Carillion scandal

Carillion collapse remains disaster for Faslane sub contractors and employees

‘Recklessness, hubris and greed’ – Carillion slammed by MPs, who say directors stuffed their mouths with gold


Base 1

About £2 million worth of a £45 million building contract being carried out at the Clyde Naval Base on the Gareloch was abandoned by sub-contractors who been left high and dry following the financial collapse of Carillion in February.

Armed security at the Base gates at Faslane, pictured right,  was stepped up in the wake of the shock announcement that the contracts and services giant has gone bust.  And that sub-contractors had been left with unpaid bills and forced to make redundancies amongst their workforce. This week, two Commons Select Committees reported that Carillion collapsed as a result of “recklessness, hubris and greed” among directors.  And that these men in suits put their own financial rewards ahead of all other concerns.

The report into the construction giant’s demise spreads the blame between board members, the government, accountants and regulators.

Carillion, which managed huge construction projects and provided government services ranging from school meals to prison maintenance and NHS cleaning, slumped into insolvency in January.

More than 2,000 people have since been made redundant.

The damning 100-page report found that directors prioritised senior executive bonus pay-outs and dividends for shareholders even as the firm neared collapse, while treating pension payments as a “waste of money”.

Frank Field MP, who chairs the work and pension committee, said: “Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners.”

Carillion pic

Construction workers at the Clyde Naval Base.

In a joint statement with business committee chair Rachel Reeves, the pair called for a complete overhaul of Britain’s corporate governance regime, saying the government had “lacked the decisiveness or bravery” to do so.

“Government urgently needs to come to parliament with radical reforms to our creaking system of corporate accountability,” Field said. “British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion.”

The report warned that without corporate governance reforms, “Carillion could happen again, and soon”. The committees also accused the so-called big four accounting firms – PwC, KPMG, Deloitte and EY – of operating as a “cosy club”.

It claimed that KPMG had been “complicit” in signing off Carillion’s “increasingly fantastical figures” and internal auditor Deloitte had failed to identify “terminal failings” in risk management and financial controls, or “too readily ignored them”.

Reeves said the big four, who took £72m in fees in the decade leading up to Carillion’s failure, enjoyed a “parasitical” relationship with companies whose books they were meant to scrutinise.

“They are guilty of failing to tackle the crisis at Carillion, failing to insist the company paint a true picture of its crippling financial problems,” she said. The report recommends that the competition regulator now considers whether the big four accountancy firms should be forcibly broken up to increase competition.

Labour’s shadow business secretary, Rebecca Long-Bailey, and Liberal Democrat leader Vince Cable backed calls to break them up.

Long-Bailey-said: “Millions racked up in debt, thousands of workers losing their jobs and pensions, and supply chain business at risk of collapse, because not only did the corporate auditors fail to hold Carillion’s misbehaving managers to account, but because the government looked on in ignorance at the same time, proceeding to award contract after contract to a firm which had issued numerous profit warnings.

“The breakup of the big four is only the first step. There needs to be a root-and-branch reform of the law in this area.”

Cable said it was time to “shatter this cosy club to create a more competitive, truly diverse market”.

More than 2,000 of Carillion’s 19,500 UK staff have lost their jobs since its demise, although the Insolvency Service has found new employment for 11,618 people.

The company’s failure also saddled the government’s Pension Protection Fund with an £800m liability, its largest ever, while 30,000 suppliers and subcontractors are waiting in vain for £2bn in bills owed by the company.

Creditors have been told they are likely to get back less than 1p for every £1 they are owed.

Taxpayers face at least £150m in clean-up costs, while multimillion-pound hospital projects intended to alleviate pressure on NHS services – the Royal Liverpool University Hospital and the Midland Metropolitan Hospital in Birmingham – are on hold indefinitely.

Carillion Richard Adam Finance Director

Finance chief Richard Adam appearing before the Select Committee.

The report by the two committees placed most of the blame on the company’s “myopic” board, and says the government’s Insolvency Service should consider recommending that they be banned from holding directorships in future. The committees singled out Carillion’s finance chief, Richard Adam, chief executive Richard Howson and chairman Philip Green for particular criticism.

The trio presented themselves as “self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps” including contracts in the Middle East that went sour. In fact, the committees found, the company’s problems were far more deep-rooted.

 “Carillion’s rise and spectacular fall was a story of recklessness, hubris and greed,” the report said. “Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers.

“It presented accounts that misrepresented the reality of the business, and increased its dividend every year, come what may,” the report said, adding that the company’s pension scheme was “treated with contempt”.

“Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses,” MPs on the committees added.

The report named Adam as the “architect of Carillion’s aggressive accounting policies”, which disguised the firm’s financial woes until July last year, when it admitted that £729m of revenues it had previously accounted for were unlikely to be obtainable.

MPs accused him of considering pension payments a “waste of money”, adding that pension trustees who sought increased contributions were “outgunned” by directors. They also criticised Adam’s sale of nearly £800,000 of shares shortly after retiring, a decision they described as “the actions of a man who knew where the company was heading”.

“Despite retiring over a year before Carillion went into insolvency, I am deeply saddened by the events that have since overtaken the company,” Adam said.

But he rejected the “unwarranted conclusions” of the committees regarding his role in the company, saying comments had been “misattributed to me”.

Green, a boardroom veteran and former adviser to David Cameron on corporate responsibility, said he and the board had “always strived to act in the interests of the company and all its stakeholders”.

“Whilst much of the commentary in today’s report fails to understand and accurately reflect the true, more complex picture of events, the committee has highlighted lessons which can be learned by the board, the government and the wider industry.”

The government also came in for criticism for failing to address failures in corporate governance rules that allowed Carillion to become a “giant and unsustainable corporate time bomb”.

The report called for an “ambitious and wide-ranging set of reforms” to overhaul the UK’s system of corporate accountability.

Theresa May promised to “change the way big business is governed” in 2016 during the first major speech of her campaign to lead the Conservative party and the country after Cameron’s resignation. She has since been accused of watering down planned reforms to corporate governance.

It emerged after Carillion’s collapse that the government continued to award large contracts to the firm even after it knew it was in financial trouble.

The Guardian newspaper revealed earlier this year that the government knew in December last year of a plan that could have retrieved £364m from the company but did not push directors to adopt it.

A government spokesperson said: “Our priority has been the continued, safe running of public services and to minimise the impact of Carillion’s insolvency. The plans we put in place have ensured this. The government wants to see a strong and varied supplier base where companies of all sizes benefit from long-term and stable government contracts.

 “That’s why we have recently announced a number of measures to support government suppliers – strengthening our commitment to prompt payment; protecting staff, businesses and small suppliers from irresponsible directors.

“We welcome the report from the joint select committee and will respond fully in due course.”

When the news of Carillion’s collapse broke at Faslane sub-contractors, who were face receiving no money for completed work and materials, dismantled items and equipment they had already installed.

They were spiriting them away from the nuclear submarine establishment when security was stepped up to prevent this.

“We are never going to see a penny of what we spent on this job. It’s a disaster for us,” one workman said.

A Base spokesperson said at the time: “Although we do not comment on individual security arrangements at HMNB Clyde, we can confirm that following the liquidation announcement, the Carillion site at the Naval Base was made safe and secure with sub-contractors allowed escorted access to retrieve their tools and personal belongings.

 “The value of the Carillion contract at HMNB Clyde was some £45M and is estimated to be 90 per cent complete.  Interim arrangements are in place to provide the services which Carillion had provided to the Base.”

One journeyman, working for a sub-contractor, told The DEMOCRAT: “We were only taking what was ours, our tools and some of the expensive moveable items we put there and for which we will never get paid.

“It’s not Carillion who are the sufferers here. It’s the people like us, much smaller companies who have taken on the work who have taken the brunt of this. Something needs to be done about this – and done now.”

Leave a Reply