A Northumberland MP joined Labour colleagues to ask why the Government awarded contracts to Carillion worth nearly £2billion following the company’s warnings over profits.
Ian Lavery, in his role as chairman of the Labour Party, also raised concerns about what he described as ‘the Government’s unhealthy obsession with constantly rewarding the private sector’ after the multinational company, which was a major government supplier with a string of contracts in departments including defence, transport and health, went into compulsory liquidation on Monday.
He added: “The Conservative Party continually and conveniently ignores the incompetence and failure which the private sector has regularly delivered when attempting to manage public services which belong to the people of the UK.”
In the last six months, Carillion has issued three profit warnings. During the same period, the construction giant was awarded three government contracts worth nearly £2billion, including for the controversial HS2 project.
David Lidington, the Cabinet Office Minister, said that the Government had only awarded contracts to Carillion with clauses to allow other companies to step in to keep the work going.
The beleaguered company’s most recent involvement in Northumberland was the construction of the Morpeth Northern Bypass, which was successfully completed in March last year.
The £30million project, a partnership between Northumberland County Council and Carillion Civil Engineering, even won an award last year at the Considerate Constructors Scheme National Site Awards.
Meanwhile, Carillion subcontractors in the North East and other small regional firms which might be at risk due to the failure of the construction giant are being urged to seek professional advice at an early stage to help safeguard their futures.
Neil Harrold, chairman of insolvency and restructuring trade body R3 in the North East and a partner with Hay & Kilner Law Firm, is advising firms which are owed money to swiftly assess what impact Carillion’s liquidation is likely to have on their business and ensure they clearly understand their options if they think trouble could lie ahead.
Subcontractors and suppliers are usually classed as unsecured creditors and come behind secured creditors, such as banks and employees in the queue for payment. Such firms are being told to contact Carillion’s liquidator for information on their specific cases.
Mr Harrold said: “For subcontractors awaiting payment for work carried out, there will be an immediate impact on cashflow. They will of course still be expected to pay any outstanding labour or materials costs for the work they have incurred or purchased and make VAT payments due to the crown authorities, which may in some cases include their invoices to Carillion.
“But also in the period ahead, there will also be an impact on their balance sheet. Bad debts and work in progress may have to be written down, weakening the balance sheet strength.
“Even if there is not an immediate insolvency risk, in practical terms this could affect their credit rating, making it harder for them to raise finance or their ability to win future work since in many formal tendering processes, as balance sheets are used as a part measure of their stability.
“Many small subcontractors do not have cash reserves or assets to fall back on, so could find themselves in a vulnerable position.
“It is all the more galling as with this type of work that it can be that the sub-contractor has carried a lot of the risk inherent in the main contract, as is often seen by way of low margins and extended payment terms of 90 days or more.
“Firms which might be at risk should take professional advice as soon as possible and understand what the best option, such as raising finance to overcome immediate cashflow problems, negotiating with their own creditors or even a formal insolvency procedure, might be to secure their future.”