support businesses caught up in the mess of the industry’s payment methods. This support will be tested during its consultation on retention payments within the review of the Construction Act’s amendments which no doubt will involve wading through a basket of PowerPoint presentations from Rudi Klein and umpteen other trade associations.
The bottom line is that the government cannot afford for Carillion to fail and it knows it
But back in the real world your average mid-sized M&E contractor in Grimsby is anxious about his cash flow problems and getting his money on time down the line from the likes of Carillion and Interserve and is only really worried about whether his business faces getting screwed this side of Christmas. So let’s repeat: the one thing this mess most certainly is not, is business as usual. Carillion needs to do more to communicate with and support its supply chain.
A school in a flash
On a more positive note, it is not often we comment on individual smaller projects but what has been achieved at the Kensington Aldridge Academy in west London is nothing short of remarkable. Barely 13 weeks after the school closed due to the devastating impact of the Grenfell fire, a replacement has opened its doors to 780 pupils on a temporary site giving the community a renewed focus and hope. “What has been achieved here is unprecedented,” said Phoebe Leach, Mace’s lead technical adviser on the project. Until the events of 14 June the school had been housed in a multi-million-pound development at the foot of the tower.
This week, we tell the story of how a project team came together, selected a site and designed and built a modular construction building in what is the fastest school ever to be built. Impressive and an example of our industry at its best.