‘They’re loss-making so why take them on in current guise?,’ says chief executive Haydn Mursell
Kier has said it wouldn’t rule out completing Carillion’s work to build the new hospitals in Liverpool and the West Midlands which helped send the firm under – but only if the current terms and conditions were torn up and redrawn.
Work on the Royal Liverpool University Hospital and the Midland Metropolitan Hospital in Smethwick, worth a combined £700m, ground to a halt after the firm went bust last Monday.
The two jobs, along with a third PFI contract, a scheme to build a bypass around Aberdeen, blew a £375m hole in Carillion’s UK accounts when it announced a group-wide £845m writedown last July.
Kier chief executive Haydn Mursell said the firm had been in touch with liquidator PwC about taking over a number of Carillion jobs – including the two hospital schemes.
But he said he had told PwC that replacement contractors, including Kier, would not step in and take over the jobs simply because NHS trusts wanted them finishing.
“Carillion have been clear these are loss-making contracts so why would you adopt them in their current guise? It comes down to what the client’s priorities are.
“Is their priority to get them built on time, or about the lowest cost that would drive you down that re-procurement route? They have to work out whether it is a value-based or time-based decision and at the moment that decision hasn’t been made.”
He added terms needed to change to attract contractors’ interest: “I have made it clear to PwC on a number of occasions that on the right terms and conditions, and subject to a relevant amount of diligence, I would be happy to have a discussion.
“We haven’t yet discussed terms with the government or PwC on the hospitals in particular and until that starts, it’s difficult to say how that will play out but we would stick to our risk disciplines.”
He said PwC was still going through the “hundreds” of contracts Carillion was managing and added: “It is taking them time to get to grips with everything. It is about them getting their hands around it before dealing with contract allocations.”
Mursell (pictured), who this morning in a trading update said Kier is on course for double digit profit growth during its current financial year, is the first boss of a major quoted contractor to break their silence on Carillion’s collapse and admitted he was shocked the firm went under.
He added: “I was surprised…Everyone would have suspected there would have been some positions in Carillion that were challenging but to then translate that into a company going into liquidation is quite a bold leap. Nobody had predicted that to happen as nobody had envisaged the £1bn profit warning.
“That level of scale couldn’t have been forecasted. You would assume that sort of thing would have come out earlier because you can’t build up that scale that quickly.”
He said Carillion’s downfall could in part be traced back to taking on jobs loaded with risk during the recession.
“In the depths of recession, which is when a lot of Carillion’s higher profile contracts would have been bid for, if you are overly focused on revenue, then you can be taking on risks that are inappropriate.
“Those will eventually come back to haunt you and we have seen that play through for the sector following recession but for Carillion at a much greater extent.
“You have two choices in a recession – either let your business shrink and go through unfortunate activities around reducing the workforce or chase revenue. If you choose the latter, you will have projects that will hurt as the supply chain and pricing creeps back up and the economy improves, and you have a fixed price contract with the client.
“You need to keep a temperature check of what is going on. I’m not sure that existed in Carillion.”
Earlier this week, Kier said it would take on more than 200 Carillion staff it had been working in joint venture with, including two HS2 contracts to dig tunnels in the Chilterns between London and Birmingham and is keen to take on more.
He added: “All the people at Carillion are good operators and that is why we entered into JVs with them.
“The fact the balance sheet fell over doesn’t have a direct reflection on those operational teams. I’m very keen to maintain the experience and track record of all of those people if and when we can.”