Carillion: what went wrong and where does it go from here?

The construction firm Carillion, which is involved in a host of major government projects including HS2, has gone into compulsory liquidation.

What went wrong for Carillion?

Carillion relied on large contracts, some of which have proved much less lucrative than it expected. Last year it slashed the value of them by £845m, of which £375m related to public-private partnerships (PPPs) such as Royal Liverpool university hospital.

As its contracts underperformed, its debts soared to £900m. The company needed a £300m cash injection, but the banks that lent it money refused to put more in. The government also refused to bail it out. That left the company unable to continue trading, forcing it to go into liquidation.

Why liquidation and not administration?

Administration aims to help a company repay debts to avoid insolvency if possible, while liquidation is the process of selling all assets before closing down the company completely. Carillion is likely going straight into liquidation for two reasons. First, it does not even have enough cash to keep trading during an administration process and secondly because the public services run by Carillion need funding from the government to carry on and only the official receiver, who oversees liquidations, can deal with such payments.

The Cabinet Office minister, David Lidington, has promised an orderly process, avoiding a fire-sale of assets. Shareholders will get nothing.

Who is handling the liquidation?

David Chapman, a civil servant working for the Insolvency Service, has been appointed as liquidator. He is being advised by six “special managers” from accountancy firm PricewaterhouseCoopers. They will take over the day-to-day control, selling assets, dealing with creditors’ claims and investigating the cause of failure. The directors will no longer be involved. The costs of the liquidation are paid from the assets.

What does it mean for staff? Will they get paid?

Government will continue to pay those among Carillion’s 19,500 UK staff who work in public sector jobs, such as NHS cleaners and school catering. But workers who provide services to private-sector firms face having their wages stopped on Wednesday unless another employer steps in.

What does it mean for jobs?

Up to 43,000 jobs are at risk worldwide at Carillion, including 19,500 in the UK. Some employees will be moved over to other contractors, particularly where they are working on state contracts, such as HS2 and Crossrail. Lidington said some public services would be taken in-house while others would be handed to rivals. Some of Carillion’s small business suppliers are also now at risk, jeopardising more jobs.

What does it mean for Carillion trainees?

The Construction Industry Training Board said it would step in to secure the future of Carillion’s 1,400 apprentices, offering grant and apprenticeship transfer incentives to other employers. It is hoping to place the first trainees with new employers by Thursday.

What happens to the company’s contracts?

Lee Causer, of the accountants Moore Stephens, said customers would have clauses in their contracts that allow them to break the deal if Carillion became insolvent. While some customers may have contingency plans, delays in delivering projects appear inevitable, along with disruption in the supply chain.

What about subcontractors?

They could face big problems. As many as 30,000 small businesses are thought to be owed money by Carillion. Causer of Moore Stephens said: “Carillion’s collapse could trigger a number of insolvencies across the construction sector, in an industry that already experiences the highest levels of insolvency per year in the UK. The ramifications of the failure of Carillion could be huge.”

What does it mean for school dinners?

The government has promised to provide the cash necessary to maintain public services provided by Carillion staff, subcontractors and suppliers, ranging from school dinners to managing hospital operating theatres and maintaining prisons. Oxfordshire county council put firefighters on standby to ensure local schoolchildren would get fed if Carillion workers didn’t turn up.

What will happen to the pension fund?

Carillion has 13 pension schemes with a total deficit of £580m, but the liability will balloon to more than £800m because the firm no longer has a solvent business behind it. The Pension Protection Fund (PPF) will take over. The PPF has a £6bn surplus, socan cope with this hit.

Will pensions be covered in full?

People who have already retired will receive their pensions in full, but those yet to retire will see cuts of 10-20%. Higher earners may be affected a PPF cap on payouts, which currently is £34,655.05. However employees with more than 20 years’ service can receive more. The PPF assessment procedure could take months or even years.

Where can employees get help?

Anyone worried about their pension should ring the Pension Advisory Service (TPAS) on 0300 123 1047 for free guidance. TPAS has also set up a special helpline number for members of Carillion’s pension schemes: 020 7630 2715. Employees can also contact JobCentre Plus through its rapid response service.

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